SUPREME COURT ISSUES NOTICE IN PETITION CHALLENGING WEST BENGAL ENTRY OF GOODS TAX ACT

The Supreme Court is set to review the constitutional validity of the West Bengal Taxes on Entry of Goods into Local Areas Act, 2012, as amended by the West Bengal Finance Act, 2017, along with the corresponding Rules and notifications issued under the statute. The challenge pertains to the legality of the Act, which imposes a tax on the entry of goods into local areas in the state. The Finance Act of 2017 introduced several amendments to the original Entry Tax Act, applying them retrospectively, which has been contested by multiple petitioners.

A bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan recently issued a notice in response to a batch of petitions questioning the constitutional validity of the legislation. The notice is returnable by April 22, 2025, indicating that the Court will hear arguments from all parties involved before making a determination on the matter. The petitioners have argued that the retrospective amendments violate constitutional principles, while the State of West Bengal maintains that the tax is necessary for revenue collection. The Court's decision is expected to have significant implications for businesses and trade practices in the region.

“We are of the view that we must look into the issue involved in the matter. Issue notice, returnable on 22-4-2025”, the Court said.

The bench also granted interim relief to the petitioners by directing that no coercive action be taken against them until the next hearing, scheduled for April 22, 2025. This order effectively protects the petitioners from any enforcement measures or penalties under the contested tax provisions until the matter is further examined by the Court.

The original petitioners, including several companies such as Samsung India, had initially approached the High Court to challenge the orders passed by the Tax Tribunal concerning entry tax. They sought a declaration that the State of West Bengal lacked the authority to impose taxes on the entry of goods into local areas when such goods were intended for export outside India. The petitioners argued that such taxation was unconstitutional and contrary to the principles governing inter-state and international trade.

In 2013, a Single Judge of the High Court struck down the West Bengal Taxes on Entry of Goods into Local Areas Act, 2012, holding that the tax imposed was not compensatory in nature. The court observed that compensatory taxes are levied for specific and identifiable purposes, such as providing trade-related benefits, which was not the case here. The judge further ruled that the Act violated Article 304(a) and Article 309 of the Constitution, as it imposed an unreasonable restriction on the freedom of trade and commerce and lacked a valid compensatory purpose.

Following this decision, the State of West Bengal filed appeals before a Division Bench, which granted a stay on the Single Judge's ruling, allowing the state to continue enforcing the Act. During the pendency of these appeals, the 101st Constitutional Amendment Act, 2016 came into force, introducing the Goods and Services Tax (GST) regime. Subsequently, the state enacted the West Bengal Finance Act, 2017, which retrospectively amended the Entry Tax Act, modifying its provisions and attempting to validate the previously struck-down tax framework.

Samsung argued that the 101st Constitutional Amendment did not confer the necessary legislative authority upon the state legislature to retrospectively validate the amendments made to the Entry Tax Act. The company contended that the state lacked the constitutional competence to enact such changes, particularly after the introduction of the Goods and Services Tax (GST) regime.

However, the Division Bench ultimately overturned the Single Judge's decision and upheld the Entry Tax Act, along with the 2017 amendment introduced through the West Bengal Finance Act. Dissatisfied with this ruling, the petitioners approached the Supreme Court, challenging the constitutional validity of the tax and seeking relief from the retrospective amendments.