Commercial
Tax Officer & Ors Vs. Swastik Roadways & Anr [2004] Insc 101 (13 February 2004)
P.Venkatarama
Reddi & S.H. Kapadia.
WITH
CIVIL APPEAL NO.1783 OF 1997 State of Madhya Pradesh & Ors. Appellants Versus
M/s United Transport
Road Services 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 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.
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 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 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 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: " .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 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 ". 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 or purchase of
goods was negatived. The legislative competence was upheld. It was observed
therein: "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 in-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: "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.
. 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."
Referring to Sant Lal's case, it was observed "..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.." 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;
"
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 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" 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: ".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.
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.." 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 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: "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).." 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".
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]: "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.
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