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Hajee Ahmed Bava and ors. Vs. Assistant Commercial Tax Officer, Sagar and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberWrit Petition Nos. 1218, 1338, 2349 and 4324 of 1981
Judge
Reported in[1985]60STC328(Kar)
ActsKarnataka Sales Tax Act, 1957 - Sections 14B, 14B(6), 14B(7), 14B(8), 16A, 20, 28A, 28A(1), 28A(2), 28A(4), 37(1), 42, 42(1)(3) and 43
AppellantHajee Ahmed Bava and ors.
RespondentAssistant Commercial Tax Officer, Sagar and ors.
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateS. Rajendra Babu, High Court Government Adv.
Excerpt:
- karnataka rent act, 1999.[k.a. no. 34/2001]. section 27(2)(r) :[k. ramanna,j] bona fide requirement of landlord - landlord requiring premises for his/her personal use and occupation no proper challenge to the evidence let in by the landlord held, the requirement of the landlord to be presumed. there is no place for considering comparative hardship under the act. where the landlord claimed that he has inherited the property under a will and there was no challenge by other legatees or claimants, the tenant cannot challenge the genuineness of the will. - but, later, the petitioner advised the bank not to honour the cheque and complained to the commissioner about the alleged harassment. (2) at every check post or barrier mentioned in sub-section (1), or at any other place when so.....rajasekhara murthy, j.1. in w. p. no. 1218 of 1981 filed by the petitioners who is the owner of lorry bearing reg. no. meg 5711, the provisions of section 28a of the karnataka sales tax act, 1957, as amended by act 27 of 1969, are challenged as beyond the competence of the state legislature. 2. the petitioner's lorry, when checked by the assistant commercial tax officer (acto), sagar, on 29th march, 1980 at billeswar village, hosanagar taluk, was found transporting 69 bags of arecanut without any documents in respect of the goods under transport. a notice was issued by the acto, sagar, under section 28a(4) of the act, to the driver and the petitioner, the owner of the vehicle, to show cause why penalty of rs. 4,200 should not be levied for contravention of section 28a(2) of the act. the.....
Judgment:

Rajasekhara Murthy, J.

1. In W. P. No. 1218 of 1981 filed by the petitioners who is the owner of lorry bearing Reg. No. MEG 5711, the provisions of section 28A of the Karnataka Sales Tax Act, 1957, as amended by Act 27 of 1969, are challenged as beyond the competence of the State Legislature.

2. The petitioner's lorry, when checked by the Assistant Commercial Tax Officer (ACTO), Sagar, on 29th March, 1980 at Billeswar Village, Hosanagar Taluk, was found transporting 69 bags of arecanut without any documents in respect of the goods under transport. A notice was issued by the ACTO, Sagar, under section 28A(4) of the Act, to the driver and the petitioner, the owner of the vehicle, to show cause why penalty of Rs. 4,200 should not be levied for contravention of section 28A(2) of the Act. The statement of the driver was recorded on 29th March, 1980 and the reply was also filed by the petitioner stating that the arecanut belonging to nearby villagers was being transported in his lorry to Sagar for hire.

3. The ACTO after considering the cause shown and comparing the names furnished by the driver in his statement recorded on 29th March, 1980 and the list of agriculturists furnished by M/s. R. A. Manjunathappa & Sons, Arecanut Merchants, Sager, levied a penalty of Rs. 4,200 under section 28A(4) of the Act.

4. This is being challenged by the petitioner in this writ petition on several grounds, namely :

(i) that no sale was involved in respect of the arecanut transported in the lorry at the time it was checked, and there was no evasion of tax under the Act. Hence, the ACTO had no jurisdiction to levy the penalty;

(ii) that the ACTO's order is based or irrelevant considerations;

(iii) that no penalty can be levied even before a sale takes place inside the State; and

(iv) section 28A of the Act is beyond the competence of the State Legislature.

5. In W.P. No. 1338 of 1981, the petitioner is a student studying in B.E. at Bangalore. His uncle purchased a Luna Moped at Poona and sent it to Bangalore in a lorry. The said lorry was stopped and checked at Kumarapatnam Check Post near Harihar and on a physical verification of the goods, the Check Post Officer seized the Luna, since the driver had no sale bill or other document in respect of the moped. Hence, he levied a penalty of Rs. 1,260 under section 28A(4) of the Karnataka Sales Tax Act.

6. This levy of penalty is challenged by the petitioner in this writ petition. The levy is challenged on the ground that the provisions of section 28A(4) do not confer any power on the officers of the State Government to levy penalty on goods which are purchased outside the State and the levy is, therefore, illegal. Since no sale could have taken place within the State, it cannot be said there has been an evasion of tax under the State Act.

7. In W.P. No. 2349 of 1981, the petitioner is a manufacturer of quality cotton fabric and a registered dealer under the KST and CST Acts. The petitioner-company imported 136 bags of P.V.C. resin through its head office in Bombay - M/s. Calico Chemical Plastic and Fabric Division, Bombay, on high-seas sale basis. The lorry driver, when the vehicle was checked at Dasarahalli Check Post on Tumkur Road, produced a way-bill authorising the delivery of the goods to the petitioner. In pursuance of the show cause notice issued by the Check Post Officer the petitioner filed a reply, as per annexure C, explaining that the goods were brought into the State on a sale which took place on the basis of high-seas sale and that there was no sale inside the State. Hence, it was pleaded that no tax was leviable under the KST Act in respect of the said goods. In spite of this reply, the checking officer levied a penalty of Rs. 2,400 under section 28A(4) of the Act and this is challenged in the writ petition.

8. In W.P. No. 4324 of 1981, the petitioner is M/s. Ranka Roadlines Pvt. Ltd., a lorry transporting 163 cases of whisky from Bangalore to Hubli was stopped and checked at Davanagere Check Post on 6th August, 1980 and the driver produced an invoice dated 31st July, 1980 before the Check Post Officer. The Check Post Officer found that the invoice did not relate to the goods carried and issued a show cause notice to the petitioner. The lorry was detained at the check post for two days and the petitioner filed a reply explaining how the goods were being transported in a different lorry. It is also stated by the petitioner that the order levying penalty was passed by the Check Post Officer and he demanded an ad hoc sum of Rs. 30,000 to release the lorry and the petitioner issued a cheque for Rs. 30,000 and got release of the lorry. But, later, the petitioner advised the bank not to honour the cheque and complained to the Commissioner about the alleged harassment. The Commissioner replied that on enquiry it was found that the Check Post Officer was justified in levying the penalty.

9. The order of the Check Post Officer is now challenged in the writ petition on the ground that no order levying penalty was served on the petitioner. But the prayer is to restrain the Check Post Officer from recovering the penalty of Rs. 30,000 levied on the petitioner.

10. It is asserted on behalf of the Check Post Officer that the penalty order which was sent by registered post to the petitioner's address was returned as 'refused'. It is also stated that the goods which were checked on 6th August, 1980 were not the same as covered by the invoice dated 31st July, 1980 and the levy of penalty was, therefore, justified.

11. The learned counsel, in elaborating his contentions, submits that the provisions of the KST Act can be enforced only in case of a transaction of sale that has taken place within the State and is exigible to tax under KST Act. The machinery provisions of the Act can be pressed into service only for the purpose of determining the taxable turnover of a dealer which is exigible to tax under the State Act. The provisions of section 28A conferring powers on the authorised officers to stop all vehicles which are transporting goods for various purposes and to insist on the production of bill of sale in respect of the goods under transport, is beyond the competence of the State Legislature. According to him, it would be wholly without jurisdiction and unwarranted, to embark upon such checking and detention of the vehicle under the guise of preventing evasion of tax. The State Government's object in unearthing evasion of tax, by stopping all vehicles and make a wild and unguided search and insist on production of documents in respect of the goods when there is actually no sale, has not been achieved. He further contends that it would be an act of impropriety and unwarranted action, since the Check Post Officer is authorised to stop any vehicle and insist on the production of bill of sale and other documents in respect of the goods or articles that are being carried in the vehicle and even in cases where there is no sale.

12. The main thrust of his argument is, there can be no presumption of sale in respect of any goods that are being carried in a goods vehicle and the power to levy penalty which is the power now conferred under section 28A(4) after amendment of section 28A by amendment Act 27 of 1969 is beyond the competence of the State Legislature.

13. In support of the challenge, the petitioner has relied upon the decision of the Supreme Court in Check Post Officer v. K. P. Abdulla & Bros. [1971] 27 STC 1 (SC) and other decisions. The Supreme Court was considering the constitutional validity of section 42(3) of the Madras General Sales Tax Act which empowered the Check Post Officer to confiscate goods and levy penalty in lieu of confiscation, when, in respect of the goods found in a vehicle, the driver of the vehicle was not carrying with him, the documents specified in that section.

14. The supreme Court held that the said provisions in the Madras Act were not ancillary or incidental to the power conferred on the States to tax sale of goods under entry 54, List II of the Seventh Schedule to the Constitution and were therefore invalid.

15. The petitioner's contention is that the provisions of section 28A(4) of the KST Act even after amendment in 1969 has not made any change and are therefore, liable to be struck down as beyond the powers of the Legislature and that therefore, this Court should declare the said provisions as unconstitutional and has, as a consequence, pray for issue of a writ of certiorari quashing the order dated 3rd December, 1980 passed by the ACTO, Sagar, levying penalty of Rs. 4,200 in W.P. No. 1218 of 1981 and the penalties levied similarly in the other writ petitions.

16. Let us now compare the provisions of the Madras General Sales Tax Act and those of the Karnataka Act in order to find out if they are in pari materia and are meant to achieve the same purpose.

17. Section 42 of the Madras General Sales Tax Act, 1959 provides :

'(1) If the Government consider that with a view to prevent or check evasion of tax under this Act in any place or places in the State, it is necessary so to do, they may, by notification, direct the setting up of a check post or the erection of a barrier or both, at such place or places as may be notified.

(2) At every check post or barrier mentioned in sub-section (1), or at any other place when so required by any officer empowered by the Government in this behalf, the driver or any other person in charge of any vehicle or boat shall stop the vehicle or boat, as the case may be, and keep it stationary as long as may reasonably be necessary, and allow the officer in charge of the check post or barrier, or the officer empowered as aforesaid, to examine the contents in the vehicle or boat and inspect all records relating to the goods carried, which are in the possession of such driver, or other person in charge, who shall, if so required, give his name and address and the name and address of the owner of the vehicle or boat as well as those of the consignor and the consignee of the goods.

(3) The officer in charge of the check post or barrier, or the officer empowered as aforesaid shall have power to seize and confiscate any goods which are under transport by any vehicle or boat and are not covered by,

(i) a bill of sale or delivery note,

(ii) a Goods Vehicle Record, a Trip Sheet or a Log Book, as the case may be, and

(iii) such other documents as may be prescribed under sections 43 and 44 :

Provided that before ordering confiscation the officer shall give the person affected an opportunity of being heard and make an inquiry in the prescribed manner :

Provided further that the officer ordering the confiscation shall give the person affected option to pay in lieu of confiscation -

(a) in cases where the goods are taxable under this Act, in addition to the tax recoverable, a sum of money not exceeding one thousand rupees or double the amount of tax recoverable, whichever is greater; and

(b) in other cases, a sum of money not exceeding one thousand rupees.'

18. Under the Karnataka Sales Tax Act, similar powers were conferred under section 28A of the Act before they were substituted by Karnataka Act 27 of 1969.

Section 28A of the Karnataka Act underwent some more additions and substitutions by Act 18 of 1976 and Act 23 of 1983. Sub-section (4), (5) and (6) as substituted are reproduced below :

'(4) The officer-in-charge of a check post or any other officer not below the rank of an Assistant Commercial Tax Officer and not higher in rank than an Assistant Commissioner of Commercial Taxes may, in respect of any contravention of or non-compliance with the provisions of sub-section (2) or (3) or (3A) and for which sufficient cause is not furnished, levy a penalty not exceeding the limits specified in sub-section (5). The aforesaid officer may also levy penalty where the declaration made under sub-section (2) is false in respect of the materials furnished therein or where the particular furnished in the records do not tally with the goods actually being transported or are found to be not relating to such goods :

Provided that before levying any penalty under this sub-section, the officer shall give the person in-charge of the goods vehicle or boat a reasonable opportunity of being heard.

(5) The penalty leviable under sub-section (4) shall not exceed double the amount of Tax leviable in respect of the goods under transport :

Provided that in the case of goods specified in the Second, Third and Fourth Schedules, if the owner or the person in-charge of the goods vehicle or boat produces proof to show that the goods in question have already suffered the single point tax under this Act, no penalty shall be leviable.

(6) Where the penalty levied is not paid, the officer levying the penalty shall have power to take possession of so much of the goods as in his opinion would be sufficient to meet the amount of penalty levied and retain the same with him until the penalty is paid or for ten days, whichever is earlier. After the expiry of the period of ten days, if the penalty is not paid, the officer shall dispose of the goods in the public auction and adjust the sale proceeds towards the penalty. If the sale proceeds are more than the penalty, the excess amount shall, after deducting the charges incurred by the State, be refunded in the manner prescribed :

Provided that in the case of perishable goods, the officer may dispose of the same before the expiry of the period of the ten days if in his opinion such disposal is necessary.'

19. It is the contention of Sri K. Srinivasan, the learned Counsel for the petitioner, that sub-sections (4), (5) and (6) of section 28A as substituted by Act 27 of 1969 suffers from the same vice for which the Supreme Court struck down the corresponding provisions of section 42(3) of the Madras General Sales Tax Act.

Sub-section (4), (5) and (6) of section 28A before amendment in 1969, were challenged in this Court in Venkatachalapathi v. Commercial Tax Inspector [1965] 16 STC 894 as imposing unreasonable restrictions and offending article 19(1)(g) of the Constitution and, therefore, unconstitutional. The said provisions were struck down on that ground by this Court. This Court, however, upheld the legislative competence in enacting the said provisions and further held they were ancillary and incidental to the power to tax on sale of goods as conferred on the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution.

20. Sri Srinivasan further contends that in K. P. Abdulla's case [1971] 27 STC 1 (SC) which went from Madras High Court, the Supreme Court struck down the corresponding provisions of section 42(3) of the Madras Act holding that the power to confiscate the goods and to levy penalty under section 42(3) is not a provision which is ancillary or incidental to the power to tax sale of goods. That law holds good even after amendment of section 28A(4) in the Karnataka Act according to Sri Srinivasan. He also relied upon a decision of the Supreme Court in Hansraj Bagrecha v. State of Bihar : [1971]2SCR412 .

21. In that case (Hansraj Bagrecha) the Supreme Court was dealing with the validity of rule 31B of the Bihar Sales Tax Rules, 1959. Under the said rule the State imposed prohibition on any consignment of goods notified under section 42 from transporting the same to any place outside the State of Bihar unless such person had obtained a despatch permit from the appropriate authority.

22. The Supreme Court held, that the said rule and the notification were ultra vires the powers under which the State Government could legislate on matters of tax on sale of goods. The said rule was struck down also on the ground that it impeded the free flow of inter-State trade, since the operation of the rule was made applicable even to transactions which took place in the course of inter-State trade and commerce.

23. The power to legislate or transactions which are carried on in the course of inter-State trade or commerce or in the course of export, was held to be without authority of law. This decision has no bearing so far as the interpretation in relation to section 28A of the KST Act is concerned.

24. It is Sri Srinivasan's contention that sub-sections (4) and (5) as substituted by Act 27 of 1969 are not different from the provisions that were struck down by this Court in Venkatachalapathi's case [1965] 16 STC 894 in its effect and intendment and the ratio of the Supreme Court in K. P. Abdulla's case [1971] 27 STC 1 (SC) still holds good to penalties levied under the amended provisions. He demonstrates by comparing the provisions of section 28A before and after their substitution in the year 1969, to prove that the said provisions suffer from the same vice.

25. The officer-in-charge of check post or barrier or any officer empowered under sub-section (3) of section 28A of the KST Act, 1957 as amended by Act 27 of 1969 had power to seize and confiscate goods for purposes of enforcing the provisions of section 28A of the KST Act as empowered by the provisions before their substitution in 1969. Whereas, by Act 27 of 1969 the power of seizure and confiscation was substituted by the power to levy penalty and the sub-sections (5) and (6) were also suitably amended.

26. The Supreme Court in Abdulla's case [1971] 27 STC 1 (SC) laid down that :

'.......... 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. By sub-section (3) the officer in charge of the check post or barrier has the power to seize and confiscate any goods which are being carried in any vehicle if they are not covered by the documents specified in the three sub-clauses. Sub-section (3) assumes that all goods carried in a vehicle near a check post are goods which have been sold within the State of Madras and in respect of which liability to pay sales tax has arisen, and authorises the Check Post Officer, unless the specified documents are produced at the check post or the barrier, to seize and confiscate the goods and to give an option to the person affected to pay penalty in lieu of confiscation. 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. A person carrying his own goods even as personal luggage from one State to another or for consumption, because he is unable to produce the documents specified in clauses (i), (ii) and (iii) of sub-section (3) of section 42, stands in danger of having his goods forfeited. Power under sub-section (3) of section 42 cannot be said to be ancillary or incidental to the power to legislate for levy of sales tax.'

27. The effect of the application of the ratio of the decision of the Supreme Court in K. P. Abdulla's case [1971] 27 STC 1 (SC) to the facts of this case, according to Sri Srinivasan's contention is, that sub-section (4), (5) and (6) of section 28A of the KST Act as amended by Act 27 of 1969, is that the provisions as amended have to be declared as beyond the competence of the State's powers.

28. The Supreme Court held that section 42(3) of the Madras Act was beyond the competence of the State Legislature. The reasoning of the Supreme Court (by Shah, J., as he then was) is that the constitutional entry provided in entry 54, List II of the Seventh Schedule authorised the State Legislature to legislate in respect of taxes on the sale or purchase of goods. The provisions of sub-sections (1) and (2) of section 42 of the Madras Act were intended to set up machinery for preventing evasion of sales tax. But, in their judgment the power to confiscate goods carried in a vehicle could not be considered as a step or procedure for assessing the transaction in respect of those goods on the assumption that they were sold within the State and the transaction had not suffered tax. The provisions of section 42(3) of the Madras Act empowered seizure and confiscation of any goods which were under transport in any vehicle, if those good under transport were not covered by a bill of sale or delivery note. These powers conferred under sub-section (3) of section 42 of the Madras Act were intended to be enforced to deal with cases of goods which are transported in any goods vehicle on the assumption that the goods under transport were goods which had been sold within the State of Madras and in respect of which the evasion to pay tax was suspected. Therefore, for the mere failure on the part of the driver or any other person in charge of the vehicle to produce a bill of sale or delivery note at the time the vehicle was checked, such goods could be seized and confiscated. The second proviso to sub-section (3), no doubt, gave an option to the person affected to pay penalty of Rs. 1,000 or double the amount of tax recoverable whichever was greater. Both the seizure and confiscation and the levy of penalty in the alternative, could be exercised by the authorised officer under the provisions of section 42 of the Madras Act on the assumption that all goods carried in a vehicle passing through a check-post, were goods which had been sold within the State of Madras, was held as unwarranted by the Supreme Court. It is in these circumstances that the Supreme Court held, that the power conferred under sub-section (3) of section 42 of the Madras Act to seize and confiscate and to levy penalty in lieu of confiscation, was not ancillary or incidental to the power to levy sales tax under the State Act.

29. It is, therefore, in the background of this decision that the validity of the present substituted provisions of sub-sections (4), (5) and (6) of section 28A of the KST Act have to be examined. The only change brought about by the amendment to sub-section (4) in 1969, according to Sri Srinivasan is that in a case where sufficient cause is not shown for the contravention or non-compliance with the provisions of sub-section (2), (3) or (3A), the officer can proceed to levy penalty as provided under sub-section (5) instead of seizure and confiscation as provided before amendment.

30. Sri Srinivasan has also relied upon a decision of the Orissa High Court in Kamal Kumar Goyal v. State of Orissa [1975] 35 STC 343.

Section 16A of the Orissa Sales Tax Act empowers the authorities under the Act to inspect and confiscate goods for any suspected evasion of tax. The validity of section 16A was challenged by the petitioner therein, in the High Court of Orissa under article 226. The High Court held, on a comparison of of the Orissa Act and the Madras Act, that the provisions of section 16A of the Orissa Act are confined to cases of sale only and further held that the mischief under the provisions of the Madras Act is not found in the Orissa Act, and that K. P. Abdulla's case [1971] 27 STC 1 (SC) did not apply to the Orissa Act.

This case, therefore, does not help the petitioners' case.

31. Sri Rajendra Babu, argued that the provisions substituted by the Amendment Act of 1969 in section 28A(4) are valid in law and there is no question of any lack of competency on the part of the State Legislature in enacting the said provisions. The power to levy penalty is to be exercised by the checking officer only if the person concerned fails to give sufficient cause for not producing the bill of sale or delivery note, as required under sub-section (2) in respect of the goods carried in the goods vehicle. Prior to the amendment, the very same officer had the power to seize and confiscate the goods in the vehicle for the failure to produce a bill of sale or delivery note in respect of the goods under transport. The cause of action for the seizure and confiscation or for the levy of penalty under the present provisions is, the failure to produce a bill of sale or delivery note in respect of the goods and under the amended sub-section (4), the change effected is that the Check Post Officer can proceed to levy penalty if no sufficient cause is furnished for non-compliance with the provisions of sub-section (2), (3) or (3A). He has also relied upon sub-section (7) of section 28A which provides for an appeal against the levy of penalty.

Sri Rajendra Babu apart from distinguishing the application of K. P. Abdulla's case [1971] 27 STC 1 (SC) to the substituted provisions, has relied upon the following decisions in support of his contentions :

(1) Bishamber Dayal Chandra Mohan v. State of U.P. : [1982]1SCR1137 .

The action of the State Government of U.P. in setting up check posts on its borders and the stoppage and seizure of wheat in transit through the State of U.P. during the course of inter-State trade and commerce to various destinations in the State of M.P., Maharashtra, etc., was challenged by the wholesale dealers of foodgrains, as violative of the freedom of trade and intercourse guaranteed under article 301 of the Constitution and the fundamental right to carry on trade and business guaranteed under article 19(1)(g) of the Constitution.

It was held by the Supreme Court that the steps taken to check the vehicles, though were in the nature of restrictions on the inter-State trade, were not arbitrary or unreasonable or excessive, having regard to the object of preventing price rise in wheat and to prevent its outflow outside the State.

The circumstances in which the Supreme Court upheld the action of the State Government as reasonable, depend on a different situation and the provisions of the U.P. Act which the Supreme Court was considering.

(2) Sodhi Transport Co. v. State of U.P. [1983] 52 STC 440.

The question that arose in that case was, whether rule 28B of the U.P. Sales Tax Rules requiring vehicles carrying goods from outside this State to other States and passing through the State of U.P. was violative of articles 14, 19(1)(g) and 301 of the Constitution and therefor, beyond the legislative power of the State.

The validity of the rule was upheld by the High Court following the decision of the Supreme Court in R. S. Jhaver's case : [1967]66ITR664(SC) . Though K. P. Abdulla's case [1971] 27 STC 1 (SC) is referred, there is no discussion as to its application or otherwise.

Insistence on obtaining a transit pass as per the said rule was held as incidental and ancillary to the power to the sale of goods under the Orissa Act and that such a rule did not impede the free flow of the inter-State trade.

We have to observe that the rule which the High Court was examining is not in pari materia with section 28A of the KST Act.

The said decision also does not support the case of the respondents.

(3) Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver : [1967]66ITR664(SC) .

It is no doubt true the Supreme Court held in that case that it is competent to the Legislature to make all such incidental and ancillary provisions as may be necessary to effectuate the law, particularly in the case of a taxing statute, in order to check evasion of tax. But such provisions enacted by the State Legislature should again satisfy the test laid down by the Supreme Court in K. P. Abdulla's case [1971] 27 STC 1 (SC), viz., whether the said provisions are within the competence of the State Legislature to enact laws with respect to levy tax on sale of goods.

Sri Rajendra Babu has also relied upon the decisions of the Supreme Court in R. S. Joshi v. Ajit Mills : [1978]1SCR338 , Shiv Dutt Rai v. Union of India : [1984]148ITR664(SC) and Hoechst Pharmaceuticals v. State of Bihar : [1985]154ITR64(SC) .

In R. S. Joshi's case : [1978]1SCR338 , the point considered by the Supreme Court related to the validity of section 37(1)(a) of the Bombay Sales Tax Act, which conferred power on the State to forfeit any sum collected by a dealer in excess of the tax payable by him and also to levy penalty not exceeding Rs. 2,000. The Supreme Court upheld that power on the ground that those powers were valid and were within the range of ancillary powers of the Legislature competent to enact the sales tax law. The power to confiscate or expropriate the excess of the sum collected in the guise of tax was held to be legitimate and valid.

32. Sri Rajendra Babu has drawn our attention to a passage in the said judgment at page 512 wherein their Lordships had occasion to make a reference to K. P. Abdulla's case [1971] 27 STC 1 (SC). There was no application of the said principle laid down by the Supreme Court in K. P. Abdulla's case [1971] 27 STC 1 (SC) nor did they consider it relevant for the purpose of disposing of the case before them.

33. Sri Rajendra Babu has also drawn our attention to a Full Bench decision of the Punjab and Haryana High Court in Mool Chand Chuni Lal v. Shri Manmohan Singh, Assistant Excise and Taxation Officer [1977] 40 STC 238 (FB) in which their Lordships had occasion to go into the validity of the provisions of sub-section (6) of section 14B of the Punjab General Sales Tax Act. An officer-in-charge of a check post had powers to unload and detain any goods which the said officer had reason to suspect were meant for trade. The relevant provisions of the Punjab General Sales Tax Act considered by their Lordships, are not in pari materia with the provisions of sub-sections (4), (5) and (6) of section 28A of the KST Act. Their Lordships, while upholding the validity of the said provisions observed, that the principles laid down in K. P. Abdulla's case [1971] 27 STC 1 (SC) were not applicable to the case before them and this is what their Lordships observed at page 242 :

'It will be noticed at once that section 14B(6), as it stood originally, provided for the seizure of any goods not covered by documents and section 14B(8) provided for the seizure of all goods in respect of which the declaration was false. The seizure might be made irrespective of the question whether there was any attempt to evade tax. The basic but unwarranted assumption underlying both the provisions for seizure, as in the case before the Supreme Court, was that the goods were transported after sale within the State. Again, as in the case before the Supreme Court, no attempt was made to specify what goods might be seized. The provisions were considered by Bal Raj Tuli, J., and the Division Bench to fall within the principles laid down in K. P. Abdulla's case [1971] 27 STC 1 (SC). But the position is quite different now. The new provision for the levy of penalty [amended section 14B(7)] is no longer based on any assumption that the goods were transported after sale within the State. Its present basis is the attempt to evade tax and it prescribes a condition precedent to the levy of penalty. The condition precedent is that the authorised officer should record a finding that there has been an attempt to evade the tax due under the Act. It cannot possibly be disputed that the prevention of evasion of sales tax is a power incidental or ancillary to the levy of sales tax and falls within entry 54 of List II of Schedule VII of the Constitution. Section 14B(7), which provides for detention of goods and levy of penalty if there has been an attempt to evade the tax due under the Act, cannot, therefore, be held to be without constitutional sanction. It is further to be noticed that the goods which are to be detained are also specified in section 14B(6) as the goods meant for trade and not covered by proper and genuine documents.'

34. The question that arises for our consideration is, whether the enactment of provisions of section 28A(4), (5) and (6) as substituted by Act 27 of 1969, Act 18 of 1976 (sic) and Act 18 of 1978 are liable to be struck down as beyond the competence of the State Legislature. The further question is, whether the substitution of sub-sections (4), (5) and (6) has made any difference, so far as the exercise of power to levy penalty for the contravention referred to in sub-sections (4) and (5) is concerned. The power which empowered the checking officer to seize and confiscate the goods, is now substituted by power to levy penalty. The provisions and procedure now provided for levy of penalty are not the same. No doubt the provisions authorise the officers to come to a summary conclusion that there is escapement of tax in respect of the goods in the vehicle. But the power to levy penalty is invoked by the checking officer only after the person carrying the goods does not satisfy the officer, the reason for not carrying the documents as required under sub-section (2), (3) or (3A) of section 28A of the Act. The documents required to be produced by the driver or person-in-charge of the goods, if not produced even after allowing sufficient time, the checking officer has absolute and unlimited power to detain the vehicle if he is not satisfied as to the explanation and the bona fides of the owner or with the inspection of the documents, and proceed to levy penalty not exceeding double the amount of tax leviable in respect of the goods under transport.

Such a power could be exercised by any officer authorised even while the goods are in a godown, shop, office, vessel, etc., kept therein before transmission as provided by sub-section (3A) of section 28A.

Under the proviso to sub-section (5) the owner or the person in-charge of the goods vehicle or boar, may produce proof to show that the goods in question have already suffered the single point tax, in order to satisfy the checking officer that the goods have already suffered tax.

Further, under the amended provisions of sub-section (6), the checking officer has power to seize the goods sufficient to meet the amount of penalty and retain the same for 10 days until released by the owner on payment of the penalty.

An appeal is provided by sub-section (7) against the order levying penalty to the Deputy Commissioner or the Assistant Commissioner, as the case may be. The appellate authority may confirm, reduce or annul the penalty. A further appeal is also provided against the order made under section 20 to the Appellate Tribunal also.

35. It was held by the Supreme Court in K. P. Abdulla's case [1971] 27 STC 1 (SC) that the power to confiscate goods and to levy penalty in lieu of confiscation, for the failure to produce a sale bill or delivery note, are not ancillary or incidental to the power to tax sale of goods.

It is also possible, as observed by Shah, J., in K. P. Abdulla's case [1971] 27 STC 1 (SC), that the goods may be transit for various reasons and purposes. It may be that a person is carrying his own goods for personal use from one State to another or within the State, or they may be in the course of distribution or delivery after paying taxes or the goods may be in transport in the course of inter-State trade.

36. The goods may then be in transit under various circumstances and transport may be occasioned for any reason otherwise than by sale within the State. According to Sri Srinivasan if the checking officers were to stop all goods vehicles and levy penalty under section 28A(1) of the KST Act, solely for the failure to carry or produce the documents specified therein, it would be a case of abuse of powers. Penalty is levied on the assumption that the goods in the vehicle are taxable and on the further assumption that there is evasion of tax in respect of those goods, and on these grounds the checking officer is to decide on the spot and levy penalty not exceeding double the tax leviable on the goods under transport.

37. This procedure, it is further submitted for the petitioners, gives a go-by to the normal procedure of taxing the sale of goods under the Act which calls for elaborate enquiry whether the goods are taxable under the State Act and the consideration of the plea of the assessee, the deductions, if any, exemption, if admissible, etc. To provide for an ad hoc and summary assessment even before the assessment is completed as per the procedure provided in the Act, it would be wholly without jurisdiction and beyond the powers of the sales tax authorities to levy penalty straightaway and recover the same by seizure of the goods, if it becomes necessary.

38. In our view the power to levy penalty has taken the place of power to seize and confiscate, as prescribed under sub-sections (4), (5) and (6) before their substitution, and there is substantial change in the procedure and other provisions relating to the levy of penalty under the substituted provisions and they do not suffer from the same vice for which the Supreme Court declared similar provisions of the Madras Act as unconstitutional. The substituted provisions provide for opportunity to the person aggrieved to show cause or to produce the documents, and the power to levy penalty is purported to be exercised only in cases where the person concerned fails to furnish sufficient cause for the contravention or non-compliance with the provisions of sub-section (2) or (3) or (3A) of section 28A. They also provide for sufficient safeguards to the person concerned, to appeal against the order levying penalty to the higher authorities as provided under the Act. But this power has to be exercised strictly in cases where the goods leviable to tax under the KST Act are involved and in respect of which there is suspected evasion of tax. We are, therefore, of the view that the impugned provisions are not beyond the legislative competence of the State.

39. But we are of the view that the petitioners should be permitted to challenge the respective orders made against them in an appeal before the concerned appellate authority under the Act. We, therefore, refrain to examine their validity. We have no doubt that the appellate authority will properly examine them.

40. In the light of the foregoing discussion and for the reasons stated above, we make the following orders :

(i) We dismiss these writ petitions in so far as they challenge the validity of the provisions of section 28A of the KST Act.

(ii) We permit the petitioners in each of the writ petitions to file an appeal against the order levying penalty to the appropriate appellate authority within one month from this day, and when so filed within that time, such appellate authority shall dispose of such appeal only on merits.

41. All the writ petitions are disposed of in the above terms. But in the circumstances of the cases, we direct the parties to bear their own costs.


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