Full Judgment Text
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CASE NO.:
Appeal (civil) 9143 of 1996
PETITIONER:
Commercial Tax Officer & Ors.
RESPONDENT:
Swastik Roadways & Anr.
DATE OF JUDGMENT: 13/02/2004
BENCH:
P.VENKATARAMA REDDI & S.H. KAPADIA.
JUDGMENT:
JUDGMENT
WITH
CIVIL APPEAL NO. 1783 OF 1997
State of Madhya Pradesh & Ors. \005 Appellants
Versus
M/s United Transport Road Services \005 Respondent
KAPADIA, J.
1. These two civil appeals raise an important question of
constitutional significance centering around Entry 54 of List II of the
Seventh Schedule to the Constitution of India as also the extent and purport
of the ancillary power vested in the State Legislature which has enacted the
Madhya Pradesh Commercial Tax Act, 1994 (hereinafter referred to as "the
Act"). The said Act levies tax on sale and purchase of goods. Purportedly,
under the ancillary powers/powers incidental to the levy of tax on sale and
purchase of goods sections 57, 58 and 59 are enacted. Under section 57 the
Commissioner is empowered to call for information from clearing and
forwarding agents to give certain particulars in respect of transaction with
any dealer. By the impugned judgement, the Madhya Pradesh High Court
has struck down the provisions of sections 57, 58 and 59 of the said Act on
the ground of lack of legislative competence, relying on, the following the
judgment of this Court in the case of State of Haryana v. Sant Lal & Anr.
reported in [(1993) 4 SCC 380].
2 The original petitioners Swastik Roadways were carrying on
business of clearing and forwarding agents. They used to receive goods for
being consigned to places outside the area of their operation. They also used
to receive goods from place to place outside their principal place of business
for delivery to consignees. In short, they were clearing and forwarding
agents engaged in the business of transporting goods.
3 On 1st April, 1995, the Madhya Pradesh Commercial Tax Act,
1994 came into force. It received the assent of the President on 7th January,
1995. In the present case as stated above sections 57, 58 and 59 have been
challenged. As per the said three sections the petitioners were required to
furnish information including the statement of accounts to the Commissioner
as he may require in respect of transactions of any dealer with them (clearing
and forwarding agents) provided clearing and forwarding agents handled the
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documents of title to the goods or provided they transported the goods. By
virtue of section 57(2), in case of failure to furnish information a penalty is
provided of an amount equal to three times the amount of tax payable in
respect of the goods involved in the transaction and which appear to have
been evaded by the owner of the goods. Section 58 speaks of control on
clearing and forwarding agents to prevent or check evasion of tax. Further
the State Government is empowered to issue directions in that regard, in
order to ensure that such persons maintain registers concerning their
business and send intimation about such business in a proforma.
4. By the impugned judgment, the High Court took the view that
by virtue of these provisions, the carriers and clearing and forwarding agents
were sought to be treated as dealers though they have nothing to do with the
sale or purchase of goods, and for evasion of tax by their principal, they
were sought to be penalised to the extent of a sum equal to three times the
amount of tax payable in respect of the goods involved in the transaction.
Following the judgment of the Supreme Court in the case of Sant Lal
(supra), the High Court struck down the above three provisions as
unconstitutional and beyond the powers of the State Legislature under Entry
54 of List II of the Seventh Schedule to the Constitution of India. Being
aggrieved, the Department has come by way of appeal to this Court.
5 Mr. P.C. Sen, learned counsel appearing on behalf of the
appellants submitted that there is a very narrow controversy in this case. He
submitted that both sides agreed that the impugned Act is enacted to levy tax
on sale and purchase of goods. That both sides agreed that the incidence of
tax is on the dealer. However, the dispute is whether clearing and
forwarding agents have proximate connection with sale and purchase of
goods or with evasion of tax by the dealers. Mr. Sen contended that in an
appropriate case of tax evasion by the dealer, the Commissioner has to make
a necessary enquiry and therefore under section 57(1) of the Act, the
Commissioner is empowered to call upon clearing or forwarding agent or the
transporter to furnish requisite details in order to control tax evasion. That
similarly section 58 gives power to the State Government to direct the
clearing and forwarding agents to maintain a register in order to check or
prevent tax evasion. Mr. Sen contended that sections 57 and 58 are a part of
machinery sections which help the assessing officer to compute the tax and
which helps the Department to check and prevent tax evasion. Mr. Sen
contended that under Entry 54 of List II, the State is empowered to make a
law imposing tax on sale and purchase of goods. He contended that the
impugned provisions are incidental or ancillary to the power of the State to
impose tax on sale or purchase of goods. He contended that clearing and
forwarding agents have a close and proximatic connection with sale and
purchase of goods. He, therefore, submitted that imposition of penalty on
clearing and forwarding agents was leviable if they did not cooperate in the
enquiry against the dealer for tax evasion. He, therefore, submitted that
provisions of sections 57, 58 and 59 are intra vires Entry 54 of List II of the
Seventh Schedule to the Constitution of India. In this connection Mr. Sen
has relied upon the judgment of the Apex Court in State of Rajasthan &
Anr. v. D.P. Metals reported in [(2002) 1 SCC 279]. He also relied upon the
judgment of this Court in the case of Tripura Goods Transport Association
& Anr. v. Commissioner of Taxes & Ors. reported in [(1999) 2 SCC 253].
Mr. Sen further contended that the judgment of the Supreme Court in the
case of Sant Lal (supra) had no application to the facts of the present case
as in that case transporters, clearing and forwarding agents were required to
obtain a license from the competent authority for carrying business and
consequently it was held by the Apex Court that the State Legislature had no
power to enact the law of that nature under Entry 54 of List II of the Seventh
Schedule to the Constitution of India.
6 Per contra, Mr. Sanghi, learned counsel for the respondents submitted
that the impugned provisions seek to impose liabilities for tax evasion by the
dealers on clearing and forwarding agents who have no connection with the
transaction of sale and purchase of goods. He contended that the Act
empowered the government to impose tax on sale and purchase of goods.
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That the said Act empowered the government to levy tax on the dealers.
However under the impugned Act, clearing and forwarding agents who have
no connection with the transaction of sale or purchase of goods are made
liable to pay tax in the form of penalty. In this connection reliance was
placed on section 57(2) under which clearing and forwarding agents are
penalised for not furnishing statement of accounts to the Commissioner
under section 57(1). That under section 57(2) penalty is leviable at the rate
of three times the amount of tax payable in respect of the goods involved in
the transactions which tax is evaded by the owner. It was, therefore,
contended on behalf of the respondents that in the guise of penalty the State
Government is not empowered to recover the tax from persons who have no
connection with the transaction of sale and purchase of goods. Mr. Sanghi
contended that although machinery provision is a part of the taxing statute
and although the State is empowered to make regulatory measures, it cannot
make a person liable if tax cannot be imposed on such a person. Mr. Sanghi,
learned counsel for the respondents contended that the State cannot penalise
any and every person for evasion of tax if such person is not remotely
connected to the taxable transaction. He contended that clearing and
forwarding agents do not have any proximate connection with the sale and
purchase of goods. He contended that there is no proximate nexus between
clearing and forwarding agent on one hand and evasion of tax on the other
hand. He contended that it is the dealer, who is responsible for evasion of
tax if any, for which a clearing and forwarding agent cannot be held
responsible. Mr. Sanghi submitted that the judgment of the Supreme Court
in Sant Lal’s case was clearly applicable to this case and, therefore, the High
Court was right in striking down sections 57, 58 and 59 of the said Act and
rule 75 of the Rules as ultra vires Entry 54 of List II of the Seventh Schedule
to the Constitution of India. Mr. Sanghi further contended that under section
57(1) and under section 58(1) every clearing and forwarding agent is
required to furnish particulars including statement of accounts in respect of
transactions of any dealer. He submitted that clearing and forwarding agents
have no connection with sale and purchase of goods by the dealers and in the
circumstances the Commissioner cannot call upon clearing and forwarding
agents to furnish particulars of transactions of dealers. Mr. Sanghi,
therefore, contended that in the guise of penalty and in the guise of
providing machinery to regulate tax evasion, persons who have no
connection with sale and purchase of goods are sought to be made liable
and, therefore, the impugned provisions of the Act and rule 75 of the Rules
are ultra vires Entry 54 of List II of the Seventh Schedule of the
Constitution.
7. In view of the above arguments the point for determination is:
Whether the High Court was right in holding that the clearing and
forwarding agent had no proximate connection with the transaction of sale
and purchase of goods or with the evasion of tax by the dealer and
consequently the impugned provisions of sections 57, 58 and 59 were
beyond the legislative competence of the State legislature under Entry 54 of
List II of the Seventh Schedule of the Constitution of India?
8. To appreciate the scope of the controversy involved in this case,
we quote some of the provisions of the said Act, as under:-
"Section 57: Furnishing of information by bank and
clearing and forwarding agents.- (1) Every bank including,
any branch of a bank and every clearing or forwarding agent
shall, if so required by the Commissioner, furnish such
particulars including statement of accounts and affairs verified
in the manner, specified by the Commissioner as he may
require in respect of transaction of any dealer with such bank or
with such clearing or forwarding agent which during the course
of its business handles documents of title to goods or transports
goods.
(2) If any clearing or forwarding agent contravenes the
provisions of sub-section (1), the Commissioner may, after
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giving such agent a reasonable opportunity of being heard,
direct him to pay, by way of penalty, a sum equal to three times
the amount of tax payable in respect of the goods involved in
the transactions referred to in sub-section (1) and which appear
to have been evaded by the owner of such goods due to the
failure of such agent to furnish information pertaining thereto
required of him by the Commissioner under sub-section (1).
Section 58 : Control on clearing and forwarding agents to
prevent or check evasion of tax.- (1) The State Government
may, if it is satisfied that it is necessary so to do with a view to
prevent or check evasion of tax under this Act in any place or
places in the State, direct that-
(i) every clearing and forwarding agent who during the
course of his business handles documents of title to
goods or transports goods or despatches or takes delivery
of goods and who has his place of business at such places
as may be notified by the State Government, shall send
an intimation about his business in the prescribed form to
the prescribed authority and in the prescribed manner
before the prescribed date; and
(ii) every such clearing and forwarding agent shall maintain
a register in such form and containing such particulars of
his business as may be prescribed which shall be open to
inspection by the Commissioner.
(2) If any clearing or forwarding agent on being directed to
do so under sub-section (1) contravenes the provisions thereof,
the Commissioner may, after giving such agent a reasonable
opportunity of being heard, direct him to pay, by way of penalty
a sum not exceeding five hundred rupees.
Section 59: Clearing and forwarding agents defined.- For the
purpose of Section 57 and 58 clearing and/or forwarding agent
includes a person engaged in collecting goods from any place
inside the State including railway premises and arranging for
the transport and/or delivery of such goods to the principal or
any other person or carrier of goods for and on behalf of the
principal and in the process of collection, transport or delivery
handles documents of title to such goods."
9. Briefly it may be stated that ’sale price’ is defined under
Section 2(u) of the Act to mean the amount payable to a dealer as
consideration for sale of goods less discount but inclusive of any sum
charged for anything done by the dealer in respect of the goods at the time of
or before the delivery thereof other than the cost of freight or installation,
when such cost is separately charged. Therefore, cost of freight or
installation at the time of or before the delivery, separately charged, is
excluded from the sale price. Section 5 deals with incidence of tax on the
dealer whose turnover exceeds the prescribed limit. Section 6 empowers the
Commissioner to determine the liability of the dealer. Section 9 deals with
levy of tax payable by a dealer on the taxable turnover relating to goods
specified in Schedule II. Section 27 deals with assessment of tax. Section
28 deals with escapement of sale or purchase of goods, chargeable to tax,
from assessment on account of a wrong deduction claimed and granted. It
deals with re-opening of such completed assessments after reasonable
opportunity to the concerned dealer. It empowers the Commissioner to
impose penalty on such defaulting dealers. Similarly, section 29 empowers
the Commissioner to make re-assessments in cases where the Department
has passed an order, which is prejudicial to the interest of the revenue.
Section 57 inter alia empowers the Commissioner to call upon clearing and
forwarding agents to furnish such particulars as he may require in respect of
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transaction between any dealer and such clearing and forwarding agent.
That in the event of contravention, a fixed penalty is leviable on the clearing
and forwarding agent equal to three times the amount of tax payable in
respect of the goods involved in the transaction and which tax is evaded by
the owner of such goods. Under section 58, the State Government is
empowered to direct the clearing and forwarding agents to maintain a
register and give intimation about his business in the prescribed format. By
rule 75, form 60 is prescribed for intimation of particulars of business of
clearing and forwarding agent and form 61 is the prescribed register.
10. According to the respondents, section 57 (2) is bad in law as it
seeks to levy and recover the tax on sale of goods in the form of penalty
from clearing and forwarding agents who have no proximate connection
with the sale or purchase of goods or payment of tax. This argument of the
respondents has been accepted by the High Court in the impugned judgment.
In this connection reliance is placed on the judgments of this Court in Sant
Lal’s case (supra) and on The Check Post Officer & Ors. v. K.P. Abdulla &
Bros. reported in [(1970) 3 SCC 355].
11. We do not find any merit in the arguments advanced on behalf
of the respondents. The power to levy a tax includes all incidental powers to
prevent the evasion of such tax. The powers such as the power to seize and
confiscate goods in the event of evasion of tax and the power to levy penalty
are meant to check tax evasion and is intended to operate as a deterrent
against tax evaders and are therefore ancillary or incidental to the power to levy
tax on the sale of goods and thus fall within the ambit and scope of Entry 54 of
List II to the Seventh Schedule to the Constitution of India. This position in law
is not disputed by the respondents. What is disputed is that when tax is
sought to be recovered from the clearing and forwarding agents in the form
of penalty under section 57(2), the same falls outside the ancillary or
incidental powers of the State Legislature under Entry 54 of List II as the
levy under the Act is on sale and purchase of goods and as there is no nexus
between such sale or purchase of goods and the clearing and forwarding
agents, sections 57 and 58 and especially the penalty provisions falls outside
such ancillary powers. As stated above, the said Act provides not only for
levy of tax on sale and purchase of goods but also provides for computation
of tax, incidence of tax, recovery of tax, assessment and re-assessment. The
impugned provision of section 57(1) and section 58(1) operate in aid of
sections 27, 28 and 29 of the Act: To illustrate, the sale price is net of cost of
freight or installation. The dealer in his return is entitled to show such
expense as deduction. The Commissioner is entitled to verify the claim for
deduction. If the assessing authority has reason to believe in the course of
assessment under section 27 or re-assessment under section 28 that
deduction claimed is excessive, it can call for information from the clearing
and forwarding agent. He can re-open the assessment in cases where fraud
is detected in the matter of deduction on account of excessive claims of
deduction being allowed and on that basis the assessing authority is
empowered to levy penalty on the dealer. Such particulars will be called for
if the dealer-assessee has transported the goods through the clearing and
forwarding agent. Where false claims for deduction are made on taxable
goods dispatched to other places by way of sale without accounting for the
same, it results in tax evasion. To check such evasions, sections 57 and 58
are enacted. The information sought under section 57(1) and the
maintenance of register under section 58 will therefore help the revenue to
identify the nature of the transaction to verify the claims of the dealer and to
trace the taxable transactions so that a person or a transaction liable to sales
tax under the State Act does not escape payment of such tax. When the
Commissioner acts under section 57(1) he acts in cases where he detects
such evasions. This is clear from provisions of sections 57(1) and 58(1).
Under various sections of the Act, tax-evaders are sought to be penalised and
by contravening the provisions of sections 57 and 58 the clearing and
forwarding agent also becomes liable as he facilitates such tax evasion. In
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the circumstances, the High Court erred in holding that there was no
proximate connection between the clearing and forwarding agents and the
tax evasion.
12. We also do not find merit in the contention of the respondents
that since the basis of penalty was three times the tax evaded by the
owner/dealer, section 57(2) falls beyond the ancillary powers to levy tax on
the sale and purchase of goods. In support of it, it was argued that such
penalty was indeed a tax on sale of goods. That such penalty could not have
been levied on the clearing and forwarding agent, as there was no sale or
purchase in his hands nor he has any authority to sell or purchase. In our
view, the basis of penalty was three times the amount of tax evaded by the
dealer. This basis was a measure or the yardstick. It cannot convert a
penalty on the defaulting clearing and forwarding agent into a tax. The
object of section 57(2) is to penalise any person who abets in or facilitates
the evasion of tax. Therefore a heavy penalty is prescribed to check tax
evasion, subject to the satisfaction of conditions laid down in the sub-
section. The nexus between tax evasion by the owner of goods and the
failure of C & F agent to furnish information required by the Commission is
implicit in section 57 (2) and the concerned assessing authority has to
necessarily record a finding to this effect before levying penalty under
section 57(2).
13. It is next contended on behalf of the respondents that the issue
of this case is similar to the issue in the case of Sant Lal (supra). We do not
find any merit in this argument. In Sant Lal’s case, provisions of section 38
of Haryana General Sales Tax 19 were challenged. Under section 38(2)
every clearing and forwarding agent was required to obtain a license. In
addition, every C & F agent had to give particulars and information in
respect of "the transactions of the goods" in a prescribed format. The Act
was under Entry 54 List II dealing with levy of tax on sale of goods. If there
was a failure on the part of the clearing and forwarding agent to give
particulars or to obtain licence, a fixed penalty calculated at 20% of the
value of goods in respect of which no information was furnished as required
by section 38(1) was imposed. These provisions were challenged. It was
held by this Court that the power of the State Legislature was to levy tax on
sale of goods and that the powers ancillary to levy of tax on sale of goods
would not cover the clearing and forwarding agents who have no connection
with the transaction of sale and purchase of goods. Hence the clearing and
forwarding agents could not be asked to obtain a license, nor can they be
penalized for not giving particulars as a licensee. In that matter, section 38
applied to all clearing and forwarding agents and transporters irrespective of
the fact whether they handle documents of title to goods and whether they
handle the goods of dealers or not. They were all required to obtain license,
failing which they were not allowed to operate as clearing and forwarding
agents and that is the main reason why section 38 was struck down. In fact
section 38(2) and 38(1) were connected to each other and penalty was
imposed for contravention of both the sub-sections. The Court observed at
paragraph 15:\027
"\005 .A clearing or forwarding agent or ’dalal’ or person
transporting goods does not necessarily handle the booking or
receipt of goods which have been sold; they could very well be
handling goods which a consignor may consign to himself from
one town or village to another in the State. The said Act does
not take account of this and requires all forwarding and clearing
agents, ’ dalals’ and persons transporting goods to be licenced
under the said Act. To this extent the said Section 38 goes
beyond the ancillary and subsidiary powers of the State
Legislature in enacting a law imposing sales tax."
As regards sub-section (3) of Section 38 which provides for levy of
penalty, it was held:-
" It is difficult to hold that a clearing or forwarding agent,
’dalal’ or person transporting goods can be made liable to a
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penalty equivalent to 20 per cent of the value of the goods in
respect of which no particulars and information have been
furnished. Given the obligation to furnish particulars and
information, a penalty for evasion of tax, in addition to the tax
evaded, can reasonably and fairly be imposed which bears a
proportion to the quantum of tax that has escaped assessment
but it cannot reasonably and fairly bear a proportion to the
value of the goods the sale of which has occasioned the liability
to tax. A penalty as high as that sought to be imposed could
well put a smaller clearing or forwarding agent or ’dalal’ or
person transporting goods out of business."
The approach of this Court on the question of legislative competence
is also discernible from paragraph 19 wherein it was held\027
"\005. As we have already stated, there has to be a reasonable and
proximate connection between the transaction of sale and the
clearing or forwarding agent, ’dalal’ or person transporting
goods before the State Legislature can, in exercise of the power
to levy sales tax, enact legislation concerning him. We are not
satisfied that there is such close and direct connection between
the transaction of sale of goods by a dealer and the clearing or
forwarding agent, ’dalal’ who books or receives such goods or
a person who transports such goods within the meaning of the
said section 38."
The provisions in the present case are different and the ratio in Sant
Lal’s case has no application. In the present matter, a bare reading of section
57(1)(2) shows that in cases where Commissioner is satisfied about tax
evasion by the dealer, he may call upon the clearing and forwarding agent to
give particulars of a transaction and if the clearing and forwarding agent
fails, penalty is levied at three times the tax evaded by the dealer. The
reason is that by willful disobedience to comply with the directions of the
Commissioner, the clearing and forwarding agent facilitates the tax evasion
by the dealers. Similarly, under section 58, the State is empowered to give
directions to the clearing and forwarding agent to maintain a register in
Form 61 under rule 75 which would give the details of consignor, consignee,
the quantity of goods carried on a particular date and time, its value, etc.
Such particulars are expected to be maintained by a clearing and forwarding
agent including a transporter in the ordinary course of business even without
a provision like section 58. We reiterate that in the present case, the
provisions of sections 57 and 58 are to prevent/check tax evasion. The
penalty provision contained in Section 57(2) unlike in the case of Sant Lal
has intimate nexus with evasion of tax by the dealer whose goods or
documents are handled by the clearing and forwarding agent (as defined by
section 59) and whose failure to furnish information would have led to the
tax evasion. The penalty provision in Sant Lal’s case is materially different.
"The reasonable and proximate connection" is not lacking in the present
case.
The decision in Sant Lal’s case was distinguished in two subsequent
decisions, namely, Tripura Goods Transport Association v. Commissioner
of Taxes [(1999) 2 SCC 253] and State of Rajasthan v. D. P. Metals
[(2002) 1 SCC 279]. In the first case, the relevant provisions of the Tripura
Sales Tax Act required the persons doing transport business to obtain a
certificate or registration and further required the transporter to give a
complete and correct account of the goods carried by him in a prescribed
form which could be scrutinized by the officer-in-charge of the check-post.
The driver or any other person in-charge of the goods vehicle could be
stopped and the records inspected and if it was found that the goods were
being carried in contravention of the provisions of the Act or the rules, the
officer conducting the search could seize the goods found in the vehicle.
Punishment was provided for non-compliance with the provisions of the Act
and the Rules. The contention that the sales tax legislation could not extend
to them on the ground that they were not dealers doing the business of sale
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or purchase of goods was negatived. The legislative competence was
upheld. It was observed therein:\027
"Every taxing statute has charging sections. It lays down
the procedure to assess tax and penalties etc. It also provides
provisions to cover pilferage of such revenue by providing
such mechanism as it deems fit, in other words, to check
evasion of tax and in doing so, if any obligation is cast on any
person having connections with the consignor or consignee in
relation to such goods, may be other than a dealer, to perform
such obligation in aid, to check evasion and in case he is made
liable for any offence, for his dereliction of duty or deliberate
false act contrary to what he is obligated to do. In our opinion,
it cannot be construed to be beyond the competence of the State
Legislature."
The case of State of Rajasthan v. D.P. Metals which was decided by
a three Judge Bench referred to Tripura Goods Transport case with approval.
In the Rajasthan case, the three Judge Bench reversed the decision of the
High Court holding section 78 of the Rajasthan Sales Tax Act
unconstitutional on the ground of legislative incompetence. Section 78
provided for establishment of check-post and inspection of goods while in
movement. Sub-section (5) of section 78 empowered the officer-in-charge of
the check-post to impose on the person \026in-charge of the goods, a penalty
equal to 30% of the value of the goods for possession or movement of goods
if they are not covered by prescribed documents such as challans, bills of
sale, declaration forms etc., or for submission forms etc., or for submission
of false or forged documents. The challenge to legislative competence was
negatived in this case also. It was however clarified that the impugned sub-
section cannot relate to personal belongings which are not meant for sale.
This Court observed:\027
"It is thus settled law that provisions to check evasion of tax are
within the legislative competence of the States under Entry 54
of List II. This being so, the provisions to make the imposition
of tax efficacious or to prevent evasion of tax are within the
legislative competence\005.
\005. If there was legislative competence to enact Section 78(2)
then the same power contained in Entry 54 of List II could
enable the State Legislature to provide for consequence of non-
compliance by incorporating sub-Section (5) therein\005."
Referring to Sant Lal’s case, it was observed\027
"\005..Unlike the dalals and forwarding agents, as in Sant Lal’s
case, the persons referred to in Section 78(2) are persons
concerned with the movement of the goods which are sold or
likely to be sold\005.."
The above observations cannot be pressed into service by the
respondent to contend that clearing and forwarding agents have no
connection with dispatch and transport of goods of dealers or that they
cannot be compelled to give any information to the Sales Tax Department in
regard to their transactions. If section 78 of Rajasthan Act was meant to
check tax evasion, sections 57 and 58 of the present Act also serve the same
purpose. The expression "movement of goods" in the above passage was
used only to explain why the driver or other person in charge of goods
vehicle could be penalized under the Sales Tax Act.
As regards penalty, the Court observed in Rajasthan case;
"\005\005 The legislature thought it fit to specify a fixed rate of
penalty and not give any discretion in lowering the rate of
penalty. The penalty so fixed is meant to be a deterrent and we
do not see anything wrong in this. The quantum of penalty
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under the circumstances enumerated in Section 78(5) cannot, in
our opinion, be regarded as illegal. The legislature in its
wisdom has thought it appropriate to fix it at 30% of the value
of goods and it had the competence to so fix\005"
Thus, though in Sant Lal’s case, the penalty related to value of the goods
was struck down, in the Rajasthan case, the three Judge Bench upheld the
same. The penalty in the present case even stands on a better footing if
tested from the angle of legislative competence. The penalty which is levied
by way of deterrent against the C & F agent is directly related to the evasion
of tax by the dealer resulting from the failure of the agent to furnish
information. Thus, the impugned provisions are ancillary to the levy of tax
on the sale or purchase of goods by dealers falling within the ambit of Entry
54, List II.
14. Learned counsel for the respondents however placed heavy
reliance on the judgment of this Court in the case of K.P. Abdulla & Bros.
(supra). In that matter there was a challenge to section 42 of the Madras
General Sales Tax Act, 1959. Under section 42, the check post officer was
empowered to stop any vehicle or boat, examine the contents of the vehicle
and seize and confiscate any goods which are under transport if not covered
by a bill of sale or delivery note, goods vehicle record etc. In lieu of
confiscation, the person affected had the option to pay in addition to the tax
recoverable on the goods, a sum of money at double the amount of tax
recoverable in case they are taxable goods. The Constitution Bench
affirming the judgment of the High Court, declared sub-section (3) of
section 42 unconstitutional for the reason that it is not ancillary or incidental
to the power to legislature on sales tax. It was observed:\027
"\005\005.Sub-Section (1) and (2) of Section 42 are intended to set
up machinery for preventing evasion of sales-tax. But, in our
judgment, the power to confiscate goods carried in a vehicle
cannot be said to be fairly and reasonably comprehended in the
in the power to legislate in respect of taxes on sale or purchase
of goods\005.
\005 A provision so enacted on the assumption that goods carried
in a vehicle from one State to another must be presumed to be
transported after sale within the State is unwarranted. In any
event, power conferred by sub-Section (3) to seize and
confiscate and to levy penalty in respect of all goods which are
carried in a vehicle whether the goods are sold or not is not
incidental or ancillary to the power to levy sales tax\005.."
Referring to sub-section (3) it was pointed out that even a person
carrying his own goods was also exposed to the risk of the goods being
forfeited. The ratio of this decision in our view has no application to the
facts of the present case. Sections 57 & 58 do not deal with confiscation of
goods at all. As far as the penalty under section 57(2) is concerned we have
already noted that it is levied only on the satisfaction being reached by the
concerned officer that the failure of the C & F agent to furnish the
information required by the Commissioner facilitated the dealer to evade the
tax. It presupposes that there was a taxable sale in respect of which the tax
evasion appears to have occurred. The penalty under section 57(2), unlike
section 42(3) of the M.G.S.T. Act, is not levied on a mere assumption that a
taxable sale or purchase took place. The impugned sections of Madhya
Pradesh Act are meant to get timely information which will help the
department to detect tax evasion. As observed earlier, in cases of
assessment or under assessment, Commissioner has a power to verify not
only the transactions of sales entered into by the dealer but he has also to
cross-check the figures with the clearing and forwarding agent in appropriate
cases and for that purpose he can call upon the agent to give particulars such
as value of goods, amount of freight, details of consignor and consignee,
date of consignment, etc. Therefore, in such cases, the Commissioner, on
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the basis of information furnished or the particulars noted in the register of
the clearing and forwarding agent can verify the quantity of goods, the value
of the goods, the name of consignee, etc. in order to check the details of the
transaction under the assessment and even trace the dealer in appropriate
cases. Hence, it cannot be said that the information to be furnished by
clearing and forwarding agent has no proximate connection with the sale and
purchase of goods or realization of tax in the context of the impugned
provisions.
The width of legislative power in the context of tax evasion is
illustrated by the case of Union of India v. Bombay Tyre International Ltd.
reported in [AIR 1984 SC 420]. By Act 22 of 1973 (w.e.f. 1.10.75) a new
section 4 in respect of transactions effected by the assessee to or through "a
related person" was introduced in the Central Excise Act 1944. The said
new section 4(1)(a) provided that "value" shall be deemed to be the normal
price and the normal price was defined as the price at which the goods were
ordinarily sold by the assessee in the course of wholesale trade where the
buyer was not a "related person" and the price was the sole consideration for
the sale. However there were three provisos to section 4(1)(a) which
indicated circumstances under which normal price could vary. The third
proviso to section 4(1)(a) provided that where the assessee so arranges that
the goods are generally not sold by him in the course of wholesale trade
except to or through a related person, the normal price of the goods sold by
the assessee to or through such related person shall be deemed to be the
price at which they are ordinarily sold by the related person in the course of
wholesale trade at the time of removal, to dealers (not being related
persons). On behalf of the assessee it was urged that the provisions,
aforestated, were whimsical and arbitrary and cannot be said to be
reasonably calculated to deal with the issue of evasion or avoidance of
excise. It was said that the assessment on the manufacturer by reference to
the sale price charged by his distributor is wholly incompatible with the
nature of excise. This argument was rejected by this Court in following
terms:\027
"It is open to the Parliament to incorporate provisions in
the section declaring that certain specified categories of
transactions fall within the tainted class, in which an irrebutable
presumption will arise that the transactions belonging to those
categories are transactions which cannot be dealt with under the
usual meaning of the expression "normal price" set forth in
section 4(1)(a)\005.."
In the said judgment it has been further held (vide para 45) that :-
"Now, it is well known legislative practice to enact
provisions in certain limited cases where an assessee may be
taxed in respect of the income or property truly belonging to
another. They are cases where the Legislature intervenes to
prevent the circumvention of the tax obligation by tax payers
seeking to avoid or reduce their tax liability through modes
resulting in the income or property arising to another\005".
The above observations of this Court can be pertinently applied to this
case.
Accordingly we hold that the impugned sections 57 and 58 of the
M.P. Commercial Tax Act, 1994 have been enacted by the State legislature
under the powers incidental to the power to levy tax on sale and purchase of
goods under Entry 54, List II of the Seventh Schedule of the Constitution of
India.
15. We would like to conclude our judgment by quoting the
following passage from Broken Hill South Ltd. v. Commissioner of
Taxation, N.S.W. reported in [56 CLR 337 at page 379] which has been
approved by this Court in the case of The State of Madras v. M/s. Gannon
Dunkerley & Co. (Madras) Ltd. reported in [AIR 1958 SC 560]:\027
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"In any investigation of the constitutional powers of these great
Dominion legislatures, it is not proper that a Court should deny
to such a legislature the right of solving taxation problems
unfettered by ’a priori’ legal categories which often derive from
the exercise of legislative power in the same constitutional
writ."
16. For the foregoing reasons, we uphold the validity of the
impugned provisions of sections 57, 58 and 59 of the Act as intra vires Entry
54 of List II of Seventh Schedule to the Constitution of India. Consequently
we hold that the impugned judgment of the High Court dated 16th April,
1996 in Writ Petition No.3756 of 1995 is not correct. Accordingly, both the
civil appeals are allowed with no order as to costs.