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Haryana local tax illegal, rules HC
Maneesh Chhibber
Tribune News Service

Chandigarh, March 14
In a major development, which could leave the government of Haryana poorer by over Rs 1300 crore, the Punjab and Haryana High Court today ruled that the Haryana Local Area Development Tax (LADT) was unconstitutional.

Disposing of petitions filed by many big manufacturing and trading companies, challenging the legality of the tax, a Division Bench comprising Justice Adarsh Kumar Geol and Justice H.S. Bhalla held that the tax was compensatory in nature and offended Article 301 of the Constitution.

Among the companies that had approached the High Court against the imposing of the tax were Jindal Stainless, Sony India, Tata Teleservices and Faridabad Industries Association.

The Bench also ruled that the state of Haryana had no authority to levy this tax as it did not provide any specific facility on charging the same.

The tax came into effect in 2000 when the Haryana legislature passed the Haryana LADT Act. It was later amended in 2002.

However, the companies had challenged the tax, which resulted in them having to pay at least 4 per cent tax on items entering the state of Haryana, on the ground that it was opposed to the Constitution as it imposed unreasonable restrictions on the free flow of trade.

In December 2001, a Division Bench of the High Court had upheld the validity of the tax, following which the petitioners had approached the Supreme Court.

In the apex court, the issue of constitutionality of the tax was referred to a five-Judge Constitutional Bench.

By its order of April 13, 2006, the five-Judge Bench ruled that any kind of compensatory tax such as LADT couldn’t be levied unless the element of quid-pro-quo was satisfied. The court also held that the tax was reimbursement to a service provider and that it was for the Haryana government to show that it was providing such service for which tax was levied.

“If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce, then Article 301 is violated,” the court held.

Later, on July 14, 2006, a Division Bench of the Supreme Court remanded the petitions back to the High Court, allowing the parties to place the relevant data before the court within two months. The HC was also to deal with the issue of whether the levy was compensatory in nature.

During arguments, the Haryana government filed two affidavits in the court, providing therein the figures of tax collected and its usage. As per the figures, over Rs 1300 crore has been collected by the state in the shape of LADT, and the amount which it could have to return to the companies if the judgment is upheld by the apex court.

A few years ago, the Haryana government had decided to retain 5 per cent of the total amount collected by the Excise and Taxation Department under the LADT as collection charge.

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