KATHMANDU: The Supreme Court has ruled that local governments cannot impose taxes or fees on goods transported from one local level to another for road construction projects.
A joint bench of Justices Kumar Regmi and Shreekanta Paudel ordered Shuklagandaki Municipality in Tanahun to refund Rs. 8.22 million collected as tax from Chinese construction company Anhui Kaiyuan Highway and Bridge.
The company was working on the western section of the Muglin-Pokhara road project. The municipality had collected the tax while the company was transporting stone, gravel and sand for the road construction.
The company argued that the materials were being transported for the construction of a national priority road project and not for commercial purposes. It also argued that imposing the tax amounted to unconstitutional double taxation.
The Supreme Court ruled that the municipality’s action was illegal. It cited Article 236 of the Constitution, which prohibits taxes, fees or restrictions on the movement of goods and services between provinces and local governments.
The court also noted that the Local Government Operation Act, 2074 and the municipality’s economic legislation allow such charges only on commercial transactions. Since the construction company was transporting materials for its own contracted road project, the activity could not be treated as a commercial transaction.
The court has ordered the municipality to immediately return Rs. 8,219,818 to the Chinese company and directed the concerned authorities not to impose export tax or any other charges on materials transported for road construction in the future.
The court also found that the municipality had violated a 2075 Cabinet decision and a directive from the Ministry of Federal Affairs and General Administration against imposing such charges on goods transported between local levels.
