State of
Bihar & Ors Vs. Harihar Prasad Debuka
[1989] INSC 67 (21
February 1989)
Saikia,
K.N. (J) Saikia, K.N. (J) Oza, G.L. (J)
CITATION:
1989 AIR 1119 1989 SCR (1) 796 1989 SCC (2) 192 JT 1989 Supl. 34 1989 SCALE
(1)464
ACT:
Constitution
of India: Articles 301 and 304---Freedom of
trade, commerce and intercourse--Not absolute--Is subject to reasonable,
regulatory and compensatory measures in public interest.
Reasonable
restrictions--Whether can be imposed by executive action--Reasonability of
restrictions--How deter- mined.
Legislature--Power
of--To make laws--Also has ancillary and incidental power to make that law
effective.
Bihar
Finance Act, 1981: Section 31(2-a) (As substituted by Bihar Finance Act,
1984)--Notification No. S.O. 1432 dated 28.12.85-Adopting permits in Form
XXVIII A or XXVIII B--Validity of-Whether violative of Articles 301 and 304.
Words
and Phrases: 'Free Trade'--'Trade and Business'" Throughout the Territory of India"--'De Minimis Non Curat Lex'-Meaning of.
HEAD NOTE:
In exercise
of the powers conferred by sub-section (2-a) of section 31 of the Bihar Finance
Act, 1981 the Commission- er of Commercial Taxes, Bihar issued a Notification
dated 28th December, 1985 adopting Forms XXVIII A and XXVIII B as the
declaration for the purposes of verification and assess- ment of the sales-tax
payable. Clause 1 of the Notification provided that a person transporting
goods, exceeding the quantity notified under section 35, on a goods carrier or
a vessel shall carry Form XXVIII A or XXVIII B duly filled up in respect of
goods being brought into the State or being sent out of the State. Clause 2 of
the Notification provided that in case a form is found blank or not containing
all the particulars, it shall be deemed to be a violation of the provisions of
sub-section (2-a) of section 31 of the Act.
The
respondent, a registered dealer under the Bihar Sales Tax Act and the Central
Sales Tax Act purchased 165 bags of mustard in the State of Rajasthan and was transport- ing the same
there from to 797 Jamshedpur in the State of Bihar. The officers of the Inves- tigation
Bureau Jamshedpur Division seized the vehicle along with the goods on the
ground that in the road permit the bill number had not been mentioned in column
No. 9 in Form XXVIII B. On a representation by the Singhbhum Chamber of
Commerce and Industry the truck along with the goods was released. The
Inspecting Officer issued a demand notice to the respondent imposing a penalty
of Rs.8,330 and rejected the contention of the respondent that no permit was neces-
sary because it was violative of the respondent's Constitu- tional right of
freedom of inter-State trade and commerce.
The
appellant filed a writ petition in the Patna High Court challenging the
validity of the Notification on the ground of its being violative of Articles
301 and 304 and also the demand notice imposing penalty.
The
High Court held that the Notification imposed unwar- ranted restrictions on the
inter-State trade and commerce and accordingly quashed the Notification as violative
of Articles 301 and 304 and set aside the penalty order with demand notice.
In
this appeal by special leave on the question whether the impugned Notification
and the adoption of Forms XXVIII A and XXVIII B, for the purposes of preventing
evasion of sales-tax, was violative of Articles 301 and 304 of the
Constitution.
Allowing
the appeals and setting aside the judgment of the High Court,
HELD:
1. Article 301 mandates free trade, commerce and intercourse-throughout the territory of India. The words "throughout the territory of India" extends the freedom not only to inter-State but also
to inter-State transactions and movements. The mobility of goods throughout the
territory of India has to be free. Free trade throughout the territory of India would be one with no tariffs and no restrictions or
disadvantages of any kind of importing or exporting from the different States.
Free trade means complete freedom of inter-State trade without any restrictions
on the movement of goods between the States. Anyone aggrieved by infringe- ment
of the provisions of Article 301 can seek his remedy from the Court against the
offending legislative or execu- tive action. [808C-E]
2. The
word 'trade' has been used synonymously with the word 798 'business'. Trade or
business would mean some real substan- tial and systematic or organised course
of activity or conduct with a set purpose. [808E] State of Bombay v. R.M.D. Chamarbaug-wala,
[1957] S.C.R. 874, applied.
3.
Freedom under Article 301 does not mean absolute freedom but freedom from all
restrictions and barriers except those which are provided in other Articles of
Part XIII as well as regulatory and compensatory measures. The object of Part
XIII is not to make inter-State trade, com- merce or intercourse absolutely free.
Reasonable restric- tions in public interest are permissible. The reasonable
restrictions contemplated in Part XIII have to be backed by law and not by
executive action provided the same are within the limitations prescribed under
the scheme of Part XIII.
The
power of the Union or the State to exercise legitimate
regulatory control is independent of the restrictions im- posed by Articles
302-305. [808F; 81 IG; 812B] State of Madras v. Nataraja, [1968] 3 S.C.R. 829, applied.
4.
While examining whether there is a violation of the freedom guaranteed by
Article 301, one has to scrutinise whether the impugned legislative or
executive act operates to restrict or barricade trade, commerce or intercourse
directly and immediately, as distinct from creating some indirect or
inconsequential impediment which may be regarded as remote. In other words,
regulatory or compensory measures cannot be regarded as violative of the
freedom. Such meas- ures cannot be challenged as interfering with the freedom
guaranteed by Article 301 unless they are shown to be co- lourable measures to
restrict the free flow of trade, com- merce and intercourse. [808H; 809A-B]
5.
Measures impeding the freedom of trade, commerce and intercourse may be
legislative or executive and may be fiscal or non-fiscal. Taxing laws could be
restrictions on trade, commerce and intercourse, if they hamper the flow of
trade and if they were not what could be termed to be com- pensatory taxes or
regulatory measures. He who assails such a measure has to show that it is not
regulatory but it directly and immediately interferes with the free flow of
inter-State trade or business. Freedom may be impeded by impediments on the
individuals carrying on trade or busi- ness, on the business itself or on the
vehicles, carriers, instruments and labour used in the trade or business.
[809B-C]
799 Atiabari Tea Co. Ltd. v. State of Assam and others, [1961] 1 S.C.R. 809;
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan and others, [1963] 1 S.C.R. 491;
Western Electronics v. State of Gujarat, A.I.R. 1988 S.C. 2038 and Indian Cement v. State of Andhra Pradesh,
A.I.R. 1988 S.C. 567 applied.
6.
When the legislature had the power to make a law with respect to any subject it
had all the ancillary and inciden- tal power to make that law effective. In the
instant case the notification ex facie shows the purpose, namely, to prevent
evasion and facilitate assessment of sales tax. The permits will indirectly
help assessment by ascertaining whether tax would be payable or not. The permit
would enable the carrier to cross the State territory by producing it if and
when needed and thus would promote rather than impede inter-State trade. A
declaration may also serve the public purpose by finding out unauthorised trade
or business to which freedom of trade, commerce and intercourse would not
apply. Thus, the impugned notification is a measure in exercise of a power
incidental to the levy of sales tax and it could not be said to have been a colourable
exercise of power to impede, restrict or barricade inter-State trade in respect
of which Bihar State Legislature has no power to legislate. [813B-E]
6.1
Article 304(b) clearly permits the State Legislature to impose such a
reasonable restriction on the freedom of trade, commerce and intercourse with
or within that State as may be required in the public interest. The word 'with'
involves an element having its situs in another State. It cannot be, therefore,
said 'that the insistence on the disclosure in respect of goods entering Bihar from another State if otherwise legitimate would not
be protected by Article 304(b). [815C]
6.2 To
decide whether the notification impeded inter- State trade, the concept of
inter-State trade and its conti- nuity has also to be taken into consideration.
In the in- stant case the notification clearly states that the declara- tion in
the permit is indeed for the purpose of verification and assessment of tax
payable and there is no imposition of any tax. The notification only prescribed
the declaration forms to be carried on a goods carrier or vessel for trans-
porting goods through the State of Bihar. It does not pro- hibit transportation of the goods. Therefore, there
is no direct and immediate restriction of inter-State trade, commerce or
intercourse as a result of the requirement to fill up and carry the forms. In
other words, the continuity of the transport will not be obstructed or
interrupted.
Therefore,
the notification and the adoption of the forms are reasonable and in public
interest and not ultra vires the Articles 301 and 304 of the Constitution of
India.
[815F,
816F] 800 Hans Raj Bagrecha v. State of Bihar and others, [1971] 2 SCR 412; 1971 1 SCC 59, distinguished.
Sodhi
Transport Co. v. State of U. P., [1986]
1 SCR939, held applicable.
CIVIL
APPELLATE JURISDICTION: Civil Appeal Nos. 346347 of 1988.
From
the Judgment and Order dated 18.11.1986 of the Patna High Court in C.W.J.C.
Nos. 990 and 991 of 1986 (R).
G. Ramaswamy,
Additional Solicitor General and Ranjit Kumar for the Appellants.
Nemo
for the Respondents.
The
Judgment of the Court was delivered by K.N. SAIKIA, J. These appeals by special
leave are from a full bench judgment of the Patna High Court in two writ
petitions under Articles 226 and 227 of the Constitution of India allowing the
petitions and quashing the Bihar Govern- ment's
Notification No. S.O. 1432 dated 28th December 1985 as violative of Articles 301 and
304 of the Constitution of India.
Sub-section
(2-a) of section 31 of the Bihar Finance Act, 1981 was substituted by Bihar Finance
Act, 1984 as follows:
"(2-a)
A person transporting goods shall carry a declaration in such form as may be
pre- scribed by the commissioner supported by either a cash memo, bill or a challan,
in case the movement is otherwise than as a result of sale, in respect of goods
which is being transported on a goods carrier, or a vessel and shall produce
such challan, cash memo or bill along with the aforesaid form of declara- tion
on demand before the prescribed authori- ty:
Provided
that the Commissioner, by notifica- tion in this respect, may prescribe a form
of declaration or adopt a form of declaration or permit prescribed for the
purpose of Sections 34 & 35 of this part, and, he may also pre- scribe in
the said notification, the manner in which such declaration 801 or permit shall
be utilised for verification and assessment of tax payable under this part.
Provided
further that the Commissioner may exempt any person or dealer or class of regis-
tered dealers from the requirement of this sub-section." Under the
aforesaid amended provision the following Notification was issued:
The
28th December, 1985.
S.O.
1432.--In exercise of the powers con- ferred by subsection (2-a) of section 31
of the Bihar Finance Act, 1981 (Bihar Act 5 of 1981) Part I, the Commissioner
adopts Forms XXVIII A and XXVIII B as the declaration for the purpose of the
aforesaid sub-section which a person shall carry in respect of goods being
transported for the purposes of verification and assessment of tax payable and
prescribes the following manners in which such permit shall be utilised for
verification and assess- ment of tax payable under Part I of the said Act:
(i) A
person transporting goods, exceeding the quantity notified under section 35, on
a goods carrier or a vessel shall carry Form XXVIII A or XXVIH B duly filled up
in respect of goods being brought into the State or being sent out of the
State;
(ii)
In case a form is found blank, or not containing all the particulars, it shall
be deemed to be a violation of the provisions of sub-section (2-a) of section
31 of the said Act.
(iii)
The prescribed authority, after verifi- cation of the consignment, shall make appro-
priate endorsement in respect of the result of verification on both the
copies/counterfoils of Form XXVIII A or XXVIII B, as the case may be, and
retain one copy of original counter- foil and return the other copy or
duplicate counterfoil to the person transporting the goods;
(iv)
The copy of the original counterfoil retained by 802 the inspecting authority
shall be forwarded for verification and for assessment of tax to the circle in
which the dealer is registered or has his place of business.
(v)
,The concerned dealer shall preserve the other copy or duplicate counterfoil of
Form XXVIII A or XXVIII B, as the case may be, for production before the
assessing 'authority or for inspection at any time before or after the
assessment.
This
notification shall come into force with effect from the 1st January, 1986.
/Bikrikar/vividh/12
1-308/85 By order of the Governor of Bihar MUKUND PRASAD Commissioner of
Commercial Taxes and Special Secretary to Government." The respondent as
proprietor of M/s Jai Durga Industries of Jamshedpur town, which was registered
under the Bihar Sales Tax Act and the Central Sales Tax Act, purchased 165 bags
of mustard (sarso) from M/s Kanpur Chand Girish Chand Jain at Dhaulpur, in the
State of Rajasthan, and was trans- porting the same therefrom to Jamshedpur in
the State of Bihar in Truck No. RSG 533. On the 13th of February, 1986, the
officers of the Investigation Bureau Jamshedpur Divi- sion, inspected the said
truck and all necessary papers including a road permit in Form XXVIII B for the
165 bags of mustard (sarso) were produced at the time of inspection. In the
road permit the bill number had not been mentioned in Column No. 9 in Form No.
XXVIII B. On that ground the In- specting Officers seized the goods loaded in
the aforesaid truck and detained it at Mango Mufassil Police Station at Jamshedpur.
A notice was issued to the petitioner to show cause as to why penalty should
not be imposed under section 31(3) of the Act. He was directed to appear before
the Inspecting Officer on the 14th February, 1986. The Petition- er being a member of the Singhbhum Chamber of Commerce
and Industry, moved the said organisation to agitate the matter before the
authority and on a representation by the said Chamber the truck with the goods
therein were released on the 15th February 1986. In reply to the show cause
notice the appellant took the stand that no permit in the required Form was
necessary and in any case it was violative of the petitioner's Constitutional
right of freedom of inter-State trade and commerce. The contention was re- 803 jected
and a penalty of Rs.8,330 was imposed by Order dated 29th May 1986; and
thereafter the consequential demand notice No. 986 dated 2nd June 1986 was
issued. Aggrieved, the appellant filed a writ petition in the Patna High Court
under Articles 226 and 227 of the Constitution of India challenging, inter alia,
the Notification No. S.O, 1432 dated 28th December 1985 as ultra vires the
Articles 30 1 and 304 of the Constitution of India, and also the order imposing
penalty and the consequential demand notice.
The
High Court held, inter alia, that the impugned Notification imposed unwarranted
restrictions on inter-State trade and commerce the freedom whereof stood
guaranteed;
that
the decision of this Court in Hans Raj Bagrecha v. State of Bihar & Ors.,
reported in [1971] 2 S.C.R. 412:1971 1 S.C.R. 59 squarely covered this case; that
the impugned Notification was not of regulatory character; and that the
decision in Sodhi Transport Co. v. State of U.P., reported in [1986] 1 S.C.R.
939 did not apply as that case dealt with the question of transit pass only.
The Notification was accordingly quashed and the penalty order with demand
notice set aside.
Mr. Ranjit
Kumar the learned counsel for the appellant State submits that the amendment of
sub-section (2-a) of section 31, the impugned Notification No. S.O. 1432,
herein- after referred to as 'the Notification', and the adoption of Forms
XXVIII A and XXVIII B thereby were made with a view to preventing evasion of
Sales Tax and in pith and substance it is a regulatory measure which in no way
affected freedom of inter-State trade; and that the High Court erroneously held
the Notification to be violative of Articles 301 and 304 of the Constitution of
India. Counsel further submits that the particulars to be disclosed in the
prescribed Forms XXVIII A and XXVIII B and the carrying of the Forms by the
carriers would promote rather than hinder freedom of inter-State trade.
It may
be noted that the vires of sub-section (2-a) of Section 31 of the Bihar Finance
Act, hereinafter referred to as 'the Act', whereunder the Notification was
issued and the Forms were adopted by the Commissioner and of the relevant Rules
referred to in the Forms, namely, Rule 41 and 42(2) were not challenged before
the High Court or before this Court.
To
decide the question whether the Notification and adoption of the two aforesaid
Forms would be ultra vires Articles 301 and 304 of the Constitution of India,
it would be relevant to refer to the Forms 804 and the Articles. The following
are the Forms:
FORM
XXVIII A Permit (See Rule 41) NO.
I
hereby permit the transport of the consignment detailed overleaf. This permit
will be valid for one month from the date of issue.
Place
................. Signature Date .................. Designation Details OF
Consignment Permitted to be Transported Description Dated signature of the of
goods quantity issuing the permit 1 2 3 Result of Checking on the Route
Designation and Description Quantity of Dated signature head quarters of of
goods the goods of the authority the authority by actually mentioned in by whom
transport transported column-1.
of
consignment was checked.
1 2 3
4 FORM XXVIII B Form of Permit (See Rule 42(2) of the Bihar Sales Tax Rules
1983) (Original--Not transferable) Serial No. (To be filled in by the
permit-holder before transport of goods).
1.
Name of dealer to whom the permit is granted with registration certificate
numbers.
805
2.
Name and address of the consignor.
3.
Name and address of the consignee.
4.
Place of despatch.
5.
Destination.
6.
Name of notified railway station/other places from where delivery is to be
taken.
7.
Number and date of:
(i)
Railway receipt (ii) Other document.
8.
Description of consignment:
Name
of goods Value Quantity.
9.
Seller's invoice, forwarding note, number and date.
10.
Mode of transport (vehicle No.) I/We hereby declare that the above statements
are correct and complete in the best of my/our knowledge and belief.
Signature
of dealer/declared Manager.
Date
..........
Result
of Checking on the Route Designation and Description Quantity Dated signature
headquarters of of goods. of the of the authority the authority by goods
mentioned in whom the trans- actually column-1 and port of the transported
place of checking.
806
Note: (1) Separate form should be used for each consignment.
(2) (a)
In case of transport across or beyond checkpost, a copy of the form should
accompany the consignment.
(b) In
case of delivery of consignment from any notified railway station/other such
place the original copy of the form shall accompany the consignment in transit
and thereafter shall be sent to the appropriate authority of the Commercial
Taxes.
Article
301 which deals with freedom of trade, commerce and intercourse provides:
"Subject
to the other provisions of this Part, trade, commerce and intercourse
throughout the territory of India shall be free." Article 304 which deals with
restrictions on trade, commerce and intercourse among States provides:
"Notwithstanding
anything in Article 301 or Article 303, the Legislature of a State may by law;
(a)
impose on goods imported from other States or the Union Territories any tax to
which similar goods manufactured or produced in that State are subject, so,
however, as not to discriminate between goods so imported and goods so
manufactured or produced; and (b) impose such reasonable restrictions on the
freedom of trade, commerce or inter- course with or within that State as may be
required in the public interest:
Provided
that no Bill or amendment for the purposes of clause (b) shall be introduced or
moved in the Legislature of a State without the previous sanction of the
President." The right to carry on any occupation, trade or business
conferred 807 by Article 19(1)(g) on citizens is subject to reasonable
restrictions, and in so far as trade or commerce involves the buying and selling
of goods, restrictions on the right to trade can be put in the public interest.
As regards the right of free movement, the power to legislate on the free- dom
of trade, commerce and intercourse is restricted by Article 19(1)(g) and the
provisions of Articles 302 to 306.
Under
Article 302 Parliament may by law impose such restric- tions on the freedom of
trade, commerce or intercourse between one State and another or within any part
of the territory of India as may be required in the public inter- est. Article
303(1) provides that notwithstanding anything in Article 302 neither Parliament
nor the Legislature of a State shall have power to make any law giving, or authoris-
ing the giving of, any preference to one State over another, or making, or authorising
the making of, any discrimination between one State and another, by virtue of
any entry relat- ing to trade and commerce in any of the Lists in the Seventh
Schedule. Under clause (2) nothing in clause (1) shall prevent Parliament from
making any law, or authorising the giving of, any preference or making, or authorising
the making of, any discrimination if it is declared by such law that it is
necessary to do so for the purpose of dealing with a situation arising from
scarcity of goods in any part of the territory of India. Thus Article 303(1)
expressly forbids discrimination relating to trade and commerce apart from
Article 14. Trade, commerce and intercourse may be domestic or foreign or
international. Part XIII of the Constitution deals with trade, commerce and
intercourse within the territory of India i.e. domestic or internal.
This
again is sub-divided into trade, commerce or inter- course between one State
and another i.e. inter-state and within the same State i.e. intraState.
In Atiabari
Tea Co. Ltd. v. The State of Assam and Ors. [1961] 1 S.C.R. 809 it has been
held that the freedom of trade, commerce and intercourse guaranteed by Article
301 was wider than that contained in Section 297 of the Govern- ment of India
Act, 1935, and it included freedom from tax laws also. Article 301 provides
that the flow of trade shall run smooth and unhampered by any restriction
either at the boundaries of the State or at any other points inside the States
themselves; and if any Act imposes any direct re- strictions on the movement of
the goods it attracts the provisions of Article 301 and its validity can be
sustained only if it satisfies the requirements of Article 302 or Article 304.
Further the operation of Article 301 cannot be restricted to legislation under
entries dealing with the trade and commerce. Gajendragadkar, J., as he then
was, in the majority judgment, observed that free movement and exchange of
goods throughout the 808 territory of India was essential for sustaining the
economy and improving living standards of the country and that Article 301
guaranteeing freedom of trade and commerce and intercourse embodied and
enshrined a principle of paramount importance that the economic unity of the
country would provide the main sustaining force for the stability and progress
of the political and cultural unity of the country and it was based on the
theory that the peoples of the several States may sink or swim together It was
also held that though the power of levying tax was essentially for existence of
the Government, its exercise' must inevitably be controlled by the
Constitutional provisions and the power was not outside the purview of any
constitutional limita- tions.
Article
301 mandates free trade, commerce and inter- course throughout the territory of
India. Inter-State trade has, therefore, to be free from trade barriers. The
mobility of goods throughout the territory of India has to be free.
Free
trade throughout the territory of India would be one with no tariffs and no
restrictions or disadvantages of any kind of importing or exporting from the
different States.
Free
trade means complete freedom of inter-State trade without any restrictions on
the movement of goods between the States. Anyone aggrieved by infringement of
the provi- sions of Article 301 can seek his remedy from the court against the
offending legislative or executive action. The word 'trade' has been used
synonymously with the word 'bus- iness'. Trade or business would mean some real
substantial and systematic or organised course of activity or conduct with a
set purpose. In State of Bombay v. Chamarbaugwala, [1957] S.C.R. 874 this Court
has held that the protection afforded by Article 301 is confined to such
activities as may be regarded as lawful trading activity and does not extend to
activity which is 'res extra commerciurm' and cannot be said to be trade. The words
"throughout the terri- tory of India" extends the freedom not only to
inter-State but also to intraState transactions and movements. Freedom under
Article 301 does not mean absolute freedom but freedom from all restrictions
and barriers except those which are provided in other Articles of Part XIII as
well as regulato- ry and compensatory measures. The power of the Union or the
State to exercise legitimate regulatory control is independ- ent of the
restrictions imposed by Articles 302-305 as was held in State of Madras v. Natraja,
[1968] 3 S.C.R. 829.
While
examining whether there is a violation of the freedom guaranteed by Article
301, one has to scrutinise whether the impugned legislative or executive act
operates to restrict or barricade trade, commerce or intercourse directly and
immediately, as distinct from 809 creating some indirect or inconsequential
impediment which may be regarded as remote. In other words, regulatory or
compensatory measure cannot be regarded as violative of the freedom. Such
measures may be of diverse nature or various kinds such as traffic regulation,
making of declarations and filing of returns within reasonable limits. Such
measures cannot be challenged as interfering with the freedom guaran- teed by
Article 301 unless they are shown to be colourable measures to restrict the
free flow of trade, commerce and intercourse. Measures impeding the freedom of
trade, com- merce and intercourse may be legislative or executive and may be
fiscal or non-fiscal. He who assails such a measure has to show that it is not
regulatory but it directly and immediately interferes with the free flow of
inter-State trade or business. Freedom may be impeded by impediments on the
individuals carrying on trade or business, on the busi- ness itself or on the
vehicles, carriers, instruments and labour used in the trade or business. In Atiabari
(supra) tax on goods carried by roads outside State was struck down.
In the
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan & Ors., [1963]
1 S.C.R. 491 sub-section (1) of Section 4 of the Rajasthan Motor Vehicles
Taxation Act which provided that no motor vehicle should be used in any public
place or kept for use in Rajasthan unless the owner thereof had paid in respect
of it, a tax at the appropriate rate specified in the Schedule to the Act
within the time allowed was challenged on the ground that it constituted a
direct and immediate restriction on the movement of trade and commerce with and
within Rajasthan inasmuch as motor vehi- cles which carried passengers and
goods within or through Rajasthan had to pay the tax which imposed a pecuniary
burden on a commercial activity and was, therefore, hit by Article 301 of the
Constitution of India and was not saved by Article 304(b). The Rajasthan High
Court dismissed the Writ Petition and the appeals were dismissed by Supreme
Court in accordance with the opinion of the majority. Thus both Atiabari
(supra) and Automobile (supra) dealt with fiscal measures.
In Hansraj
Bagrecha v. State of Bihar & Ors., (supra) under section 5A of the Bihar
Sales Tax Act 1959 as amended by the Bihar Finance Act, 1966 the purchase tax
on goods declared under section 3A was to be levied at the point of purchase
made from a person other than a registered dealer.
By a
Notification dated September 14, 1966 the Governor of Bihar declared jute as a
commodity liable to purchase tax at the rate specified in the Notification. The
appellant car- ried on business in jute. In the course of his business he
purchased raw jute from producers in West Bengal, transport- ed it to Kishenganj
Railway Station in Bihar and then re- exported it to purchasers in West Bengal.
810 He
also bought raw jute in Bihar and exported it to mer- chants and mill owners in
West Bengal by rail from Kishen- ganj Railway Station. After the enactment of
Ss. 3A and 5A the State Government issued a Notification dated December 26,
1967 purporting to exercise power under s. 42 of the Bihar Sales Tax Act, 1959
read with R. 31 B of the Bihar Sales Tax Rules, 1959 notifying that no person
shall tender at any railway station mentioned in Sch. II any consignment of
goods mentioned in Sch. 1 exceeding the quantity speci- fied for transport to
any place inside the State of Bihar and no person shall accept such tender in
accordance with the conditions laid down in the said R. 31B. Under Sch. I jute
exceeding 800 kg could not be tendered for transport without a despatch permit
and Kishenganj was one of the railway stations mentioned in Sch.II. In July
1967 The Superintendent of Commercial Taxes prohibited the railway authorities
from loading and despatching jute goods from any station in Purnea District
without the production of a registration certificate. For non-production of
such certif- icate the railway authorities refused to despatch from kishenganj
the jute goods booked by the appellant. The appellant moved a writ petition in
the High Court of Patna challenging, inter alia, the validity of Ss. 3A and 5A
of the Bihar Sales Tax Act and of R. 3lB. The High Court dis- missed the
petition. With certificate the appeal was filed.
In
support of the petition it was urged
(i) that
Ss. 3A and 5A infringed the guarantee of freedom of trade under Article 301 of
the Constitution and since the amendment by the Finance Act, 1966 introducing
these sections did not receive the assent of the President under Art. 304(b)
the amendment was not save;
(ii) that
Ss. 3A and 5A were contrary to s. 15 of the Central Sales Tax, 1956 and
accordingly void;
(iii) that
R. 31B framed by the State Government and the Notification issued on December 26, 1967 was unauthorised and liable to be
struck down. While striking down Rule 31B of the Bihar Sales Tax Rules 1959 and
the Notification issued on December 26, 1967
as ultra vires, their Lordships observed that the Bihar Sales Tax Act was enacted
by the legislature to consolidate and amend the law relating to the levy of tax
on the sales and purchase of goods in Bihar.
The State legisla- ture was competent in enacting sales tax legislation to make
a provision which was ancillary or incidental to any provi- sion relating to
levy, collection and recovery of Sales tax and Purchase tax. A provision which
was made by the Act or by the rules which sought to prevent evasion of
liability of tax on intrastate sale or purchase would, therefore, be within the
competence of the legislature or the authority competent to make the rules. But
the State legislature had no power to legislate for the levy of tax on
transactions which were carried on in the course of inter-State trade or
commerce or in the course of export.
811
Section 42 of the Bihar Sales Tax Act, 1949 prevented any person from
transporting from any railway stations, steamer station, airport, post office
or any other place any consignment of such goods exceeding the quantity
specified with a view to ensuring that there was no evasion of tax payable
under the Act. But the power under section 42 could only be exercised in
respect of levy, collection and recovery of intrastate Sales or Purchase tax.
It could not be utilised for the purpose of ensuring effective levy on
inter-State Sales or Purchase Tax. When rule 3lB prohibited transport of goods
to any place outside the State of Bihar unless a certificate was obtained from
the appropriate authority, it sought to prohibit transport of goods pursuant to
transactions which might not even be of the nature of sale or purchase
transaction; in any case it restricted transport pursuant to transactions in
the course of inter-State trade and commerce. The operation of the rule was not
restricted only to transactions in the course of intrastate trade and commerce
but it authorised restrictions on inter-State transactions and on that account
it was ultra vires and consequently the Notification issued on December 26,
1967 was also declared ultra vires. It would thus be seen that rule 3 lB and
the Notification issued there under were struck down on the ground that they
impeded inter-State trade, commerce and intercourse. It would also be clear
that the Notification issued was shown to be a measure for preventing evasion
of Sales Tax. In the instant case the Notification dated 28th December, 1985 clearly states that the declaration
in the permit is indeed for the purpose of verification and assessment of tax
payable.
In
Indian Cement v. State of A.P., A.I.R. 1988 S.C. 567 it was held that the
restriction provided for in Article 301 can within the ambit be limited by law
made by the Parlia- ment and the State legislature and that no power is vested
in the executive authority to act in any manner which af- fects or hinders the
essence-and thesis contained in the scheme of Part XIII of the Constitution
which is against creation of economic barriers and/or pockets which would stand
against the free flow of trade, commerce and inter- course. There could be no
dispute that taxation was a deter- rent against free flow. The reasonable
restrictions contem- plated in Part XIII have to be backed by law and not by
executive action provided the same are within the limitations prescribed under
the scheme of Part XIII. In Weston Electronics v. State of Gujarat, A.I.R. 1988
S.C. 2038 it was reiterated that while a State legislature may enact a law
imposing a tax on goods imported from other States as is levied on similar
goods manufactured in that State the imposition must not be such as to
discriminate between goods so imported and goods so manufactured and that
taxing laws could be 812 restrictions on trade, commerce and intercourse, if they
hamper the flow of trade and if they were not what could be termed to be
compensatory taxes or regulatory measures.
It is
by now settled law that the object of Part XIII is not to make inter-State
trade, commerce or intercourse absolutely free. Reasonable restrictions in
public interest are permissible. Mandate against discrimination dictates the
placing of inter-State trade, commerce and intercourse under no greater
disadvantage than that borne by intraState trade, commerce and intercourse. The
primary object is to avoid barriers around the State borders. Fractionalisation
of the country's trade, commerce and intercourse is to be avoided.
However,
this could not mean supporting trader's hostility towards regulations.
Coming
to the impugned Notification and the two adopted Forms, namely Form XXVIII A
and XXVIII B we find that there is no imposition of any tax by them. It is,
therefore, pertinent to ask what this measure actually does. Does it directly
and immediately restrain inter-State trade, com- merce and intercourse? Does it
place the intraState carrier in a superior or advantageous position to that
occupied by inter-State carrier? Does it restrict inter-State trade, commerce
and intercourse? What are the direct and indirect effects of this measure and
whether it amounts to a prohibi- tion or a mere regulation? If it is a mere
regulation then only the motive, purpose or policy of the State Government
would be relevant. However, if it amounts to a prohibition that would not be
relevant. If it has any effect on inter- State trade, we have to ascertain the
essence or incidence thereof.
The
Notification only prescribed the declaration Forms to be carried on a goods
carrier or vessel for transporting goods through the State of Bihar. It does
not prohibit transportation of the goods. Before the High Court it was not
disputed that the Notification and the Forms were ap- plicable in respect of
goods being brought into the State and being sent out of the State in excess of
the quantity notified under section 35 of the Act on every goods carrier or
vessel. Thus, it would be applicable to the transport of all goods carried
intra-State in Bihar, and inter-State to and through the State of Bihar.
Further, clause (ii) of the Notification states that if the prescribed Form is
found blank or does not contain all the required particulars it would be deemed
to be a violation of the provisions of sub- section (2-a) of section 31 of the
Act entailing penalties for the infraction thereof. Counsel for the State
submits that Form XXVIII A (Permit) is meant for those who are not registered
as dealers and it has to be obtained from office, while Form 813 XXVIII B
(Permit) can be filled up by the registered dealer himself. It is further
submitted that the particulars are to be furnished by the persons and this
would not affect the freedom of movement of the goods carried, and that it
would facilitate transportation across and throughout the State of Bihar by
showing the permit wherever required and thus, instead of hindering, it will
promote free movement of the goods. We find no reason to disbelieve these
statements. We are of the view that the permits will indirectly help as- sessment
by ascertaining whether tax would be payable or not. The permit would enable
the carrier to cross the State territory by producing it if and when needed and
thus would promote rather than impede inter-State trade. A declaration may also
serve the public purpose by finding out unautho- rised trade or business to
which freedom of trade, commerce and intercourse would not apply. Thus, the
impugned Notifi- cation has to be held to be a measure in exercise of a power
incidental to the levy of Sales Tax and it could not be said to have been a colourable
exercise of power to impede, restrict or barricade inter-State trade in respect
of which Bihar State legislature has no power to legislate., It is, to our
mind, clearly distinguishable from the facts in Bagrecha's case (supra). The
commonness between the two is in insistence of despatch certificate in Bagrecha
and a permit in the instant case, But there the similarity ends.
While
there was an ex facie purpose disclosed in the Bagre- cha prohibitory
Notification, in the instant case the Noti- fication ex facie shows the
purpose, namely, to prevent evasion and facilitate assessment of Sales Tax. The
insist- ence on a permit in respect of goods entering the State in course of
inter-State trade Could also be necessary. to distinguish the goods that would
be transported across the territory of State and those which would reach the consump-
tion point within the State, and to ascertain whether tax would be payable in
the latter category. We are, therefore, of the view that the ratio decidendi of
the Bagrecha case would not be applicable to the facts of the instant case. We
are also of the view that the facts in Sodi Transport Co. v. State of U.P.
& Ant., (supra) would be nearer to the facts of the instant case. In this
case Section 28 of the Uttar Pradesh Sales Tax Act,. 1948 authorised the State
Government to establish check-posts and barriers with a view to pre- venting
evasion of tax or other dues payable under the Act in respect of sale of goods
in the State. Section 28-B, added by the U.P. Act 1 of 1973, makes provision
for the procedure to be followed by persons who intend to transport goods from
outside the State by road through the State to destinations outside the State.
It provides that 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 the other person in-charge of such vehicle shall 814 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 exit from the State. If he fails to
do so it shall be presumed that the goods carried thereby have been sold within
the State by the owner or person in-charge of the vehicle. Rule 87 of the Uttar
Pradesh Sales Tax Rules 1948, inserted by the U.P.
Sales
Tax (First Amendment) Rules, 1977 provides that a person who wishes to obtain a
transit pass shall make an application in the prescribed form to the officer in
charge of the check post concerned. It also provides for the issue of private
pass in triplicate and for inspection of the documents, consignments and goods
to ensure that the state- ments are true.
The
appellants who claimed to be engaged in the business of transport of goods
belonging to others for hire and who in the course of their business had to
carry goods from one State to another State along roads lying in the State of
Uttar Pradesh, questioned the validity of section 28B of the Act and Rule 87 of
the Rules by filing writ petitions before the High Court. Their contentions
were (i) that section 28B and Rule 87 were outside the scope of entry 54 of the
Sev- enth Schedule of the Constitution; (ii) that they infringed freedom of
trade, commerce and intercourse guaranteed under Article 30 1 of the
Constitution; and (iii) that they im- posed unreasonable restrictions on the
freedom of trade guaranteed under Article 19(1)(g) of the Constitution. The
High Court having upheld the constitutional validity of the impugned provisions
appeals were preferred to this court by special leave.
In the
writ petition under Article 32 of the Constitu- tion in addition to the
contentions raised in the High Court, it was submitted that the rule of
presumption con- tained in section 28B of the Act virtually made a person, who
had not actually sold the goods liable to pay Sales Tax, and that a transporter
being just a transporter could not be treated as a dealer within the meaning of
that expression as it was defined in the Act at its commencement.
It was
held, that the decision of the High Court uphold- ing the constitutionality of
section 28B of the U.P. Sales Tax Act, 1948 and rule 87 of the U.P. Sales Tax
Rules, 1948 did not call for any interference. It was observed that the Act was
traceable to entry 54 in List II of the Seventh Schedule to the Constitution.
Section 28B of the Act and Rule 87 of the rules were enacted to make the law
workable and to prevent evasion of tax. They fell within the ambit and scope of
the 815 power to levy the tax itself. When the legislature had the power to
make a law with respect to any subject it had all the ancillary and incidental
power to make that law effec- tive.
We
have seen that in Bagrecha what was insisted was a despatch certificate; in Sodhi
Transport what was insisted was a transit pass while in the instant case what
is being insisted is a permit disclosing particulars of the goods to be
transported. While in Bagrecha it was not protected by 304(b) in Sodhi
Transport it was. Article 304(b) clearly permits the State legislature to
impose such a reasonable restriction on the freedom of trade, commerce and
inter- course with or within that State as may be required in the public
interest. The word 'with' involves an element having its situs in another
State. It cannot be therefore said that the insistence on the disclosure in
respect of goods enter- ing Bihar from another State if otherwise legitimate
would not be protected by Article 304(b). The question, therefore, arises
whether the insistence on the permit in Forms XXVIII A or XXVIII B, as the case
may be, pursuant to the impugned Notification can be said to be a reasonable
measure adopted by the State legislature for the express purpose of prevent- ing
evasion and facilitating assessment of tax. The reasona- bility has to be
considered in the context of the effective- ness of the State's powers and the
erosion, if any, of the powers of the Parliament in respect of inter-State
trade, commerce and intercourse. In so far as carriage of goods vis-a-vis Sales
Tax, it has also to be considered keeping in mind the fact that at some point
goods imported from outside shall become assimilated with the general mass of
property in a State and be subject to State taxation and the problem of
determination as to when and where that point is reached.
The
motive of State regulation in exercise of incidental power to tax has to be scrutinised
and laissez faire hostil- ity towards trade regulations or taxation has to be
kept within limits. The peculiarity of the local situation of a State may not
also be entirely ignored. To decide whether the Notification impeded
inter-State trade we have also to take into consideration the concept of
inter-State trade and its continuity.
The
High Court has taken the view that an importer has to send the form in advance
to the consignor so that it could be filled up to accompany the goods and that
would amount to a blockade placed on the free movement of goods in inter-State
commerce. It should, however, be noted that the Notification has been issued
and the Forms have been adopted by the State of Bihar and would be enforced in
that State.
There
is nothing to indicate that the carrier would be penalised for not having
filled up Forms XXVIII A or XXVIII B, as the case may 816 be, while the goods
were being carried through other States.
They
are to be tilled up only when the carrier is within the territory of the State
of Bihar. There is no provision to the effect that those who had not filled up
the appropriate form at the earlier stages of the transit would not be allowed
to fill up with the State. The particulars required are not such as would be
impossible or difficult for the cartier to furnish. There is no prohibition on transporta-
tion of the goods themselves. We are accordingly of the view that there is no
direct and immediate restriction of inter- State trade, commerce or intercourse
as a result of the requirement to fill up and carry the Forms. In other words,
the continuity of the transport will not be obstructed or interrupted. Stoppage
of the transporting vehicle for the purpose of obtaining and filling in the
appropriate Form would, in our opinion, not amount to interruption but only a
stoppage. A mere stoppage of the movement of the vehicle will not have any
direct or immediate effect on the trade.
The
checking of documents or the filling in and submission of Forms and returns,
detour to a public weigh-bridge and the like may be an inconvenience, and
unless they are shown to be unreasonable and not in public interest the court
may apply the maxim 'de minimise non curat lex'. A stoppage of the vehicle for
roadside repair, for taking petrol, for allowing the driver to take rest or his
meals would not naturally amount to interruptions of trade, commerce and
intercourse. Public interest also will not allow transit regulations and allied
measures to be violated, thwarted or evaded through the channel of inter-State
trade, commerce and intercourse, unless of course the measures are shown to be
unreasonable. In this view of the matter this case would squarely be covered by
the decision in Sodhi Transport Co., (supra). We accordingly hold the
Notification and adoption of the Forms to have been validly made in exercise of
powers incidental to the power of levying Sales Tax, and that they are
reasonable and in public interest, and not ultra vires the Articles 30 1 &
304 of the Constitution of India.
In the
result, the impugned judgment of the High Court is set aside, and the appeals
are allowed, but without any orders as to costs. Learned counsel for the
appellant states that the State in these appeals was interested in the law
being laid down, and that even if the validity of the Noti- fication is upheld
it will not revive the proceedings against the respondent to realise the
penalty. We have no doubt that the State will abide by it.
T.N.A.
Appeals allowed.
Back