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Notification of the Haryana Tax on entry of goods into Local Areas Act 2008

India

The state government of Haryana has introduced the Haryana Tax on Entry of Goods into Local Areas Act, 2008 ("the Act / Entry Tax Act") vide Notification No. Leg.9/2008 dated April 16, 2008, and shall be applicable with immediate effect. The Act repeals the Haryana Local Area Development Act, 2000 ("LADT Act"), which was declared unconstitutional by Hon'ble Punjab and Haryana High Court in Jindal Strips Ltd. and Anr. v State of Haryana and Ors((2008)12VST149(P&H)) wide order dated March 14, 2007.

Notification of the Haryana Tax on Entry of Goods into Local Areas Act, 2008

Preamble

The state government of Haryana has introduced the Haryana Tax on Entry of Goods into Local Areas Act, 2008 ("the Act / Entry Tax Act") vide Notification No. Leg.9/2008 dated April 16, 2008, and shall be applicable with immediate effect. The Act repeals the Haryana Local Area Development Act, 2000 ("LADT Act"), which was declared unconstitutional by Hon'ble Punjab and Haryana High Court in Jindal Strips Ltd. and Anr. v State of Haryana and Ors((2008)12VST149(P&H)) wide order dated March 14, 2007.

Key features of the Act

Levy of tax

The tax under the Act would be levied on entry of all goods, except goods specified in Schedule A, into a local area for consumption or sale therein, from any place outside that local area, at a rate not exceeding five per cent of the value of the goods, as may be specified by the state government by notification.

Threshold exemption

No liability to pay entry tax under the Act, so long as the aggregate value of taxable goods brought into or received by an importer on their entry into any local area does not, in a year, exceed ten lakh rupees or such other sum as the State Government may, by notification, specify.

However, this threshold exemption shall not apply to an importer who incurred liability for payment of tax under the LADT Act, whose certificate of registration continues to be intact till the time of repeal of the LADT Act.

Deductions permitted

In calculating the turnover liable to tax for a period under the Act, an importer may deduct from his gross turnover during that period:

  • the value of goods specified in Schedule A
  • the value of sugar received from another local area
  • the value of goods which have, without use or consumption; been delivered outside the local area
  • the value of goods which have been subjected to tax once under the Act, either as such or in some other form
  • the value of goods on which VAT has been paid or has become payable to the State
  • the value of plant, machinery, equipment and tools, brought or received on lease for use in manufacture or processing of goods
  • the value of goods brought or received in a local area for resale or for use or consumption, therein, in the manufacture or processing of goods, left in stock whether as such or in different form, lying with him in the local area (except when the certificate of registration issued under the Act is cancelled)
  • however, the value of goods deducted under this clause shall (except when the certificate of registration issued under the Act is cancelled) form part of the turnover for the period immediately succeeding
  • further, the value of plant, machinery, equipment and tools, for use in manufacture or processing of goods, if forming part of the turnover, may form part of the closing stock, if capitalized
  • the value of such other goods as may be prescribed

Haryana Trade Development Fund ("Fund") and constitution of the Board

Per section 3 of the Act, tax collected under the legislation would be utilized exclusively for the development of trade, commerce and industry in the state and also for creation and maintenance of infrastructure.

Section 25 of the Act further provides that the tax levied and collected under the Act shall be credited to the Haryana Trade Development Fund and shall exclusively be used for:

a. construction, development and maintenance of roads and bridges for linking the market and industrial areas
b. construction, development and maintenance of roads linking the markets and industrial areas to railway stations, wherever possible
c. construction, development and maintenance of railway over-bridges
d. providing finance, aids, grants and subsidies to financial, industrial and commercial units
e. creating infrastructure for supply of electricity and water to industries and other commercial complexes
f. creating development and maintenance of other infrastructure for the furtherance of trade, commerce and industry, in general
g. providing finance, aids, grants and subsidies for creating, developing and maintaining pollution-free environment in the concerned areas
h. any other purpose connected with the development of trade, commerce and industry or for facilities relating thereto, which the state government may specify by notification
i. providing finance, aids, grants and subsidies to local bodies and government agencies for the purposes specified in clauses a, c, d, e and f above.

Section 26 of the Act provides for constitution of Board (comprising the Chief Minister as the Chairman and several high ranking government officials as ex-officio members). The Board shall perform the following functions:

  • It shall ensure that the funds generated under this Act shall be utilized exclusively for facilitating trade, commerce and industry in the State
  • It shall identify the areas which require immediate development or maintenance of infrastructure facilities out of proceeds of tax
  • It shall accordingly recommend allotment of proceeds of tax for the purposes specified under the Act
  • It shall recommend changes in the rate of tax in order to keep the levy as per the guidelines issued in this behalf from time-to-time
  • It shall ensure that the proceeds of tax collected under this Act are not much more than the amount actually required for development of local areas

Comparison between the LADT Act and Entry Tax Act

Most of the provisions of the Act are pari materia the provisions of the LADT Act. However, the significant differences between the LADT Act and the Entry Tax Act are summarized below:

Parameters LADT Act Entry Tax Act
Basis of levy LADT Act was applicable only in respect to goods brought into the local area for consumption or use, therein.
The Entry Tax Act imposes tax on entry of goods into local areas in the course of business from outside the
State for consumption, use or sale, therein.

The inclusion of the word "sale" under the charging section of the Entry Tax Act has brought even traders under the ambit of entry tax.

However, under the Act, from the total turnover of goods imported into a local area, goods on which VAT is paid / payable in the State are deductible.

Consequently, traders will not have a tax liability and the implications would be
restricted to registration and other related compliances, eg maintenance of accounts, filing returns, assessments etc. has the exception for petroleum p
Rate of tax The state government was empowered under the LADT Act to notify the rate of tax subject to a maximum of:

  • 20 percent for petroleum based fuels; and
  • 10 percent for other goods

Pursuant to the powers granted under the LADT Act, the state government had notified a general rate of tax of 2 percent on all goods liable to tax under LADT Act (except petroleum-based fuels, which were liable to LADT at a higher rate)
The state government has been empowered under the Entry Tax Act to notify the rate of tax subject to a maximum of 5 percent for all goods liable to tax under the Entry Tax Act (without the exception for petroleum products)
The state government has been empowered under the Entry Tax Act to notify the rate of tax subject to a maximum of 5 percent for all goods liable to tax under the Entry Tax Act (without the exception for petroleum products)

Goods liable All goods except those specified in the Schedule A appended to the LADT Act
All goods, except those specified in the Schedule A, appended to the Entry Tax Act

Schedule A of the Entry Tax Act includes all the goods covered under the corresponding Schedule under the LADT Act except:

  • Cotton seed
  • Gram
  • Sugarcane

Thus, the scope of levy has been extended to the above items also under the Entry tax Act
d to the above items also un
Haryana Trade Development Fund
The LADT Act did not provide for transfer of the tax collected to any fund created for specified purpose(s)
The Entry Tax Act provides that the tax, levied and collected under the Act, shall be credited to the Haryana Trade Development Fund and shall exclusively be used for specified purpose(s) The Entry Tax Act provides that the
Board / regulatory body The LADT Act did not provide for constitution of any official board / regulatory body responsible to ensure that the tax collected under the LADT Act were exclusively used for specified purpose(s)
The Entry Tax Act provides for constitution of a board for performing various functions including to ensure that the tax collected under the Act are exclusively used for specified purpose(s)

Significant observations

Validation of tax collected under LADT Act

Section 33 of the Act provides that all actions taken, rules or notifications issued, and tax levied, assessed, collected or liability accrued under the LADT Act, shall be deemed valid under the Entry Tax Act, as if the Act was in force at all material times. Section 33 further provides that no suit or other proceeding shall be maintained or continued in any Court or before Tribunal or any Authority for the refund of tax paid under the LADT Act.

It is clear from the above-mentioned provision of the Act that any tax paid under the LADT Act cannot be claimed as a refund by the tax-payer. However, what is not clear at this stage is whether in terms of section 33, the state authorities can demand LADT not paid for any reason, for instance, LADT not paid (if any) by the parties to the writ petition disputing the levy of LADT.

Constitutionality of the new levy

Hon'ble Punjab and Haryana High Court had held the LADT Act as unconstitutional on the ground of it being a non-compensatory levy. The state government of Haryana has introduced the Entry Tax Act (which is substantially similar to the LADT Act) by incorporating certain new provisions. In this context, it is relevant to note that the Act provides for the following:

  • Purpose of the Act under Section 3 as development of trade, commerce and industry, as well as creation and maintenance of infrastructure facilities for free flow of trade and commerce in the State
  • Establishment of the Fund exhaustively listing the purpose for which the revenues collected from the levy of Entry Tax can be utilized
  • Constitution of the Board for administration of the Fund

The issue whether the incorporation of the above provisions would make the levy constitutional will have to be seen.

Experience in other states

Re-enforcement of levies, in the nature of entry tax, after the legislation levying such tax having been held unconstitutional by the respective High Courts is not a unique experience for Haryana. Similar instances have been recently witnessed in several other states including Uttar Pradesh, Orissa, Jharkhand where the entry taxes have been re-introduced through new legislations, ordinances, insertions of entry tax provisions into the state VAT legislation etc

Conclusion

With a plethora of judgments given by various High Courts holding the levy of state entry taxes as unconstitutional for the reason of not being compensatory in nature, it appeared that the entry taxes would soon become extinct specie of taxes. However, many state legislatures have expeditiously brought back the entry tax levies by introducing provisions for the utilization of revenue collected therefrom and thus allowing rectification of the flaw, regarding constitutionality of the entry tax legislations, to be indentified by the judiciary. Reaction of the some of the other states, where the entry tax legislation has been held unconstitutional, remains to be seen!
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Contents
Preamble...................................................

Key features of the Act ..............................

Comparison with LADT Act........................

Significant observations ..............................
Conclusion................................................

For more information, contact:
Bobby Parikh, Mumbai
Phone: +91 22 3021 7010
Email ID:
bobby.parikh@bmradvisors.com

Mukesh Butani, New Delhi
Phone: +91 11 3081 5010
Email ID:
mukesh.butani@bmradvisors.com

Abhishek Goenka, Bangalore
Phone: +91 80 4032 0100
Email ID:
abhishek.goenka@bmradvisors.com

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Sujit Ghosh

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