State of
Madhya Pradesh & Ors Vs. Bharat Heavy Electricals
[1997] INSC 670 (14 August 1997)
J. S.
VERMA, B. N. KIRPAL
ACT:
HEADNOTE:
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
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 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 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
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 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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