In Brief
Indian Oil Corporation sold petroleum products to other oil companies (OMCs) in Bihar. When entry tax was paid on these products, the company sought to set off VAT against the entry tax. The Bihar tax authorities initially allowed this set-off but later disallowed it retroactively from 2008-09 based on an audit objection, demanding Rs. 1,683.03 crores. The Supreme Court held that under Section 3(2) of the Entry Tax Act, the importer must be liable to pay VAT; since VAT on petroleum products sold to OMCs is levied only at the OMCs' subsequent sale stage, not at the importer's stage, the set-off conditions were not met. The Court rejected the constitutional discrimination argument and remitted the matter to the Appellate Tribunal to determine what portion of the demand relates to sales made outside Patna's local area (which would not attract entry tax).
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