And while we are talking about Startup-India action plan, the state governments are really not integrated with Modi’s statement.

The Uttarakhand government has imposed a regressive 10% tax on all e-commerce purchases. The tax is incident on courier companies but will have to be borne by the customers as a separate head in the invoice.

A Supreme Court judgment of 2006 clearly states that Entry Tax has to be a form of ‘Compensatory Tax’, and the onus lies on the state to provide quantifiable evidence that the proceeds from the tax is to be used to facilitate trade and commerce for those entities on whom the tax is being imposed. Entry tax cannot be used as a tool for revenue generation or as a tool for compensating revenue loss due to e-commerce activities.

In this case, the tax is being imposed on courier companies, who are wrongly being poised as a ‘principal’ in the transaction. The principal within the state is the consumer, and this tax aims not to facilitate but punish consumers from availing e-commerce facilities.

Is This Even Legal?

As per Article 304 of the Constitution of India, state authorities cannot discriminate between goods from outside the state and goods being produced within the state. State legislatures can bring about ‘reasonable’ restriction on movement of goods from outside in ‘public interest’, but such legislation has to be sanctioned by the President of India.

This present move by Uttarakhand seems to focus more on the interest of local traders than general ‘public interest’, and in any case cannot be imposed without the President’s consent. [via a note from Iamai].

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