The Patna High Court has said that the entry tax on ecommerce companies in Bihar is unconstitutional and illegal. A case opposing the entry tax was filed by Flipkart through its logistics subsidiary Instakart. A Flipkart spokesperson confirmed the development.

“The impugned provisions of the Bihar Finance Act, 2015 (Bihar Act 9 of 2015), amending the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 and the Rules made thereunder and Notifications S.O. 176 & 18 both, dated 20.01.2016, are declared as ultra vires to the Constitution and are accordingly quashed,” the court’s order read.

Judges in Patna High Court noted that the entry tax was discriminatory and unconstitutional. Lawyers arguing for the Bihar government said that the entry tax was compensatory in nature and that it had power to impose such a discriminatory tax.

However, the court said that the entry tax made a discrimination against the dealer of one state and another and in violation of the constitutional provisions in Article 304 (a).

Article 304 (a) of the constitution says that there cannot be restrictions on trade between states which discriminate between goods imported and goods manufactured or produced.

“Even if the levy is compensatory in nature, the compensation cannot be demanded more from an outside dealer than a local dealer,” the order read further.

In June, Madhya Pradesh joined seven other states – Uttar Pradesh, Assam, Odisha, Uttarakhand, Rajasthan, West Bengal, and Mizoram – which imposed the tax citing loss of revenues.

A statement from Flipkart said:

“We welcome this high court order as it will benefit lakhs of consumers in the state for whom e-commerce is the only way to get access to millions of quality and affordable products at their doorsteps. The additional entry tax was an anti consumer move, leading to price inflation and depriving users of full benefits of online shopping. This order will not only benefit existing Flipkart users, but also bring lakhs of additional customers to take benefit of the goodness of ecommerce.”

A report from the Economic Times said that Flipkart is fighting the entry tax in other states. Flipkart has sued the Uttarakhand and Gujarat government over the entry taxes into the respective states. In June, Amazon challenged the ecommerce tax in Gujarat and filed a case in the high court against the state and the commissioner of tax.

Goods and services tax

In August, the Goods and Services Tax (GST) Constitutional Amendment Bill was passed in Parliament and ecommerce companies widely welcomed the move which would bring significant clarity and cut excessive taxation. For ecommerce and logistics companies, it would reduce the barriers for interstate deliveries.

In fact, Bihar was the second state government to ratify the GST Bill.

However, a major pain point could emerge with tax collection at source which may create a issues between sellers and ecommerce companies. According to the GST Bill, every operator will furnish an electronic statement of all amounts collected towards outward supplies of goods and services during a month. E-tailers would be required to adopt a new model where the state where the package is delivered gets the tax for the sale and not from where the order is booked from.

For example, if a customer books an order in Maharashtra and asks for it to be delivered in Bangalore, ecommerce comapnies should ensure that Karnataka’s tax must be applied and not Maharashtra’s.

Download: Patna high Court’s order