In a major reprieve for e-trailers, the Patna High Court has held that levy of entry tax on online purchases is illegal and unconstitutional. It has quashed the notification issued by Bihar government in a first of its kind order on the issue.

The high court said no tax can be levied on entry of goods into local areas if they are purchased on e-commerce portals for personal use or consumption of individuals “The impugned provisions for the Bihar Finance Act, 2015 amending the Bihar tax on entry of goods into local areas for consumption, use or sale therein…..are declared as ultravires to the constitution and accordingly quashed,” the court order said. The state had defended the levy saying it was compensatory in nature and it had powers to impose such discriminatory tax, an argument rejected by the court.

The decision has wider implication for the e-commerce sector battling state levies. A Flipkart spokesperson said: “The additional entry tax was an anti-consumer move, leading to price inflation and depriving users of full benefits of online shopping. The HC order will not only benefit existing Flipkart users, but also bring lakhs of additional customers to take benefit of the goodness of ecommerce.”

A number of states including Bihar, Assam, Gujarat, Rajasthan, Uttrakhand and most recently, Uttar Pradesh imposed entry tax on purchase of any products by residents in their states from any online retailer. The state had imposed the levy to protect local traders from goods coming in from other states via e-commerce route.

The Patna High Court has held that such a tax made a discrimination against the dealer of one state and another and in violation of the constitutional provisions.

Imposition of the entry tax was a double whammy for sellers as it had to pay central sales tax in the state of origin and then also bear entry tax in the consuming state. Products sold by local traders on the other hand would only attract value added tax. Some e-tailers had even stopped delivering goods in some of these states. Instakart (a Flipkart Group company) has challenged the move in various HCs.