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SC Decision To Uphold State Powers May Increase Dispute With Ecomms

“The judgment of the honorable Supreme Court (SC) would have far reaching effects, as it endorses states’ right to levy entry tax on goods from other states. It will have a significant impact on the ongoing dispute(s) between the ecommerce industry and the states…”

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It’s a lot of seesawing and at least for now the states have the upper hand in the matter.

Mr. Sandeep Chilana is a partner at renowned law firm Shardul Amarchand Mangaldas (SAM & Co.). This is his take on how the 10th November, 2016 SC decision will impact the continued disputes between ecommerce players and state authorities. The law has sometimes sided with the businesses saying it was violating the constitution to impose such entry taxes, but on other occasions it has sided with the state saying it had the right to levy such taxes.

“The judgment of the Supreme Court would have far reaching effects, as it endorses the legislative competence of states to levy entry tax on goods from other states. It will have a significant impact on the ongoing dispute(s) between the ecommerce industry and the states, which centre around the levy of entry tax on goods supplied by ecommerce industry to the customers in other states.

Also, the Supreme Court’s observations with respect to a state’s financial autonomy may impact the harmonious and uniform implementation of GST,” says Mr. Chilana.


States have historically exercised their right to fiscal autonomy and modified their local legislations such as entry tax to suit their requirements. Can you please cite a few examples of this?

Under Entry 52 of List II of the Seventh Schedule to the Constitution, twenty two states have enacted laws that provide for levy of a tax on the “entry of goods into local areas within the state”. For example:

The state of UP imposes entry tax (by UP Entry Tax Act, 2000, later repealed and reenacted in 2007) ranging from 1-5% on various goods such as crude oil, machinery and spares, tobacco, paper, cement, motor vehicles, marbles, laptops, tyres, goods purchased or ordered though online shopping or ecommerce.

The state of Gujarat imposes entry tax (by Gujarat Entry Tax Act, 2001) ranging from 4-20% on goods such as motor vehicles, cement, diesel, marbles, stainless steel products, etc. It also specifically taxes goods purchased online through ecommerce platforms at the rate at which such goods are charged to value added tax in Gujarat.

The State of Karnataka imposes entry tax (by Karnataka Entry Tax Act, 1979) ranging from 1-5% on goods such as electrical and electronic goods, cameras, projectors, watches, furniture, etc.

The State of Kerala imposes entry tax (by Kerala Entry Tax Act, 1994) ranging from 4-25% on goods such as electronic goods, mobile phones, ready made garments, furniture, cement, petroleum products, etc.

As of 10th November, 2016, a 9-judge SC bench has upheld the States’ right to fiscal autonomy in the context of entry tax. How long did it take to reach this decision?

The dispute started in 2000…


The constitutional validity of entry tax legislations has been challenged before different High Courts since year 2000 on the ground that such levies violated right to free trade, commerce and intercourse guaranteed under Article 301 of the Constitution of India.

The courts side with the states

The story starts with Writ Petition (Civil) No. 8700 of 2000 filed before the High Court of Punjab and Haryana that questioned the constitutional validity of the Haryana Local Development Act, 2000. In this case, the High Court upheld the validity of the entry tax levy on the ground that the levy was compensatory hence outside the purview of Article 301.

This order was challenged before the Supreme Court. The 2-judge bench of Supreme Court referred the matter to a larger bench as it noticed certain conflicting observations in the earlier judgments in relation to Article 301.

Some High Courts remove entry tax

So the matter was then brought before a constitution bench of the Supreme Court. The case name was Jindal Stainless Ltd. and Anr. v. State of Haryana and Ors., (2006) 7 SCC 241. This case resolved the conflict. However matters were reverted back to the High Courts to decide whether the levy of entry tax was compensatory in nature. Various High Courts including Assam, Arunachal Pradesh, Jharkhand, Kerala and Tamil Nadu struck down the levies imposed by their respective states on the ground that they were discriminatory in nature hence violative of the constitution.

But the matter is taken to Supreme Court

All these judgments and orders of the High Courts passed after the remand, were challenged by the States concerned before the Supreme Court between 2007 and 2009. These appeals initially came-up before a two Judge bench in Supreme Court which again referred the same to a Constitution Bench for an authoritative pronouncement on as many as 10 questions formulated in the reference order Jaiprakash Associates Limited v. State of Madhya Pradesh and Ors. (2009) 7 SCC 339.

Here the Supreme Court side with the states

The matter was then placed before a 5-Judge bench of the Supreme Court. We are still talking about case Jindal Stainless Limited and Anr. v. State of Haryana and Ors. (2010) 4 SCC 595. This bench in turn referred matters to a larger bench for reconsideration of earlier judgments of Supreme Court on this issue. Following this, a larger bench of 9 judges was formed which started hearing the arguments on the issue from July 19, 2016 and a final decision was pronounced on November 11, 2016.

In conclusion what kind of other issues are ecommerce companies facing at the state-level?

In addition to the entry tax related conflicts, Delhi, Kerala, Karnataka etc. require ecommerce companies to undertake various compliances and filings with respect to the retailers listed on its website.

It becomes an issues as ecommerce companies do not qualify as ‘dealers’, are not directly engaged in the buying and selling of goods, and are more of a platform for the buying/selling to take place.



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