Term entry tax in lieu of octroi (ETILOO) under GST
The details about entry tax in lieu of octroi (ETILOO) under GST are explained here.
Recommended Entry tax
The decision of the Empowered Committee (EC) of state finance ministers to not subsume "entry tax in lieu of octroi" (ETILOO) under the GST requires a rethink. It is a tiny tax, but difficult to comply with and inflicts enormous pain on the economy. It divides the Indian common market and acts like a tariff on import of goods into a local/municipal area from the rest of the country.
It has been a subject of protracted litigation and the courts have ruled it to be ultra vires of the Constitution, as it violates the condition of non-discrimination under Article 304 (a). It applies to goods brought into the local area, but not to goods produced within the local area. Such discrimination is not permissible at the national level under our WTO obligations, and is objectionable at the state or local level also under the Constitution. At present, the issue of its legality stands referred to a larger bench of the Supreme Court.
During his introductory press conference, the newly elected Chair of the Empowered Committee, Abdul Rahim Rather, indicated that a general entry tax will be subsumed under the GST, but not ETILOO. The distinction between the two is not based on any law, as they are both levied under the same provision in the Constitution empowering states to levy "Taxes on entry of goods into a local area for consumption, use or sale therein" (Entry 52 in the list of State taxation powers). In policy discussions, a general entry tax is taken to mean an entry tax that is levied on goods brought into a state, while an ETILOO is applied on goods brought into a local/municipal area. Both types are levied by state governments. However, revenues from ETILOO are earmarked for compensation to local/municipal bodies for replacement of octroi that they previously levied. It is the latter type that accounts for the vast bulk of revenues from this tax.
Previously, this tax was levied by local civic bodies on mere entry of goods into its local area, and collected in cash at check-posts by the road side.
There was no mechanism for collecting the tax on train or air cargo. Given the inefficiencies of collecting it at the entry point, the tax is now levied on the basis information in the accounts of the dealers.
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