“Causing Entry” Doctrine:
Manufacturers’ Liability for Entry-Tax Despite State-Warehouse Interposition

1. Introduction

On 14 July 2025, a two-judge Bench of the Supreme Court of India in M/S United Spirits Ltd. v. State of Madhya Pradesh, 2025 INSC 833, confronted a seemingly narrow fiscal dispute that carried wide ramifications for alcohol taxation and the interpretive reach of entry-tax statutes. The appellant-manufacturers of Beer and Indian Made Foreign Liquor (IMFL) challenged their liability to pay entry tax under §3 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (“MP Entry-Tax Act”), contending that State Government warehouses – and not the manufacturers – effected the entry of goods into local areas. The High Court rejected the challenge and manufacturers appealed.

The Supreme Court had to decide two central issues:

1. Whether manufacturers “caused to be effected” the entry of liquor into local areas so as to trigger the charging provision of §3;
2. Whether, in the absence of a specific notification under §3B (a special provision for liquor), the State could nonetheless collect entry tax by invoking the general machinery in §14.

2. Summary of the Judgment

Viswanathan J., writing for the Court, dismissed the appeals and affirmed manufacturers’ liability, laying down two key propositions:

1. “Causing Entry” Principle. A manufacturer who delivers liquor to a State warehouse pursuant to a chain of contracts occasions the entry of goods into each local area; the presence of a canalising intermediary (the warehouse) does not break the causal link.
2. Section 3B is Optional Machinery. The absence of a State notification under §3B does not bar assessment and collection under §14, because §3B is merely an enabling (not a non-obstante overriding) provision.

Accordingly, entry tax (2 %) for the period 1 April 2007-31 March 2008 was recoverable from the manufacturers.

3. Analysis

3.1 Precedents Cited and Their Influence

• K. Gopinathan Nair v. State of Kerala
• Hyderabad Industries Ltd. v. Union Of India
• Kerala State Warehousing Corpn. v. State of Kerala
• State of Karnataka v. Azad Coach Builders (ACB)
• Coffee Board v. Joint CTO
• Bhagatram Rajeevkumar v. CST

The Court borrowed the “inseverable link” test from import-export cases (Gopinathan Nair, ACB, Coffee Board) for domestic entry-tax analysis. Those cases examined when a chain of transactions can be viewed as one composite, tax-incurring event. The Bench reasoned that, analogously, manufacturers “occasioned” entry because the warehouses operated only as canalising agents; two back-to-back contracts existed but were integrally connected.

Conversely, the State relied on Bhagatram (upholding entry tax on sugar). The Court found the ratio of Bhagatram – concerning whether goods exempt from sales tax can still attract entry tax – tangential but nevertheless supportive of a broad construction of taxing statutes.

3.2 Legal Reasoning

1. Statutory Framework.
   • §3(1)(a) MP Entry-Tax Act: levy on “entry … of a dealer … into a local area for consumption, use or sale.”
   • §2(1)(aa): defines “entry of goods”; §2(3): deeming “has caused to be effected entry”.
   • §14: adopts VAT machinery for assessment and collection.
   • §3B (inserted 2007): special provision empowering the State to notify alternative collection methods for liquor.
2. Who “caused” the entry?
   • Under warehouse “guidelines” retailers place demand notes; warehouses issue NOCs; manufacturers dispatch goods addressed to the warehouse; retailers ultimately pick up stock.
   • Applying the “occasioning” doctrine (from Coffee Board), the Court held that the manufacturers’ sale to the warehouse was the immediate cause of entry; but for that sale, the goods would not have crossed the local-area boundary.
   • The warehouse’s role – receipt, storage, 5 % service charge, and fund transfer – did not break the causal nexus. Hence, manufacturers “caused to be effected” the entry and are liable even if warehouses also qualify as dealers.
3. Effect of non-notification under §3B.
   • §3B begins with a non-obstante clause. However, a non-obstante clause operates only when there is a conflict. Absent a notification, there is no rival mechanism.
   • §14, a general machinery provision, remains fully operative; therefore assessment by Commercial-Tax authorities is valid.
   • Reliance was placed on A.G. Varadarajulu and G.M. Kokil to construe non-obstante clauses harmoniously.

3.3 Likely Impact

1. Fiscal Clarity. States can confidently recover entry tax (or analogous levies) at the manufacturer’s gate even if distribution is routed through State-controlled depots.
2. Broader Application of “Causing Entry”. The doctrine transcends liquor: any supply chain using a canalising intermediary (public or private) may still saddle upstream suppliers with entry-tax liability.
3. Section-3B-type Provisions De-emphasised. Where a general machinery exists, special enabling provisions will be treated as optional, limiting arguments that absence of a notification creates a tax vacuum.
4. Compliance Behaviour. Alcohol manufacturers must internalise entry-tax cost or restructure contracts to expressly shift liability. Warehouses/Depots can remain “pass-through” entities without shouldering statutory risk.
5. Judicial Methodology. The judgment exemplifies cross-pollination: import-export jurisprudence informs domestic entry-tax questions, reinforcing purposive interpretation over formalistic contract privity.

4. Complex Concepts Simplified

• Entry Tax: A levy imposed by States on bringing goods into a local area for consumption, use, or sale. It is distinct from sales tax/VAT which is triggered by sale; entry tax is triggered by movement of goods.
• Dealer: Under MP VAT Act, virtually anyone who buys, sells, supplies or distributes goods, including government departments, is a “dealer.”
• “Caused to be Effected”: A deeming expression that fastens responsibility not just on the person who physically brings the goods into an area, but also on anyone whose actions are the proximate cause of that entry.
• Canalising Agency: An intermediary (often the State) that controls or regulates movement of certain goods. Presence of such agency does not necessarily sever the chain of tax liability.
• Non-obstante Clause: A statutory phrase (“not- withstanding anything contained…”) meant to override conflicting provisions; it does not operate in a vacuum.

5. Conclusion

The Supreme Court has laid down a “Causing Entry” doctrine for entry-tax purposes: where a manufacturer’s sale is the proximate cause for goods crossing into a local area, liability attaches to the manufacturer notwithstanding the presence of a State-controlled warehouse that undertakes storage and onward distribution. The decision solidifies States’ revenue powers, clarifies the optional nature of special collection provisions like §3B, and signals a purposive approach to fiscal statutes that privileges economic reality over contractual form. Manufacturers across sectors must now evaluate supply chains through the lens of this precedent, anticipating tax at the point where their actions set goods in motion, rather than where title formally passes.