STATE OF RAJASTHAN AND ANR. v. M-S. D.P. METALS

Citation: [2001] SUPP. 3 S.C.R. 572

Court: Supreme Court of India

Bench: B.N. KIRPAL, N. SANTOSH HEGDE, B.N. AGRAWAL

Judgment text

STATE OF RAJASTHAN AND ANR. v. MIS. D. P. METALS OCTOBER 4, 2001 [B. N. KIRPAL, N. SANTOSH HEGDE AND B. N. AGRAWAL, JJ. ] Sales Tax: Rajasthan Sales Tax Act, 1994-Section 78(2) & (5)-/nspection of documents at check-post-Non-production ofdeclaration Form ST 18k Levy ofpenalty-Validity and legislative competence ofState on levy of penalty-Held, the levy is valid as State has legislative competence to check evasion ofsales tax-Constitution ofIndia, 1950-Entry ~4 in List II o. fSeventh Schedule-Rajasthan Sales Tax Act, 1954 (since repealed)-Sections 22-A & 22-B. Levy o. f Penalty at 30% after issuing show-cause notice-Discretion of Revenue not to levy or levy lesser penalty-Existence o. f mens rea-Held, on . facts, necessary documents not produced even after affording opportunity to produce them-Hence, mens rea existed-No discretion given by Legislature to Revenue not to levy or levy lesser penalty.

A truck carrying goods of respondent-dealer was stopped at a checkpost by Sales Tax authorities and on finding that the person incharge of the goods was not carrying declaration Form ST 18A as required under Section 78(2) of the Rajasthan Sales Tax Act, 1994, the department seized the goods. A show~cause notice was issued by Revenue to the· respondent• dealer. After hearing, Revenue levied penalty at 30% of the value of the goods under Section 78(5) of the Act. Similar action was taken by Revenue against other respondent-dealers. The respondents filed applications before Taxation Tribunal challenging the provisions of Section 78(5) of the Act and claiming consequential reliefof the quashing of penalty orders. Pursuant to abolition of the Taxation Tribunal, the applications were transferred to High Court as Writ Petitions. High Court allowed the Writ Petitions of the respondents holding Section 78(5) of the Act as unconstitutional and ultra vires.

In appeal to this Court, the appellant-State contended that the power STATE v. D. P. METALS 573 to levy penalty under Section 78(5) of the Act is meant to check evasion of sales tax and is incidental to the power of levy of sales tax which is within · the legislative competence of the State under Entry 54 of List II of the Constitution; and that similar provisions existed in the Sales Tax Actc; of other States also. The respondent-dealers contended that Section 78(5) of the Act is ultra vires being beyond the legislative competence of the State; that the penalty imposed under the section has no nexus with the evasion of sales tax; and that in the absence of mens rea, a mere technical breach, which is unintentional and bona fide, should not by itself invite penalty under the Section. Allowing the appeals, the Court HELD : 1. 1.

It is settled law that provisions to check evasion of sales tax are within the legislative competence of the States under Entry 54 in List II of the Seventh Schedule of the Constitution. The provisions to make the imposition of tax efficacious or to prevent evasion oftax are within the legislative competence. The persons referred to in Section 78(2) of the . Rajasthan Sales Tax Act, 1994 are persons concerned with the movement of goods, which are sold or likely to be sold. With there being no valid challenge to Sectim. 78(2) of the Act, a provision contained in Section 78(5), which provides for levy of penalty in case of non-compliance of Section 78(2), can only be regarded as consequential and valid. H there was legislative competence to enact Section 78(2), then the same power contained in Entry 54 in List II could enable the State Legislature to provide for consequence of non-compliance by incorporating sub-section (5) therein.

Section 78(5) and Section 78(8) of the Act are part of an integral scheme and deal with two separate classes of people referred to in Section 78(2). [597-G-H; 598-A-B] Sodhi Transport Co. & Ors. v. State of U. P. & Ors. , [1986] 2 SCC 486; Delite Carriers (Regd. ) v. State ofHaryana & Ors. , (1990) 77 STC 170 and Tripura Goods Transport Association & Am: v. Commissioner o. fTaxes & Ors. , [1999] 2 sec 253, relied on. The Check Post Officer & Ors. v. K. P. Abdulla & Bros. , [1970] 3 SCC 355 and State of Haryana & Ors. v. Sant Lal & Am:, [1993] 4 SCC 380, distinguished. 2. _1. Under Section 78(5) of the Act, levy of penalty is only on the person incharge of the goods. It is he who should have all the requisite documents relating to the title or sale of the goods which are ~eing transported. Penalty under Section 78(5) of the Act is leviable under two circumstances. Firstly, if there is non-compliance with Section 78(2)(a) i. e. not carrying the.

documents mentioned in that sub-clause or secondly, if false or forged documents or declaration is submitted. This sub-section cannot relate to personal belongings which are not meant for sale but would relate to those types ofgoods in respect of which documents referred to in Section 78(2)(a) exist or can exist. [598-C-D] · 2. 2. Submission of false or forged documents or declaration at the check-postor even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. Hiding the truth and tendering falsehood would per se show existence of mens rea even if required. Similarly where, despite opportunity having been gran_ted ll:"der Section 78(5), if the requisite documents referred to in sub-clause 2(a) are not produced, even th~ugh the same should exist, would clearly prove the guilty intent. It is not acceptable that the breach referred to in Section 78(5) of the Act can he . _.... regarded as technical or venial.

Once the ingredients ~f s~ztion 78(5) are established, after giving a hearing and complying with the principles of natural justice, there is no discretion not to levy or levy lesser amount of penalty~ If by mistake some of the documents are not readily available at the_ time of checking, principles of natural justice may requi_re some opportunity being given to produce the same. This provision cannot be read as to imply that the penalty of 30% is the maximum and lesser penalty can be levied. 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 there is nothing wrong in this. The quantum of penalty under the circumstances enumerated in Section 78(5) cannot be regarded as illegal. The legislature in its wisdom has thought it appropriate to fix it at 30% for the value of goods and it had the competence so to fix.

There cannot be any valid challenge to the rate of penalty provided for in Section 78(5) of the Act. [598-E-H; 599-C] Rai Ramakrishna & Ors. v. The State ofBihar, [1964] 1 SCR 897, relied on. ( CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5085 of 2000. From the Judgment and Order dated 16. 8. 2000 of the Rajasthan High Court in D. B. C. W. P. No. 1902 of 1999. WITH C. A. Nos.. 5086, 5087, 5088, 5763, 576412000 and 1321, 17~6, 1737, 1738, 1739, 1740, 1741, 1742, 1743, 1744, 1745, 1746, 1747, 1748, 1749, 1750, 1751, 1752, 1753, 1754, 1755, 1756, 1757, 1758, 1759, 2893, 2557, 3424, 3425, 3426, 3427, 3697, 4033 of 2001. Harish N. Salve, Solicitor General, Sushi! Kumar Jain, Ms. Anjali Doshi, A. P. Dli;-mija, A. Raghunath, Manish Singhvi, Vineet Kothari, Anjay Kothari, K. K. Gupta, M. P. Jha, Ram Ekbal Roy and Anil K. Chopra for appearing parties. The Judgment of the Court was delivered by KIRPAL, J.

The State of Rajasthan has filed these appeals against the decision of the High Court which had, while allowing the Writ Petition of the respondents, held that Section 78(5) of the Rajasthan Sales Tax Act, 1994 was unconstitutional and ultra vires. In order to P,Xamine the issues arising in this case, we may briefly refer to the facts of the case of Mis D. P. Metals. Mis D. P. Metals carries on the business of manufacturing stainless steel sheets and had been registered under the provisions of the Rajasthan Sales Tax Act and the Central Sales Tax Act. On 22nd January, 1997 a truck was seized by the Assistant Commercial Taxes Officer, Jodhpur and as the same was found not to be carrying the declaration Form ST 18A, a show cause notice was issued to Mis D. P. Metals. After p hearing, a penalty of Rs. 63,200 was levied under Section 78(5) of the 1994 Act. Mis D. P.

Metals and other dealers, against whom similar action has been taken, filed applications before the Rajasthan Taxation Tribunal, Jaipur, inter alia, impugning the provisions of Section 78(5) of the 1994 Act and claimed consequential relief of the quashing of the penalty order. Pursuant to the abolition of the Taxation Tribunal, the applications were transferred to the Rajasthan High Court and they were regarded as writ petitions. The contentions on behalf of the respondents before the High Court were that Section 78(5) was ultra vires being beyond the legislative competence of the State and also on the ground of being excessive, arbitrary and unreasonable and, therefore, violative of Articles 14, 19(l)(g), 301and304 of the Constitution.

The Division Bench of the High Court in relation to the validity of Section 78(5) came to the following conclusion;- "(i) the parent provision of the Section 78 as far as it requires carrying the documents mentioned under sub-section (2) by the transporter whose position ordinarily does not go beyond a witness about goods carried through them, for the purpose ofdivulging detailed information about the goods carried out by the transporter and about the consignor and the consignee itself at the check post or barrier to any authorised officer under Section 78 as part of machinery provision for collecting evidence about goods coming in or going out of or moving within the State, can be considered as intended to prevent and check evasion and avoidance of tax and in aid of making effective the levy which has arisen or likely to arise within the State, are provisions incidental and ancillary in aid of main subject levy and collection of sales tax. D.

(ii) Provision as to notice before imposing penalty is not an empty formality for imposing penalty, for non production or production of incomplete documents, but is intended to give an effective opportunity of hearing to show that no penalty is at all Jeviable. If it is reasonably established that such default is not with any intention to evade or avoid tax, but is bonafide default, the breach for which it is not compulsory to impose penalty. Such question has to be determined in each case on its own facts and circumstances. (iii) No opinion is expressed on the validity of requirement to carry declarations in Form ST 18 A or ST 18 AA with goods, in view of no challenge made in the petitions. (iy) The provisions for carrying declaration ofthe importer in the Form No.

ST 18 A and 18 AA by the transporter or carrier is not treated to be mandatorily required and it is held that the production of such declaration later on during the course of enquiry even by the importer is substantlal compliance of the provision. (v) Lastly, the penalty under Section 78(5) linked with value of goods equal to 30% thereof imposable on person incharge of the goods in transit who is not owner of the goods and who is also not a dealer in the goods for breach of obligation of divulging information and particulars relating to goods in his charge and the consignor and the consignee is highly unreasonable having no reasonable and proximate nexus with the obligation cast on transporter and the object of the provision, the same, therefore, is unconstitutional, (Santlal's case).

- (vi) However a reasonable penalty is imposable on transporter as a consequence for breach ofobligation to divulge such information truly and faithfully which is in his possession and can reasonably be required of them to obtain from other sources while booking goods for transport. Until any specific provision for levy of tax is enacted by the legislature, he may be subjected to penalty as envisaged under Section 68 of the Act. " The High Court then held Section 78(5) of the Act to be unconstitutional and ultra vii-es. . In these appeals, it was contended by learned counsel for the appellants that the High Court erred in coming to the conclusion that Section 78(5) was ultra vires. It was submitted that the power contained in Section 78(5) was incidental to the power of levy of sales tax and was within the legislative competence of the State under Entry 54 of List II of the Constitution.

It was submitted that Rajasthan as well as other States had enacted provisio~s in the Sales Tax Acts with a view to check evasion of taxes by transporters who were found carrying goods with fake bilties, incomplete documents and under suspicious names. Similar provisions had been upheld by this Court and, therefore, the decision of the High Court is not correct. Mr. Manish Singhvi, counsel appearing for the respondents, submitted that the penalty sought to be imposed under Section 78(5) had no nexus with the tax evaded. The effect of this provision, it was contended, was that even when there was total absence of mens rea and the breach is unintentional and completely bona fide still an innocent transporter can be subjected to penalty under Section 78(5) of the 1994 Act. It was submitted that Section 78(5) was analogous to Section 38 of the Haryana General Sales Tax Act, 1973 which had been held to be ultra vires by this Court in State of Haryana and Ors. v.

Sant 1 Lal and Am: • It was urged that the breach of obligation of carrying the documents over wqich the transporter may have no control cannot be attributed 1. [I993J 4 sec 380. to him and levy of penalty @ 30% merely on account of such breach is harsh and oppressive. Penalty under Section 78(5) could not be regarded as being linked with evasion of tax; It was further contended that the only way in which the validity of Section 78(5) can be upheld is to read into it the element of mens rea as a precondition for imposition of penalty and mere technical breach without any mens rea should not by itself invite penalty under Section 78(5). While referring to a decision in the case of The Check Post Officer and Ors. 2 v. K. P. Abdulla and Bros: It was submitted even in cases like carrying personal goods for consumption penalty under Section 78(5) would be leviable because of alleged breach of Section 78(2) even though sale of goods is not involved.

Section 78(5), it was submitted, contained n6 guidelines saving such bonafide cases from the vice of Section 78(5) and, therefore, was violative of Article 14 of the Constitution. The Rajasthan Sales Tax Act, 1954 was a precursor to the 1994 Act. In the 1954 Act, Section 22A(7) was the provision which enabled the appellant to . impose penalty in the event of the person in charge of the goods not possessing or. producing mandatory documents or if a false declaration was made.

Section 22A(7) of the 1954 Act reads as follows: "(7)(a) The Officer incharge of the check-post or barrier or any other officer not below the rank of an Assistant Commercial Taxes Officer, empowered in this behalf may, after giving the ow~er or person incharge ofthe goods a reasonable opportunity ofbeing heard and after holding such further enquiry as he may deem-fit, impose on him for possession of goods not covered by goods vehicle record, and other documents prescribed under sub-section (3) or for submission offalse declaration or documents a penalty (equal to five times of the rate of tax notified under section 5 of the Act, for such goods or) (30%) of the value of such goods, as may be determined by such officer I (whichever is less).

(Provided that where the goods are being carried without proper documents as required by sub-section (3) or with any false declaration or statements and the owner or the incharge or the driver ofthe vehicle, boat, or animal carrying such goods is found in collusion for such carrying of goods, the vehicle, boat or animal shall also be seized by the officer empowered under sub-section (7), and such officer, after 2. [t970J 3 sec 355.

I - affording an opportunity of being heard to such owner, incharge or driver may impose a penalty not exceeding 30% of the value of the goods carried and shall release the vehicle, boat or animal on the payment of the said penalty or on furnishing such security in such form as prescribed under Clause (b) of sub-section (7): - Provided further that when an owner, incharge or driver of · vehicle, boat or animal is found guilty second time of the offence mentioned in the preceding proviso, he shall be liable to a maximum penalty as mentioned in the preceding proviso and the vehicle, boat or animal carrying the goods may be kept seized and detained for a period not exceeding 30 days after the date of the payment of the penalty or furnishing of the security. (Provided also that where a transporter is found to be in collusion with a trader to avoid or evade tax ·sociatiOn andAnr. v. Commissioner 5 ofTaxes and Ors. .

The appellants therein were an association which was doing the business of transporting goods within and outside the State of Tripura. On the ground that they were transporters and not dealers within the meaning of the Act, the appellants therein had challenged different provisions ofthe Tripura Sales Tax Act and the Rules framed thereunder which had required them to obtain a Certificate of Regi11tration and to comply with other formalities prescribed under the Act and Rules. Rules were framed under the Act which were also impugned. Rule 46-A; inter alia, required the transporter to give a complete and correct account ofthe goods carried by him in aprescribed form which could be inspected by the officer incharge of the check-post or the barrier about the correctness of the statements made therein. Rule 63-A gave the power of search at any place to an officer incharge of the check-post; Superintendent of Taxes or any officer specially empowered by the Comniissioner.

In furtherance of this power, the driver or any other person in charge of the goods vehicle could be stopped and the vehicle examined and the records inspected. Ifit was found that the goods are being carried in contravention of the provisions of t~e Act or the Rules, the officer conducting the search could seize the goods found in the vehicle along with any container or materials used for packing. Rule 64-A lay down the procedure for the registration of transporter etc. For the non-compliance. of the provisions of the Act and the Rules, punishments were provided. On behalfof the appellants it was contended that they were mainly transporters, carrying goods of the consignor to the consignee, and they were neither a dealer nor were they doing any business of s. [t999J 2 sec 253.

sale or purchase of any goods and hence the obligations cast on them including punishment for the offences was beyond the legislative competence of the State Legislature under Entry 54 of List II of the Second Schedule. While upholding the validity of the aforesaid provisions, this Court observed as follows: "........ Every taxing statute has charging sections. It lays down the procedure to assess tax and penalties etc. It also prnvides 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 impugned provisions are not charging sections, no tax lia_bility is placed on the transporters. We find neither Sections 29, 30, 32 and 36-A nor Rules 46-A, 63-A and 64-A lack any legislative competence. They are within the legislative competence of the State and would fall under List IIof Entry 54 of the Seventh Schedule of the Constitution of India. " It also noticed the decisions of this Court in Sodhi Transport Company's case (supra). After referring to Sant Lal's case (supra) it was held that the same was clearly distinguishable inasmuch as the provisions of the Haryana General Sales Tax Act were not similar to those which were impugned in the Tripura Association's case (supra).

It appears to us that the scheme and the provisions under the Tripura Sales Tax Act and the Rules are similar to that contained in p Section 37 of the Haryana Sales Tax Act as well as to Section 22-A of the Rajasthan Sales Tax Act, 1954 and Section 78 of the Rajasthan Sales Tax Act, 1994. 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. Unlike the dalals and forwarding agents, as in Sant Lal~· case, the persons referred to in Section 78(2) are persons concerned with the movement of goods which are sold or likely to be sold. With there being no valid challenge to Section 78(2) a provision contained in sub-section (5) of Section 78 which provides for levy of penalty in case ofnon-compliance of Section 78(2) can only be regarded as consequential . and valid.

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. Section 78(5) and Section 78(8) ate part Of an integral scheme and deal with two separate classes of people referred to in Section 78(2). Unlike Sant Lat's case, here under Section 78(5) levy of penalty is only on the person incharge of the goods. It is he who should have all the requisite documents relating to the title or sale of the goods which are being transported. Penalty under Section 78(5) is leviable under two circumstances. Firstly if there is non-compliance with Section 78(2)(a) i. e. not carrying the documents mentioned in that sub-clause or, secondly if false or forged documents or declaration is submitted.

This sub-section cannot relat~ to personal belongings which are not meant for sale but would relate to those types of goods in respect of which documents referred to in Section 78(2)(a) exist or . can exist. Such submission of false or forged documents or declaration at the check-post or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. Hiding the truth and tendering falsehood would per se show existence of mens rea, even if required. Similarly where, ~ despite opportunity having been granted under Section 78(5) if the requisite documents referred to in sub-clause 2(a) are not produced, even though the same should exist, would clearly prove the guilty intent. It is not possible to agree with the counsel for the respondents that breach referred to in Section 78(5) can be regarded as technical or venial.

Once the ingredients of Section 78(5) are established, after giving a hearing and complying with the principles of natural justice, there is no discretion not to levy or levy lesser amount of penalty. If by mistake some of the documents are not readily available at the time of checking, principles of natural justice may require some opportunity being given to produce the same. This provision cannot be read as to imply that the penalty of 30% is the maximum and lesser penalty can be levied. 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.

As held by this Court in Rai Ramakrishna & Ors. v. The State of Bihar6 at 910; "The objects to be taxed so long as they happen to be within the legislative competence ofthe legislature can be taxed by the legislature according to the exigencies ofit~· needs, because there can be no doubt that the State is entitled to rais~ revenue by. taxation. The quantum oftax levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the legislature; and in dealing with the contention raised by a citizen that the taxing statute contravenes Art. 19, courts would naturally be circumspect and cautious" as such there cannot, in the present case, be any valid challenge to the rate of penalty provided for in Section 78(5) of the Act. Following the decisions of this Court in cases ofSodhi Transport Co. and Ors.

(supra), Delite Carriers (supra), Indian Roadways Corporation (supra) Sarna Transport Corporation (supra) and Tripura Goods Transport Association (supra) we hold that the provisions of Section 78(5) of the Rajasthan Sales. Tax Act, 1994 are valid and the impugned decision of the High Court in this regard is not correct. These appeals, except Civil Appeal No. 1321 of 2001, are accordingly allowed. Civil Appeal No. 1321 of 2001 is dismis~ed. Parties to bear their own costs. B. S. Appeals allowed. .. 6. (1964] I SCR 897.