Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6
PETITIONER:
KANTI LAL BABULAL
Vs.
RESPONDENT:
h. C. PATEL
DATE OF JUDGMENT:
29/09/1967
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
WANCHOO, K.N. (CJ)
BACHAWAT, R.S.
RAMASWAMI, V.
MITTER, G.K.
CITATION:
1968 AIR 445 1968 SCR (1) 735
CITATOR INFO :
E 1970 SC 898 (20)
RF 1975 SC 813 (14)
F 1977 SC2279 (31)
F 1990 SC 772 (8)
ACT:
Bombay Sales Tax Act (Bom. 5 of 1946) S. 12A(4)-If infringes
Art. 19(1)(f), Constitution.
HEADNOTE:
In view of Art. 286 (1) (a) of the Constitution, as it stood
at the relevant time, the sales by the appellants-
(registered dealers) outside the State of Bombay were not
exigible to tax. The appellants.were directed to refund
amounts collected by them from their purchasers in respect
of these sales by way of tax, failing which the amounts
would be forfeited under s. 12A(4) of the Bombay Sales Tax
Act. The appellants filed a writ petition in the High Court
to restrain the respondents from taking action against them
under s. 12A(4), The High Court dismissed the petition. In
appeal, this Court,
Held: S. 12A(4) of the Bombay Sales Tax Act was void
being violative of Art. 19(1)(f) of the Constitution.
Prima facie the appellants were entitled to get the amount
ordered. to be refunded to them. It was for the respondents
to establish that the same was liable to be forfeited. Even
according to the respondents that amount could be forfeited
only as a measure of penalty. Under our jurisprudence no
one can be penalised without a proper enquiry. [740 E-F].
The impugned provision which provided forfeiture of the
amount in the hands of the dealers, did not lay down any
procedure for ascertaining whether in fact the dealer
concerned hid collected any amount by way of tax from his
purchasers outside the State and if so what that amount was.
Neither S. 12A(4) nor any rule framed under the Act
contemplated any enquiry,, much less a reasonable enquiry in
which the person complained of could plead and prove his
case or satisfy authorities that their assumptions were
either wholly or wholly wrong. This section did not
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6
contemplate adjudication nor provide for making any order.
Hence, it was doubtful whether any appeal could be filed
against a demand made under that section under S. 21 (740 G-
H; 741-E].
Abdul Quadar and Co. v. Sales Tax Officer, Hyderabad [1964]
S.C.R 867, Dr. N. B. Khare v. State of ’Delhi. [1950]
S.C.R. 519. State of Madras v. V. G. Rao, (19521 S.C.R.
597 followed.
Ram Gopal v. Sales Tax Officer, Surat and another, 16 S.T.C.
1005 disapproved,
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 126 of 1966.
Appeal from the judgment and order dated November 29, and
December 2, 1963 of the Gujarat High Court in Special Civil
Application No. 641 of 1962.
736
K. R. Chaudhuri, for the appellant.
R. M. Hazarnavis, K. L. Hathi and S. P. Nayar, for the
respondents.
S. T. Desai and I. N. Shroff, for the intervener.
The Judgment of the Court was delivered by
Hegde, J.--The main controversy in this appeal by
certificate is as to the constitutional validity of S.
12A(4) of the Bombay Sales Tax 1946, to be hereinafter
referred to as the Act. As in our judgment that provision
is void, the same being violative of Art. 19(1)(f) of the
Constitution, we have not thought it necessary to examine
the other contentions raised’ in the appeal.
The facts material for the purpose of deciding the question
formulated above, are these: The appellants are dealers
registered tinder the Act carrying on business in art silk,
cotton and hand loom cloth. During the period January 26,
1950 to March 31, 1950, the appellants effected various
sales outside the State of Bombay. As those sales were
protected by Art. 286(1)(a) of the Constitution, they were
outside the reach of the Act. But yet the sales tax officer
assessed the turnover relating to those sales. The tax
levied in respect of that turnover was Rs. 4,494/3/9. In
appeal, the order of the sales tax officer was affirmed by
the Assistant Collector of sales,tax. But the Additional
Collector of sales tax in revision revised the levy to some
extent and, ordered a refund of Rs. 2,238/0/6. That amount
was paid to the assessees. Not being satisfied with the
order of the Additional Collector of sales tax, the
appellants took up the matter in revision to the Sales Tax
Appellate Tribunal. But even before they moved the Tribunal
in revision, the Additional Collector of sales tax by his
letter dated May 17, 1958, informed the appellants that
unless they furnished to the sales tax officer proof of
their having refunded the amount paid to them in pursuance
of his order to the purchasers within a period of three
months from the date of that notice, the same would be
liable to be forfeited under s. 12A(4) The Tribunal by its
’order dated November 26, 1958, allowed the claim of the
appellants in full and directed’ the refund of an addi-
tional sum of Rs. 2,256/2/6.
During the period April 1, 1950 to March 31, 1951 the appel-
lants effected various sales outside the State of Bombay.
The turn, over relating to those sales was also brought to
tax by the sales tax officer and in that connection a tax of
Rs. 23,806/3/6 was levied on the appellants. In appeal, the
Assistant Collector of sale tax allowed the appellants’
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6
claim in part and ordered a refund or. Rs. 12,154/15/- but
at the same time he informed them that that amount would be
forfeited to the State Government if not refunded to the
purchasers from whom the same had been collected. No being
satisfied with the relief obtained, the appellants went up
in revision to the Additional Collector of sales tax. That
officer by
737
his order dated November 1, 1958 granted further relief by
ordering refund of an additional sum of Rs. 3,588/1/9. But
the sales tax officer did not give effect to that order. As
the Additional Collector did not accept the appellants’
claim in full, they went up in revision to the Tribunal.
The Tribunal allowed their claim in full. The Revenue took
up the matter in reference to the High Court but that
reference was rejected. From the foregoing it is seen that
in respect of the period April 1, 1950 to March 31, 1951- the
appellants are entitled to get a refund of Rs.
23,806/3/6. Despite the aforementioned orders, the sales
tax officer did not pay the amounts ordered to be refunded.
On the other hand, he threatened to take steps to forfeit
the same by having recourse to s. 12A(4).
On June 27, 1962, the sales tax officer called upon the
assessees to remain present in their office on July 2, 1962
with particulars of the amount collected by them by way of
sales tax from the purchasers in ’other States during the
period January 26, 1950 to March 31, 1951. At that stage,
the appellants approached the High Court of Gujarat by
special civil application No. 641 of 1962 under Art. 226 of
the Constitution. In that application, they prayed for
several reliefs, the most important of which was to direct
the respondents to comply with the orders of refund and to
refrain from taking any action against them under s. 12A(4).
The High Court dismissed that application. Hence. this
appeal.
The Act provides for the levy of tax on the sale of goods in
the then State of Bombay. It came into force on March 8,
1946. Any person who carries on business of selling or
supplying goods in the State of Bombay whether for
commission, remuneration or otherwise, is defined as a
dealer in s. 2(c). Section 8 and s. 8(a) of the Act provide
for the registration of dealers. As mentioned earlier the
appellants are registered’ dealers. Under s. 2(k) of the
Act, the assessment year is the financial year. Section 5
prescribes the incidence of taxation. Section 10 prescribes
the returns to be made by the dealers. The assessment is
made under s. 11. Section 11 (a) provides for taxing the
turnover escaping assessment. Section 12 provides for the
payment and recovery of tax. Section 12A is the one with
which we are concerned in this appeal. It reads:
"(1) No person shall collect any amount by way
of tax under this Act in respect of sales or
supplies of any goods which are declared, from
time to time, under section 7 as sales or
supplies on which the tax is not payable.
(2) No person selling or supplying any goods
shall collect from the purchaser any amount by
way of sales tax unless he is a registered
dealer and is liable to pay tax under this Act
in respect of such sale or supply:
Provided that this sub-section shall not apply
in cases where a person is required to collect
such amount of tax separately in order to
comply with the conditions
738
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6
and restrictions imposed on him under the
provisions of any law for the time being in
force.
(3) Every registered dealer whose gross
turnover exceeds Rs. 60,000 a year shall issue
a bill or cash memorandum signed and dated by
him or his servant, manager or agent to the
purchaser in respect of the goods sold or
supplied by him showing the particulars of the
goods and the price at which the goods are
sold or supplied shall keep the counterfoil or
duplicate of such bill or cash memorandum duly
signed and dated and preserve it for a period
of not less than two years from such date.
(4) If any person collects any amount by way
of tax in contravention of the provisions of
sub-section (1) or (2) or if any registered
dealer collects any amount by way of tax in
excess of the amount payable by him under this
Act, the amounts so collected shall, without
prejudice to any prosecution that may be
instituted against such person or dealer for
an offence under this Act be forfeited to the
State Government and such person or dealer, as
the case may be, shall within the prescribed
period, pay such amount into a Government
treasury and in default of such payment, the
amount shall be recovered as an arrear of land
revenue."
In view of Art. 286(1)(a) of the Constitution as it stood at
the relevant time, the appellants’ sales outside the State
of Bombay were not exigible to tax. Therefore if the
appellants had collected any amount from their purchasers in
respect of those sales by way of tax they had undoubtedly
contravened sub-s. 2 of s. 12A. Sub-s. 4 of s. 12A provides
for the forfeiture to State government any amount collected
by a dealer by way of tax in excess of the amount payable by
him under the Act. For the purpose of deciding the point in
issue it is not necessary to find out the scope of the
expression "collects any amount by way of tax" in s. 12A(4).
We shall assume, without deciding, the collection made by
the appellants, if any, was by way of tax.
It was not contended nor could it have been contended that
the impugned provision is a taxation measure bringing to tax
directly or indirectly the sales effected outside the State
of Bombay. In Abdul Quadar and Co. v. Sales Tax Officer,
Hyderabad,(1) interpreting s. 11(2) of, the Hyderabad
General Sales Tax Act 1952, a provision somewhat similar to,
the impugned provision, this Court observed that legislation
under Entry 54 of List II of the Constitution (similar to
Entry 48 of List 11 of the Government of India Act, 1935,
the entry with which we are concerned in this case) proceeds
on ’the basis that the amount concerned is not a tax
exigible under the law made under that entry, but
(1) [1964] 6 S.C.R. 867.
739
even so lays down that though it is not exigible under the
law, it shall be paid over to the government merely because
some dealers by mistake or otherwise have collected it as
tax; hence, it is difficult to see how such a provision can
be ancillary or incidental to the collection of tax
legitimately due under a law made under the relevant taxing
entry. Therein it was held that it cannot be said that the
State legislature was directly legislating for the
imposition of sales or purchase tax under Entry 54 of List
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6
11 when it made the provisions of s. 11 (2), for on the
basis of the provision the amount that was collected by way
of tax was not exigible as tax under the law.
According to the Revenue s. 12A(4) is a penal provision; and
it provides for the imposition of penalty on those who
contravene s. 12A(1) and (2). It was said on its behalf
that power to enact such a provision is incidental to the
power to tax sales. In support of that contention reliance
was placed on the decision of the Gujarat High Court in Ram
Gopal v. Sales Tax Officer, Surat and Another(1). That
decision upheld the validity of s. 12A(4). If that decision
lays down the law correctly, then the appellants are out of
court. But we think that the said decision cannot be
sustained.
We shall not go into the question whether from the language
of the impugned provision it is possible to hold that it is
a penal provision. For our present purpose we shall assume
it to be so. We shall also assume that the legislature had
legislative competence to enact that provision. But the
question is whether it is violative of Art. 19(1)(f) which
guarantees the freedom to hold property. Prima facie the
appellants are entitled to get the amount ordered to be
refunded to them. It is for the respondents to establish
that the same is liable to be forfeited. Even according to
the respondents that amount can be forfeited only as a
measure of penalty for the contravention of s. 12A(1) and
(2). Under our jurisprudence no one can be penalised
without a proper enquiry. Penalising a person without an
enquiry is abhorrent to our sense of justice. It is a
violation of the principles of natural justice, which we
value so much.
The impugned provision which provides for the forfeiture of
the amount in the hands of the dealers, does not lay down
any procedure for ascertaining whether in fact the dealer
concerned bad collected any amount by way of tax from his
purchasers outside the State and if so what that amount is.
Neither s. 12A(4) nor any rule framed under the Act
contemplates any enquiry much less a reasonable enquiry in
which the person complained of can plead and prove his case
or satisfy the authorities that their assumptions are either
wholly or partly wrong.
The Act is silent as to the machinery and procedure to be
followed in determining the question as to whether there has
been a contravention of ss. 12A(1) and (2), and if so, to
what extent.
(1) 16 S.T.C. 1005.
L/P(N)7SCI-8
740
Hence it would be open to the department to evolve all the
requisite machinery and procedure which means that the whole
thing, from the beginning to end, is treated as of a purely
administrative character, completely ignoring the legal
position. The imposition of a penalty on a person is at
least of a quasi-judicial character.
The impugned provision does not concern itself only with the
amount admittedly collected by a person in contravention of
sub ss. 1 and 2 of s. 12A. Even if there is any dispute
either as to the facturn of collection or as to the amount
collected, such a case also comes within the scope of s.
12A(4). Yet that section does not provide for any enquiry
on disputed questions of facts or law. The forfeiture
provided for in S. 12A(4) prima facie infringes Art.
19(1)(f). Therefore it is for the respondents to satisfy
the Court that the impugned provision is a reasonable
restriction imposed in the interest of the general public.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6
Section 12A(4) does not contemplate the making of any order.
As mentioned earlier, that section prescribes that if any
registered dealer collects any amount by way of tax in
excess of the amount payable by him under the Act, the
amount so collected shall, without prejudice to any
prosecution that may be instituted against him for an
offence under the Act, be forfeited to the State government
and he shall within the prescribed period pay such amount
into a government treasury and in default of such payment
the amount shall be recovered as arrears of land revenue.
This section does not contemplate adjudication. Nor does
it, provide for making any order. Hence, it is doubtful
whether any appeal can be filed against a demand made under
that section under s. 21.
The question whether appellants in the instant case had been
afforded a reasonable opportunity to establish their case or
riot is besides the point. The constitutional validity of a
provision has to be determined on construing it reasonably.
If it passes the test of reasonableness, the possibility of
powers conferred being improperly used, is no ground for
pronouncing it as invalid, and conversely if the same
properly interpreted and tested in the light of the
requirements set out in Part III of the Constitution, does
not pass the test, it cannot be pronounced valid merely
because it is being administered in the manner which might
not conflict with the constitutional requirements. On a
reasonable interpretation of the impugned provision, we have
no doubt that the power conferred under S. 12A(4) is
unguided, uncanalised and uncontrolled. It is an arbitrary
power. As held by this Court in Dr. N.B. Khare v. State of
Delhi(1), whether the restrictions imposed by a. legislative
enactment upon a fundamental right guaranteed by Art. 19(1)
are reasonable within the meaning of Art. 19(5) would depend
as much on the procedural portion of the law as the
substantive part of it.
(1) [1950] S.C.R. 519.
741
Rao(1) wherein it was observed that in considering the
reasonable That view was reiterated by this Court in State
of Madras v. V. G. ness of laws imposing restrictions on
fundamental rights both the substantive and procedural
aspects of the impugned law should be examined from the
point of view of reasonableness. This Court has taken that
view consistently. A provision like the one with which we
are concerned in this case can hardly be considered
reasonable.
For the reasons mentioned above, this appeal is allowed.
The order of the High Court is set aside and a writ of
mandamus will be issued to the respondents to comply with
the refund order set out in the petition filed before the
High Court and to refrain from proceeding against the
appellants under s. 12A(4). The appellants are entitled to
their costs both in this Court and in the High Court.
Y.P. Appeal allowed.
(1) [1952] S.C.R. 597.
P(N)7SCI-8(a)
742