Constitutional fiat: No Entry 2 Entry Tax

By Prabhakar Timble
16 April 2013 07:01 IST

The entry tax on vehicles entering the borders of Goa created a mild flutter with the opposition by the Belgaum Chambers of Commerce and the groups from the border areas of Karwar and Sindhudurg districts.  Though entry 52 List II of the Seventh schedule to the Constitution of India enables the State to enact law for levy of entry tax into a local area, the proposed scheme of entry tax by the Government of Goa on vehicles from other States violates Article 301 of the Constitution as it does not conform to the parameters for levy of entry tax as provided under Article 304. Any State can make law for imposition of entry tax within the limitations imposed and the same would be perfectly legal. The proposed entry tax on vehicles entering the State fails to satisfy the purposes enunciated under Article 304 (a) and (b). The object of mopping up revenue estimated to be Rs. 50 crore in the current year cannot form as the valid criteria for imposition of entry tax. It could be the end result of the directive and not the justification for invoking the power.

The concessions announced by the Goa government could be viewed as an attempt to quell protest among owners of vehicles from others states over the entry tax.  The reliefs from entry tax announced as an afterthought may reduce the counter-productive fall out as Goa is largely dependent on other States for essential grocery items including fruits and vegetables. This does not remedy the basic unconstitutionality of the directive.

Binding clauses

Article 301 clearly stipulates that trade; commerce and intercourse throughout the territory of India shall be free. This is a binding provision on Parliament and State Legislature. At the same time, Article 302 enables the central and state legislature to enact laws imposing entry tax to further specific purposes and the same would not violate the parent binding obligation of unrestricted movement.  Hence, the proposed entry tax on vehicles of the Goa government needs to clear the qualifying tests enshrined under Article 304.

The State legislature may impose tax on goods imported from other States to which similar goods produced in the State are subjected. The purpose here is to promote fairness to the domestic producers and manufacturers. The domestic goods should not become victims of local taxation and suffer due to unfair competition. The State legislature would be legally sound as the purpose is not to discriminate between goods produced within the State and imported from other States. Such an entry tax would not hit Article 301 of the Constitution. The proposed entry tax cannot be covered under this enabling clause (a) of Article 304.

The State legislature could also impose an entry tax in ‘public interest’. Once it is shown that the enactment invades freedom of trade, it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation satisfy the conditions laid down in Article 304(b). The restriction shall be in public interest and the weight of the restriction should be reasonable. There does not seem to be promotion of any direct or indirect public interest in the present entry tax proposals of the Goa government. The directive does not come clear on the ‘public interest’ sought to be promoted. Further, if a restriction is sought to be imposed under this clause, the procurement of prior sanction of the President is mandatory. Otherwise, the restriction fails to get protection from Article 304(b).

Compensatory cess

If the entry tax of the Goa government is plotted like a cess where the fund mobilized from entry tax will be utilized on designated heads like construction, development and maintenance of roads and bridges, linking industrial areas, cold storage facilities, development and maintenance of transport hubs etc. the proposal could be brought within the constitutional framework and may get the President’s approval.

Therefore, taxes which would otherwise interfere with the unfettered freedom under Article 301 are protected from the vice of unconstitutionality if they are compensatory.  Compensatory tax is offset by service almost commensurate with the tax levied. This is the principle behind entry tax on vehicles plying on newly constructed bridges or four to six lane roads. This is the same logic for levy of entry tax on vehicles entering special zones such as designated forests/reserves, archaeological sites; exclusive townships and tourist neighbourhoods. There is a reasonable nexus between actual or projected expenditure for establishment and maintenance of such facilities justifying the cost of service in the form of entry tax. The compensatory benefit need not be direct or specific to the taxpayers. It could be indirect and also accrue to the general public. However, there needs to be some nexus or connection between the entry tax (cess) and the benefit. The Supreme Court has in a number of decisions laid down these principles to verify whether a particular tax enactment is valid on the grounds of it being a compensatory tax. The concept of compensatory tax is not there in the constitution but is judicially evolved. Some States are charging entry tax well protected and within the limitations of the constitutional provisions. The entry tax (toll) charged by the neighbouring States does not discriminate between vehicles registered in the State and outside. It is for any vehicle which enters a designated area and hence does not hit Article 301. The people and families residing in the close vicinity or command area are provided free access.

The entry tax proposals of the Goa Government violate Article 301 since the directive does not indicate directly or indirectly any quantifiable data on which compensatory tax is sought to be levied. The directive does not facially indicate any measurable benefit even if it is a distant one. The owners of the vehicles are already paying road taxes. The public vehicles are subjected to the State, inter-state and national permits. There is also lack of clarity on whether a State government is empowered to collect tax from vehicles plying on the national highways. Our State government does not allow the Village Panchayats to impose and collect “octroi”. They were also restrained from imposing and collecting house-tax, which now stands restored. However, the same government decides to impose entry tax to augment additional revenue for itself in gross neglect of constitutional provisions.

Illegality ostensible

The entry tax has been held as unconstitutional by High Courts in majority of States. We cannot fragment every State and give liberty to them to levy entry taxes as per their whims and fancies. In the Goa entry tax proposals, the classification of vehicles registered in the State and outside and further classification into those which are registered in border proximity districts and beyond is illogical and impermissible for imposition of entry tax. The proposals are not based on the provisions of Article 304 (a) or (b). The government is infringing the constitutional traffic signal and trespassing into an area where entry is prohibited or is hosting its antenna in a no parking zone.

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Prabhakar Timble

Mr Prabhakar Timble is an educationist and a legal expert. He has served several educational institutions, especially as the Principal of Government College at Quepem, Kare College of Law in Madgao as well as couple of Management Institutes. He was also the State Election Commissioner of Goa.

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