The Delhi government amended the VAT Act recently, creating a provision to impose VAT on goods imported from foreign countries into Delhi, though Constitution clearly states that states can't levy taxes on imports and exports

Is the Delhi state government stepping into the Centre's jurisdiction? The question surfaced after some traders in the city expressed discontent over the Delhi government's decision to levy advance Value Added Tax (VAT) on goods imported into the capital, claiming it to be a subject under the jurisdiction of the central government.

Bimal Jain, chairman of the Indirect Tax Committee, part of the Punjab, Haryana and Delhi Chamber of Commerce and Industries, said the state government's decision is not Constitutional. "Article 286 of the Constitution clearly states that no state government of India shall levy tax on imports and exports. Only the central government can do that," he said.

He added that the Delhi government has purportedly imposed this law to check unauthorised sale of imported goods. "But the way it is done this is clearly against the law," he said.

The Delhi government amended the VAT Act recently, creating a provision to impose Value Added Tax on goods imported from foreign countries into Delhi. "The importer will have to pay VAT in advance, on the basis of the imported price," said a tax official from the department of Trade and Taxes of the Delhi government, while interpreting the new provision.

"The intention of imposing VAT at point of entry is to make reporting of business of imported items mandatory," said tax expert Sanjib Duggal. However, he has pointed out that this provision might have a very short life span of only a year or so. "The entire focus is now on the Goods and Services Tax (GST), which is likely to be a reality by next year. The tax on import of goods will become irrelevant as soon as the GST regime comes in," he explained.

Another official from the Department of Trade and Taxes of Delhi also agreed that the advanced VAT on imported goods will be subsumed in the GST, whenever the latter is imposed.

Duggal also pointed out that since the new provision mandates the importer to pay tax at the inception of business, some small traders may see it as blockage of working capital. But tax officials said hazards of this type are common to businesses that traders have to consider in advance.

When asked if imposition of advanced VAT is legal, Duggal said that any tax law that is passed after observing the due process of law making, is seen as legal. "But yes, such laws are challengeable in a court of law," he added.

Tax guru Bimal Jain said that though till nobody has filed a petition in the Delhi high court demanding this provision be lifted, many have taken their grievances to the commissioner of taxes. Jain added that the provision is likely to be struck down if an aggrieved party moves court.