(SUPREME COURT OF INDIA)
(1) Commercial Tax Officer and Others (2) State of Madhya Pradesh and others
Vs
(1) Swastik Roadways and Another (2) M/s. United Transport Road Services
HON'BLE JUSTICE P. VENKATARAMA REDDI AND HON'BLE JUSTICE S. H. KAPADIA
13/02/2004
Civil Appeal No 9143 of 1996 (With C.A. No. 1783 of 1997)
JUDGMENT
The Order of the Court is as
follows
Hon'ble Justice Kapadia
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 57m 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
judgment, 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 [ ].
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 all 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 w leviable if they did not cooperate in the
enquiry against the dealer for tax evasion. He, therefore, submitted that
provisions of Section 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 . 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 [ ]. 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 the 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. Songhi
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 handle 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 and 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 [ ].
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 Constitute 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 an 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 prince 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 section 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 purchases. 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 penalised 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 weigh a consider 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 of 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 cleaning 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(I)(2) shows that in cases where
Commissioner is satisfied about tax evasion by the dealer, he may be 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 given 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 scrutinised 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 that 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 in immense on the
person-in-charge of the goods, a penalty equal to 30% of the due 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 ws 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
penalised under the Sales Tax Act. *
As regards penalty, the Court observed in Rajasthan case;
"... The legislature though 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 cas, 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 dealers 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 Count 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 not, 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 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
the 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 not 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 pre-supposes 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 times
information which will help the department to detect tax evasion. As observed
earlier, in case 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 realisation 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
]. 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 provisions 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 observation of this Court can be pertinently applied to this case.
Accordingly we hold that the impugned section 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
to The State of Madras v. M/s. Gannon Dunkerley & Co. (Madras) Ltd.
reported in ]:-
"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. #