Tata Steel And 100 Others Win A Crucial Tax Case Against West Bengal

Tata Steel Ltd., Samsung India Electronics Pvt., Birla Tyres Ltd. and over 100 others have secured a significant victory against the West Bengal government in an indirect tax case. The West Bengal Taxation Tribunal's ruling has a message for all state governments—that levies which have been subsumed under the goods and services tax cannot continue, by whatever name called.

Consensus between the central government and states on GST was described as a “grand bargain” back in 2016, Tarun Jain, partner at BMR Legal, recalled. This meant states agreed to discontinue levies subsumed under the GST, and the centre decided to protect revenue by way of compensation, Jain said.

This was done via the Constitution (101st) Amendment Act, 2016 which replaced various central and state taxes such as excise duty, service tax, sales tax, entry tax and entertainment tax with the GST.

The judgment is much celebrated given that it nullifies the attempt of the state to revive an enactment without any appropriate source of power and contrary to a subsisting ruling of the jurisdictional high court, Abhishek Rastohi, partner at Khaitan & Co., said.

In 2013, a single bench of the Calcutta High Court had struck down the state’s Entry Tax Act, 2012. Broadly, on grounds that it doesn’t meet the constitutional test to restrict movement of goods from other states. The West Bengal government appealed this before the division bench, which is yet to pronounce its ruling.

Meanwhile, the parliament approved the constitutional amendment in September 2016 to introduce the GST. It also gave states a year to amend or repeal their existing indirect tax laws to align with the GST.

The West Bengal government used this transitional provision to introduce amendments to its indirect tax law. Via the Finance Act, 2017, the state government retrospectively amended the entry tax law. It essentially-

• Negated the impact of the 2013 single bench order.

• Introduced tax on all types of transfer of stock and goods purchased, transported from one local area to another local area within the state, apart from the goods imported from outside of the state.

Hundreds of companies argued against these amendments before the tax tribunal, saying:

• The state legislature lost its legislative competence to levy entry tax after the 101st Constitution Amendment Act. Subject matter entry tax has already been dropped from the state list.

• Such loss is total and absolute and cannot be revived or revalidated in a detour way under any circumstances.

• The state had increased the number of taxpayers manifold retrospectively which is not only discriminatory but also impossible to implement.

In short, the companies stated that the West Bengal Finance Act, 2017 subjected new classes of assesses to pay entry tax retrospectively, which is unreasonable, unjust, unfair and unconstitutional.

The tribunal found merit in companies’ arguments.

It noted that in July 2017, the Entry Tax Act was repealed via provisions of the West Bengal Goods and Services Tax Act, 2017. The indubitable and undeniable position is that by virtue of the 101st Constitution Amendment, entry tax was omitted, the tribunal said.

The tribunal also dismissed the state’s argument that power of the legislature to repeal is coextensive with the power to enact under the transitional provision in the 101st Constitution Amendment Act. The state legislature cannot be said to have legislative competence to bring in the amendments and validate the entry tax law, the tribunal concluded.

This is a very positive ruling since various other states like Gujarat and Kerala have also created new liabilities under the VAT regime by making retrospective amendments, after agreeing to the GST framework, Ritesh Kanodia, partner at Dhruva Advisors, said.

There will be financial implications of this ruling if the West Bengal government has collected this levy from businesses, Jain said.

It will be a case-to-case assessment, he said.