A five-judge Bench of the Supreme Court decided on Friday to refer to a larger bench the issue of imposition of entry tax on goods coming into jurisdiction of the respective states, involving financial implications to the tune of Rs 30,000 crore (Rs 300 billion).
"We are referring it to a larger bench to decide the issue," the Bench headed by Justice S H Kapadia said.
The Bench said that the Chief Justice of India would form a larger bench to decide the issue.
The Bench was dealing with a batch of over 2,000 petitions, filed by the state governemnts and companies across the country, challenging orders of various high courts giving conflicting judgements on the issue, which involved financial implications to the tune of Rs 30,000 crore (Rs 300 billion).
A Bench headed by apex court Justice Arijit Pasayat (since retired) had referred the matter to a larger bench after which the five-judge bench was constituted.
Many companies had challenged the Madhya Pradesh high court decision upholding the state government's right to levy tax on raw materials and packaging of goods used in the manufacture of the finished products at rates higher than those prescribed under the Entry Tax Act.
The high court had upheld the validity of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam of 1976, an amendment of it in 2004 and the Entry Tax Act of 2006 on grounds that the levy, being 'compensatory in nature', was immune from the challenge.
The companies had contended that as the tax in question was ad valorem in nature, it cannot be compensatory because there can be no relation between the levy based on the value of goods coming into the state for consumption or use and the trading facilities purportedly proposed to be provided to traders.
Along with appeals from Madhya Pradesh, the apex court also referred appeals from Orissa to the larger bench.
The Orissa government had moved petitions against big firms, including Reliance Industries, Bharti Airtel, Tata Refractories, Hindalco Industries and others, challenging the Orissa high court ruling that the levy of entry tax under the Orissa Entry Tax Act, 1999 was unconstitutional.
A batch of cross appeals were also filed by Tata Sponge Iron Ltd, Vedanta Aluminium, Bhushan Steel & Strips and others challenging the imposition of entry tax on the goods entering the state.
The Orissa high court had given the verdict after RIL and others had in May 2006 challenged such levy on grounds that such legislation restricted the free flow of trade and the state was not providing required facilities.
Another batch of petitions filed by the Uttar Pradesh Government against big firms, including Honda Siel Cars India, Xpro India and LG Electronics, have challenged the Allahabad high court's judgment that asked it to refund around Rs 4,000 crore (Rs 40 billion) collected as entry tax from traders.
The Uttar Pradesh government had challenged the high court judgment, according to which there was no material to establish that the amount collected as tax was in proportion to facilities provided to the traders.