A Law Cannot Be Struck Down on Overruled Precedents: Calcutta High Court Upholds West Bengal Entry Tax Act

Single Judge’s Judgment Declaring the Entry Tax Act Unconstitutional is Set Aside - In a landmark decision Calcutta High Court upheld the constitutional validity of the West Bengal Tax on Entry of Goods into Local Areas Act, 2012, overturning a 2013 ruling that had declared the Act unconstitutional. A Division Bench comprising Justice Debangsu Basak and Justice Md. Shabbar Rashidi ruled that the Single Judge’s decision relied on legal precedents that were later overruled by the Supreme Court in Jindal Stainless Ltd. v. State of Haryana (2017).

"The foundation of the Single Judge’s ruling no longer exists in law. The compensatory tax theory has been decisively rejected by the Supreme Court, and the Entry Tax Act must be tested on the correct constitutional principles," observed the Court while setting aside the 2013 judgment.

The case involved multiple corporate entities challenging the legality of the West Bengal Entry Tax Act, 2012, which imposed a levy on goods entering the state. In 2013, a Single Judge of the High Court ruled in their favor, holding the tax unconstitutional on the basis that it violated Article 301 of the Constitution, which guarantees free trade and commerce across India. However, in 2017, a nine-judge bench of the Supreme Court in Jindal Stainless Ltd. overruled the compensatory tax doctrine, which had been the basis for striking down such laws. The State of West Bengal appealed the 2013 decision, and the Division Bench stayed its operation, allowing tax assessments to continue.

"An erroneous legal principle cannot serve as the basis for invalidating an entire statute. The Supreme Court has clarified that non-discriminatory entry taxes do not violate Article 301. The Single Judge's decision, relying on Atiabari Tea Co. Ltd. and Automobile Transport Ltd., cannot stand," the Court ruled.

Entry Tax Act Remained in Force Despite 2013 Ruling: “Stay Order Preserved Its Operation”
One of the key contentions of the corporate assessees was that the 2013 judgment had rendered the Entry Tax Act void, meaning that when the West Bengal Finance Act, 2017 retrospectively amended the Entry Tax Act, it was making changes to a law that no longer existed. The High Court firmly rejected this argument.

"The Act was never obliterated. The stay granted by the Single Judge, followed by the Division Bench’s order allowing tax assessments to continue, ensured that the law remained in force. The premise that the Act ceased to exist is legally untenable," the Court stated.

The corporate entities argued that once a law is struck down, it ceases to have any legal effect. The High Court disagreed, noting that appeals had been filed immediately and interim orders were passed to maintain the law’s operation. Furthermore, the Supreme Court in Jindal Stainless Ltd. had effectively revived all entry tax laws, including West Bengal’s, by rejecting the reasoning upon which they were previously struck down.

"If a statute has been declared unconstitutional based on a legal principle that is later overruled, the declaration cannot stand. The correct legal position must apply," the Bench observed.

The ruling reaffirmed that laws declared unconstitutional by lower courts can be revived if the basis for such invalidation is later overturned by a higher court. In this case, the Supreme Court’s decision in Jindal Stainless Ltd. effectively reinstated the legal foundation of the Entry Tax Act.

Retrospective Amendments in 2017 Are Valid: “Legislative Power Includes the Power to Correct Past Deficiencies”
The Court also addressed the validity of retrospective amendments introduced by the West Bengal Finance Act, 2017, which sought to cure alleged defects in the 2012 law and remove provisions that were previously deemed discriminatory. The Tribunal had struck down these amendments, holding that they could not revive a law already declared unconstitutional. The High Court overturned the Tribunal’s ruling, holding that retrospective amendments are permissible as long as they do not violate fundamental rights or impose an unjust financial burden.

"Legislative power includes the ability to enact laws with retrospective effect, provided they are not unduly oppressive or confiscatory. The assessees have failed to show that these amendments impose an excessive burden. There is no violation of constitutional principles," the Court ruled.

The assessees relied on Supreme Court precedents that invalidated retrospective taxation where it imposed new liabilities on past transactions or withdrew previously granted exemptions. However, the High Court noted that the 2017 amendments merely clarified the law and removed ambiguities, rather than creating new liabilities.

"The retrospective operation of a fiscal statute must be justified by a compelling public interest. Here, the amendments ensure uniformity and prevent arbitrary exemptions. There is no material to show that the retrospective application is unreasonable," the Court held.

Referring to State of Uttar Pradesh v. Indian Oil Corporation (2019) and Jayam and Co. v. Assistant Commissioner (2016), the Court reiterated that fiscal statutes with retrospective effect are valid unless proven to be excessively burdensome or arbitrary.

Allegations of Discrimination Must Be Raised Individually: “A Generalized Challenge Cannot Succeed”
Another major argument put forth by the assessees was that the Entry Tax Act discriminated against goods brought from outside West Bengal, violating Article 304(a) of the Constitution. The High Court rejected this claim, holding that discrimination must be proven on a case-by-case basis and cannot be presumed.

"The Supreme Court in Jindal Stainless Ltd. has already held that entry tax laws must be analyzed individually for discrimination. A general challenge is not sufficient. Assessees who claim discrimination must file specific proceedings with necessary factual evidence," the Court ruled.

The Court clarified that a tax is discriminatory only if it places an unfair burden on goods from outside the state while exempting similar local goods without justification. In this case, the Court found that the assessees had failed to provide specific instances of such discrimination.

"If an assessee believes they have been subject to discriminatory taxation, they must present a concrete case before the appropriate forum. A broad constitutional challenge without supporting evidence cannot be sustained," the Bench stated.

The Court allowed assessees the liberty to file fresh petitions challenging individual instances of discriminatory taxation.

"Entry Tax Act and 2017 Amendments Are Constitutionally Sound"
Concluding its ruling, the High Court issued the following directives:

•    The Single Judge’s 2013 judgment is set aside because it was based on overruled Supreme Court precedents.
•    The Entry Tax Act, 2012 remained in force despite the Single Judge’s ruling, and its retrospective amendments in 2017 were validly enacted.
•    Retrospective taxation is constitutionally permissible, and the assessees failed to show any evidence of undue hardship.
Allegations of discrimination must be raised in individual proceedings, as a blanket challenge cannot be upheld.
"The Entry Tax Act, 2012 and its amendments survive judicial scrutiny. The legal principles applied by the Single Judge were outdated, and the correct constitutional framework must prevail," the Court ruled.

The Court allowed the State’s appeals, upheld the validity of the Entry Tax Act, 2012 and its 2017 amendments, and dismissed all pending writ petitions and tribunal rulings that had struck down the amendments.

"The judiciary must test laws under the correct legal framework. A decision based on obsolete legal principles cannot stand. The Entry Tax Act, 2012, as amended, remains valid and enforceable," the Bench concluded.

Date of Judgment: January 30, 2025