Saturday, July 25, 2009

Karnataka High Court Stikes Down Entry Tax on Motor Vehicles

The High Court on Friday struck down section 4B, 4BB of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979 (click for the PDF version of the Act) which levies entry tax on vehicles purchased outside the state.

While allowing a batch of petitions filed by transport companies and individuals, Justice N Kumar (click for Profile of His Lordship) quashed the notification dated July 26, 2003 which allows for levy of entry tax on vehicles and directed the state to refund the tax collected from the petitioners within four weeks. The court has observed that levying of entry tax on the vehicles was against the concept of globalisation, privatisation and liberalisation. “The economic benefits of development should reach every citizen wherever he lives within the country. The people of the state must sink and swim together. The long-run prosperity and salvation lies in union and not in division,” the bench observed.

Economic unity can be achieved only if the benefits enjoyed by the people in one state are also available to people of other states by demolishing these kind of (levying entry tax) artificial boundaries and barricades. These barricades separate one state from another and so they are not healthy in the present context of globalisation and liberalisation, the bench remarked. The people of both the states benefit from free flow of trade and commerce. Such benefits should be extended beyond the state borders. So neighbouring states must wake up to the hard realities of life and reduce the tax burden on people, Justice Kumar said.


With retrospective effect from January 2000 to March 31, 2003, the finance department had issued a notification dated July 26, 2003 levying entry tax on vehicles. For motor cars, jeeps, trucks, vans and light diesel vehicles, the entry tax was 12 per cent. For three wheelers, eight per cent and for tractors, power tillers and all agricultural equipment, the entry tax was four per cent.

Source - Indian Express

The court admitted a petition filed by Messrs L & T Case Equipment Private Limited and 150 others, seeking to quash the notification issued on levy of entry tax under the section 4 (b) along with 4 (6) (6) of the Karnataka Tax on Entry of Goods into Local Area Act-1999. Accordingly the State had fixed 12 per cent as entry tax on cars, two wheelers, jeeps, trucks, vans, diesel vehicles, eight per cent on three wheelers and earth movers and four per cent on tractors, tillers and agro equipment.

Justice Kumar observed that the makers of the Constitution had favoured free movement and exchange of goods throughout India, which is necessary for the economy and for improving living standards of the country. In his 200-page judgment, he noted that Article 301 emphasises that the economic unity of the country would provide the main sustaining force for stability and progress of the political and cultural unity of the country. Justice Kumar pointed out that in the present context of globalisation, privatisation and free economy, the national boundaries and barriers should be sidelined for the benefit of economic development of the world, "If a state's economy should be prosperous, because of the tax holidays and lower tax rates, it only shows a mature political leadership vibrant tax planning and marshalling resources available in the state. It is worthy of emulation by other states by free flow of trade and commerce from such a state to neighbouring states." The Court directed the State to refund the collected entry tax within four weeks.

Source - Deccan Herald

High Court strikes down entry tax on motor vehicles

BANGALORE: In what could be described as a blow to the State Government, the Karnataka High Court on Friday struck down the provision relating to entry tax on motor vehicles. Justice N. Kumar passed the landmark judgement on petitions by L&T Equipments Private Limited, Lakshmi Constructions, and 100 others.

The petitioners had challenged the constitutional validity of Section 4B of the Karnataka Tax on Entry of Goods into local areas (State) and a notification of July 26, 2003, prescribing the rate of entry on motor vehicles brought from other States into Karnataka. They said Section 4B was included for the first time in the Act with effect from April 1, 1995. This related to tax levied on entry of motor vehicles from outside the State whereas locally manufactured automobiles were exempt from this levy. Subsequently, Section 4B was substituted by 4 BB with effect from April 1, 1995. This meant that almost all categories of motor vehicles purchased outside Karnataka and brought into the State would have to pay a levy of 12 per cent. The levy on tractors was 4 per cent. The State justified the levy, saying that the tax slabs in neighbouring states were on the lower side due to lower taxation rates and tax holidays.

Source - Hindu

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