Full Judgment Text
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PETITIONER:
STATE OF MADHYA PRADESH AND ORS.
Vs.
RESPONDENT:
BHARAT HEAVY ELECTRICALS
DATE OF JUDGMENT: 14/08/1997
BENCH:
J. S. VERMA, B. N. KIRPAL
ACT:
HEADNOTE:
JUDGMENT:
W I T H
C.A. NOS. 199, 1486, 200, 201, 202, 203, 204, 243, 3333 of
1996 and Civil Appeal No. 5096 of 1997
J U D G M E N T
Kirpal. J.
The common question of law which arises in these
appeals by special leave relates of the validity of Section
7(5) of the The Madhya Pradesh Sthaniya Kshetra Me Mal Ke
Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to,
for the sake of convenience ‘the Entry Tax Act). The said
provision having been successfully challenged by the
respondents before the Madhya Pradesh High Court, the State
of Madhya Pradesh has filed the present appeals.
The facts, which are relevant for deciding the point in
issue lie within a very narrow compass. The respondent are
stated to be engaged in sale and purchase of various
articles as raw material, some of which are brought into the
local areas. They manufacture the finished goods which are
sold in local areas in which they are manufactured and,
subsequently, are sold outside the local area. The
respondents are all registered dealers both under the
Central and the State Sales Tax Act and its is the
provisions of the act which are applied for assessment and
recovery of entry tax.
The Entry Tax was enacted with the object of levying
tax on the goods brought into the local area for consumption
use of sale therein. Section 3 is the charging section and
sub-section (1)(a) and (b) which are relevant are as
follows:
"3. Incidence of taxation -[1]
There shall be levied an entry tax-
[a] on the entry in the course of
business of a dealer of goods
specified in Schedule II, into each
local area for consumption, use or
sale therein; and
[b] on the entry in the course of
business of a dealer of goods
specified in Schedule III, into
each local area for consumption for
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use of such goods as (raw material
or incidental goods) or as packing
material or in the execution of
work contracts but not for sale
therein;
and such tax shall be paid by every
dealer liable to tax under the Sale
Tax Act who has effected entry of
such goods:
[4]................................
[5] Where a registered dealer
referred to in sub-section (1) or
sub-section (2) has, in the course
of his business, sold local goods
to other registered dealer and has
failed to made the statement
referred to in sub-section (1)
[....], it shall be presumed that
he has facilitated the evasion of
entry tax on the local goods so
sold and accordingly he shall be
liable to pay penalty equal to [ten
times] the amount of entry tax
payable on such goods as if they
were not goods of local origin.
[6].............................."
Prior to this amendment on 20th October, 1982, the
penalty which was provided by sub-section [5] of Section 7
was only one and a half time the amount of entry tax payable
on the goods. With the penalty having been increased, as a
consequence of amendment of sub-section [5] of Section 7,
the respondents filed writ petitions in the Madhya Pradesh
High Court challenging the validity of the said provision.
The main ground on which the challenge was base, on
behalf of the respondents before the High Court, was that
the levy of the penalty of ten times the amount of tax was
confiscatory in nature and was ultra vires of the provisions
of the Act and was also violative of Articles 14 and 19 of
the Constitution of India. It was the contention of the
respondents that the presumption contained in sub-section
[5] of Section 7, which was regarded as not being rebuttable
was ultra vires as it did not give any direction to the
assessing authority to reduce or waive the penalty on the
ground of absence of mala fide or any trivial or technical
defect.
The High Court construed Section 7[5] of the Entry Tax
Act to mean that the presumption contained therein was not
rebuttable and secondly the penalty which could be imposed
for non-compliance was ten times the amount of tax which
could not be reduced and therefore, it was confiscatory in
nature. Consequently, the High Court came to the conclusion
that the provisions of Section 7[5] of the Entry Tax Act
were ultra vires.
On behalf of the appellants it is submitted by Mr. G.L.
Sanghi learned senior counsel, that the High Court erred in
coming to the conclusion that Section 7[5] was ultra vires.
He drew our attention to an observation in the judgment of
the High Court which seems to suggest that the Advocate
General, appearing on behalf of the appellants herein, had
submitted that Section 7[5] should be read down. The High
Court had observed that this was not possible and the scheme
of the Act did not confer jurisdiction on the authorities to
reduce the penalty.
Mr. Sanghi contended that this approach of the High
Court was incorrect and he submitted that looking at the
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scheme of the Act as a whole and Section 7 in particular he
would concede that the presumption raised in sub-section
[5] of Section 7 was rebuttable and, secondly, the said
provision did not provide for a fixed rate of penalty.
We find merit in this contention. According to Section
3 the goods imported from outside the State which enter into
any local area and are sold for consumption, use and sale
therein are liable to pay entry tax if they belong to the
categories mentioned in Schedule II. Thus goods which are
manufactured in the local area become taxable only when they
first enter into a local area other than the local area of
its origin. It is in order to trace the goods manufacture in
any local area and to ensure that the goods do not escape
tax on their subsequent entry into another local area that
certain checks and counter checks have been provided and in
this connection Section 7 contains the requirement for
registered dealer who sells the goods to make statement
referred to in this section. The main purpose of the
statement required to be furnished under Section 7 is to
isolate the non-local goods from the local goods. There can
be several good reasons why a registered dealer may have
failed to make the statement required to be furnished by him
by sub-section [1] and sub-section [2] of Section 7/ In our
opinion it could not be the intention of the legislature
that an accidental omission or non-furnishing of the
statement of a good an valid reason must necessarily lead to
the presumption that the registered dealer had the intention
of facilitating the evasion of entry tax. Mr. Sanghi rightly
drew our attention to a somewhat similar provision which was
contained in Section 28B of the UP Sale Tax Act, 1948. The
said section related to transit of goods by road through the
State and the issue of transit passes. The said section
reads as follows:
"28B. Transit of goods by road
through the State and issue of
transit pass - When a vehicle
coming from any place outside the
State and bound for any other place
outside the State passes through
the State, the driver or other
person in charge of such vehicle
shall obtain in the prescribed
manner a transit pass from the
officer in charge of the first
check-post or barrier after his
entry into the State and deliver it
to the officer in charge of the
check-post or barrier before his
exist from the State, falling which
it shall be presumed that the goods
carried thereby have been sold with
the State by the owner or person in
charge of the vehicle."
In order to determine whether the aforesaid words
"shall be presumed" occurring in Section 28B were rebuttable
or not this Court in Sodhi Transport and Anr. Etc. Etc. Vs.
State of U.P. and Anr. Etc. Etc. [1986] 1 SCR 939) referred
to Section 4 of the Indian Evidence Act and then observed at
page 953 as follows:
"..These words i.e. ‘shall
presume’ are being used in India
Judicial lore for over a century to
convey that they lay down
rebuttable presumption in respect
of matter with reference which they
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are used and we should expect that
the U.P. legislature also has used
them in the same sense in which
Indian courts have understood them
over a long period and not as
laying down a rue conclusive proof.
In fact these presumptions are not
peculiar to the Indian Evidence
Act. They are generally used
whenever facts are to be
ascertained by a judicial process."
In our opinion Mr. Sanghi is right in submitting that
Section 7 should be read as containing a rebuttable
presumption. This would mean that it will be open to the
registered dealer to satisfy the authorities concerned that
the non-submission of the statement under sub-section [1]
and [2] of Section 7 was not with the intention to faciliate
the evasion of the entry tax. In other words, sub-section
[5] of Section 7 places the burden of proof on the
registered dealer to show that the non-submission of the
statement under sub-sections [1] and [2] of Section 7 was
not with a view to faciliate the evasion of entry tax. If a
registered dealer is unable to satisfy the authorities in
this regard then in the absence of satisfaction, the
presumption is that non-submission of statement has
facilitate the evasion of entry tax. Construing Section 7(5)
to contain a rebuttable presumption it does not suffer from
any vice. It cannot then he held invalid as conducted by the
High Court. It is the misconstruction of the provision which
misted the High Court to the contrary conclusion.
It is not necessary for us to decide whether the
provision for levy of penalty equal to ten times the amount
of entry tax would be confiscatory and therefore, ultra
vires since Mr. Sanghi, in fairness, submitted that the
State treats is as the maximum limit and not fixed amount of
penalty leaving no discretion for imposition of lesser
penalty. This stand of the State itself concedes that the
assessing authorities are not bound to levy fixed penalty
equal to ten times the amount of entry tax whenever the
provision of Section 7[5] are attracted. Depending upon the
facts of each case the assessing authority has to decide as
to what would be the reasonable amount of penalty to be
imposed the maximum being ten times the amount of the entry
tax. So construed sub-section [5] of Section 7 cannot be
regard as confiscatory. Consequently, this also cannot be a
ground for holding Section 7[5] to be ultra vires.
From the aforesaid it follows that Section 7[5] has to
be construed to mean that the presumption contained therein
is rebuttable and secondly the penalty of ten time the
amount of entry tax stipulated therein is only the maximum
amount which could be levied and the assessing authority has
the discretion to levy lesser amount, depending upon the
facts and circumstances of each case. Construing Section
7[5] in this manner the decision of the High Court that
Section 7[5] is ultra vires cannot be sustained.
For the aforesaid reason these appeals are allowed. The
judgment of the High Court and the assessment, if any made
are set aside, the assessing authority shall now determine
afresh the amount of penalty, if any which is to be levied
under Section 7[5] of the Entry Tax Act. Such determination
shall take piece only after notice and reasonable
opportunity of being heard is afforded to the respondent.
There will be no order as to costs.
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