On 11 December 2024, the Government of Haryana came up with the Haryana Goods and Services Tax (Removal of Difficulties) Order No. 40/GST-2 (‘ROD’) which introduced set of rules under the erstwhile Haryana Tax on Entry of Goods into Local Areas Act, 2008 (‘Entry Tax Act, 2008’). Pursuant to the ROD, several demand notices have been issued by the Haryana Excise and Taxation department. Crucially, the Entry Tax Act, 2008 had been repealed upon the introduction of Goods and Services Tax regime, creating widespread concern about the legality of the ROD and the demand notices issued thereunder.
In this article, the authors have discussed the history related to the entry tax dispute in Haryana, the questions surrounding legality of the ROD introduced by the Government of Haryana and the present status with respect to the instant issue.
History of entry tax dispute in the State of Haryana
Entry Tax Act, 2000
In the early 2000s, the state of Haryana introduced the Haryana Local Area Development Tax Act, 2000 (‘Entry Tax Act, 2000’) and the Haryana Local Area Development Tax Rules, 2001 (‘Entry Tax Rules, 2001’) for levy and collection of tax on the entry of goods into local area of the state of Haryana. The constitutional validity of the Entry Tax Act, 2000 and Entry Tax Rules, 2001 was challenged before the Punjab and Haryana High Court (‘P&H High Court’) for being violative of Article 286, 301 and 304 of the Constitution in as much as it was alleged to be non-compensatory in nature.
The P&H High Court upheld the validity of the Entry Tax Act, 2001 and Entry Tax Rules, 2001 on 21 December 2001[1]. The decision of the P&H High Court was challenged before the Supreme Court constitutional bench.[2]
The Supreme Court in Jindal Stainless Ltd. and Anr. v. State of Haryana and Ors.[3] (‘Jindal I’) did not rule on the validity of the said entry tax statutes, but laid down certain parameters and guidelines for deciding the vires of the entry tax statutes which inter-alia include: (a) whether there exists a quantifiable data basis which the compensatory tax is sought to be levied; (b) broad indication of its proportionality to the quantifiable benefit; (c) if the provisions are ambiguous, the burden is on the state to prove that the tax is compensatory in nature; and (d) if the law invades freedom of trade, it must prove that that the restrictions imposed are reasonable and in public interest in terms of Article 304(b). The matters were remanded to the P&H High Court for examination of validity of the entry tax laws in light of the parameters laid down by the Supreme Court.
Based on the parameters laid down by the Supreme Court in Jindal I, the P&H High Court held that the said statutes do not satisfy the compensatory test. It observed that considering that the tax received by the state does not provide special, direct or exclusive service or benefit to the taxpayer and restricts the flow of trade and commerce under Article 301, the Entry Tax Act, 2000 and the Entry Tax Rules, 2001 were unconstitutional and accordingly struck down on 14 March 2007.[4] The decision of the P&H High Court was challenged before the Supreme Court by way of a special leave petition bearing no. 18469 of 2007 (‘Jindal SLP’).
Entry Tax Act, 2008
In 2008, while the challenge to the Entry Tax Act, 2000 was pending before the Supreme Court, the state of Haryana repealed the Entry Tax Act, 2000 and introduced the Entry Tax Act, 2008 (with effect from 16 April 2008). The said Act was also declared unconstitutional by the P&H High Court in Indian Oil Corporation Ltd. v. State of Haryana and Ors.[5] on 1 October 2008 as it failed to meet the compensatory test and violated Article 301. It is imperative to note that the Entry Tax Act, 2008 was struck down even before the rules pursuant to it could be introduced. The said decision was challenged by way of an SLP bearing no. 26813 of 2008 (‘IOCL SLP’).
The Jindal SLP and the IOCL SLP, along with other petitions involving challenge to various state entry tax statutes, were tagged together and the matters were referred[6] to a nine-judges’ bench of the Supreme Court. The nine judges’ bench of the Supreme Court on 11 November 2016[7] laid down tests to determine whether the levies under consideration satisfy the test of non-discrimination and inter-alia held:
* Compensatory tax theory has no juristic basis as it is not included as one of the exceptions to Article 301, and it is inconsistent with the language employed in Article 301.
* Only such taxes which are discriminatory in nature are prohibited by Article 304(a). Thus, levy of taxes, which are discriminatory in nature, fall foul of Article 301
* States are well within their rights to design their fiscal legislations to ensure that the tax burden on goods imported from other states and goods produced within the state fall equally. Such measures, if taken, would not contravene Article 304(a).
By observing the above, the nine judges’ bench left the issues of discrimination and imports to be decided by the regular bench. Thereafter, on 21 March 2017[8], the regular bench of the Supreme Court dismissed the petitions by remanding the matters to the respective High Courts granting liberty to the taxpayers to file fresh petitions in the High Court raising the issue of discrimination. Notably, both the Entry Tax Acts of 2000 and 2008 were challenged in the P&H High Court vide fresh petitions to challenge the said statutes on the ground of discrimination which are yet to attain finality.
Introduction of the ROD
On 8 September 2016, the Constitution (One Hundred and First Amendment) Act, 2016 (‘101st CAA’) was passed to make amendments in the Constitution of India in order to introduce GST. Notably, pursuant to Section 17 of the 101st CAA, Entry 52 in List II of the Seventh Schedule, which provided for state’s power to levy and collect entry tax, was omitted. Thereafter, Central Goods and Services Tax Act, 2017 (‘CGST Act’) and the corresponding Haryana Goods and Services Tax Act, 2017 (‘HGST Act’) were also enacted which effectively repealed all the erstwhile indirect tax statutes under Section 174 of the CGST/HGST Act. While all the erstwhile indirect tax statutes were repealed after introduction of GST, certain actions under the said Acts were saved by virtue of Section 174(2) of the CGST/HGST Act.
After about 13 years from the date of enactment of Entry Tax Act, 2008 and after 4 years of repeal of the said Act, the State of Haryana, vide Haryana Goods and Services Tax (Amendment) Act, 2021 (‘HGST (Amendment) Act’) introduced additional provisos to Section 174 of the HGST Act giving the Government the power to make provisions for removing difficulties of any repealed Act, including the power to give retrospective effect to such provisions. Utilising the newly added provisos, the ROD was introduced with effect from 16.04.2008.
Present issue and analysis
The ROD has prescribed the mechanism for assessment and collection of entry tax under the Entry Tax Act, 2008, which stood repealed by the HGST Act. Consequently, Entry Tax Act, 2008 has been resurrected by the Haryana Government and show cause notices & demand notices are being issued to taxpayers/companies to pay entry tax for the period 2001-2017. These notices arbitrarily put a hefty burden on the taxpayers/companies to pay tax under a repealed provision.
Several taxpayers/companies have approached the P&H High Court in writ petitions challenging the provisos to Section 174(2) of the HGST Act, the ROD issued pursuant to the said provisos and demand notices issued against the taxpayers/companies.
The instant issue calls for several glaring legal questions that needs to be settled by the Court. Notably, the relevant issues to be decided by the P&H High Court is with regards to the extent of government’s powers saved under Section 174(2) of the HGST Act to legislate on repealed provisions and can that power be utilised to frame rules or issue removal of difficulty orders?
Further, it is well-settled that the power under a removal of difficulty clause is limited to making provisions to implement or give effect to statutory provisions without altering their substance[9]. Introduction of rules vide removal of difficulty is beyond the limits of orders pertaining to removal of difficulty.[10] Thus, in the instant case, is the government of Haryana justified in issuing ROD to introduce rules under a repealed statute by assuming powers to issue the same in the name of removal of difficulty?
It will be interesting to see how the P&H High Court will appreciate these questions and the arguments on legality of the ROD as the industry will closely follow the fate of the matter.
It is also relevant to note that on 27 March 2025, the Government of Haryana notified the Haryana One Time Settlement Scheme for Recovery of Outstanding Dues, 2025 to settle outstanding demand of tax under various state tax laws including Entry Tax Act, 2000 and Entry Tax Act, 2008. Notably, the said scheme provides for certain waiver on the tax amount payable by the taxpayers along with complete waiver from payment of interest and penalties. The said scheme came into effect from 1 April 2025.[11]
It appears that on one hand the Government is issuing fresh demand notices on the taxpayers/companies to pay entry tax under the repealed statute and on the other hand it is notifying settlement scheme to reduce litigation with respect to various state tax laws including the instant dispute in entry tax matter. It will be interesting to see if the taxpayers/companies will avail of the benefit of the settlement scheme or would continue to fight the legal battle in the writ court.
[The authors are Partner and Associate, respectively, in Commercial Disputes Team at Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] Jindal Strips Limited and Anr. v. State of Haryana and Ors., 2001 SCC OnLine P&H 1628.
[2] Jindal Strips Ltd. and Anr. v. State of Haryana and Ors., (2003) 8 SCC 60.
[3] 2006 (7) SCC 241.
[4] Jindal Strips Limited and Anr. v. State of Haryana and Ors., 2007 SCC OnLine P&H 1668.
[5] 2008 SCC OnLine P&H 1263.
[6] Jindal Stainless Limited and Anr. v. State of Haryana and Ors., (2010) 4 SCC 595.
[7] Jindal Stainless Limited and Anr. v. State of Haryana and Ors., (2017) 12 SCC 1.
[8] State of UP and Ors. v. Indian Oil Corporation Limited and Ors., (2017) SCC OnLine SC 871.
[9] Madeva Upendra Sinai & Ors. v. UOI, (1975) 3 SCC 765; Bengal Iron Corporation & Anr. v. Commercial Tax Officer, 1994 Supp (1) SCC 310.
[10] A.B. Abdulkadir and Ors. v. The State of Kerala and Ors., AIR 1962 SC 922.
[11] Notification No. 22/ST-1 dated 31.03.2025.
