2025 (6) TMI 3 - HC - VAT / Sales Tax

Levy of penalty - penalty imposed on the ground that the driver of the vehicle did not have a waybill when the vehicle was detained - HELD THAT - Admittedly the vehicle was detained in the check post between Jharkhand and the State of West Bengal and the vehicle has not come into the State of West Bengal. Apart from that on a request made by the driver of the vehicle the detaining authority had granted time to produce the way-bill till up to 10 52 a.m. on 19th September 2013. It is also not in dispute that within the time permitted the way-bill was generated on 20th September 2013 at 08 19 a.m. which is about 45 hours from the time of detention - Thus the petitioner cannot be stated to have violated the law but has produced the valid way-bill much before the vehicle had crossed the check post between the two States. More or less an identical case was decided by the High Court of Karnataka in the case of Prakash Roadlines (P) Ltd. Vs. Commissioner of Commercial Taxes in Karnataka 1991 (1) TMI 394 - KARNATAKA HIGH COURT wherein the Court held that The exercise of the power and levy of penalty as a matter of course will be an arbitrary exercise of power and the very exercise of the power may be repugnant to the provisions of article 301. The right guaranteed under article 301 and its content will have to be applied even to the exercise of an executive power traceable to the law made by the competent Legislature. Another decision of the Division Bench of this Court in the case of HDFC Bank Limited Vs. Sales Tax Officer Duburdih Checkpost Ors. would also support the case of the writ petitioner wherein it was held that Interception of consignment of goods at the check-post cannot mean that it has been taken across or beyond the check post into the State of West Bengal for the purpose of application of the said provisions of the said Act . Thus the order passed by the authority imposing penalty is liable to be set aside. Consequently the writ petition is allowed and the order passed by the learned Tribunal is set aside as also the order passed by the authorities levying penalty.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the order dismissing the writ petition for non-prosecution should be recalled in light of the explanation provided by the petitioner.

(b) Whether the cause title of the writ petition can be amended to reflect a change in the name of the petitioner company based on the Certificate of Incorporation.

(c) Whether the imposition of penalty on the petitioner for not having a valid way-bill at the time of detention of the vehicle is justified, given that the way-bill was produced within the time permitted by the detaining authority.

(d) Whether the vehicle's detention at the check post between Jharkhand and West Bengal, without the vehicle entering West Bengal, triggers liability under the relevant tax provisions for failure to produce a way-bill.

(e) The applicability of precedents concerning penalty imposition under Section 28-A of the relevant Sales Tax Act, particularly regarding the discretionary nature of penalty imposition and the constitutional protection of free inter-state trade under Article 301.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Recall of Order Dismissing Writ Petition for Non-Prosecution

The Court examined the explanation tendered by the petitioner for the absence of their advocate when the matter was called on 18th December 2023. The petitioner's explanation was found satisfactory. Additionally, the writ petition had been pending since 2015 and was dismissed due to non-prosecution after a protracted period. The Court held that in such circumstances, recalling the dismissal order was justified to enable adjudication on merits.

The Court's reasoning was grounded in principles of justice and procedural fairness, ensuring that technical lapses do not result in denial of substantive rights. The order dismissing the writ petition was therefore recalled, and the petition restored for hearing on merits.

(b) Amendment of Cause Title

The petitioner sought to amend the cause title to reflect the change in its corporate name from Darcl Logistics Limited to CJ Darcl Logistics Limited. The application was supported by a Certificate of Incorporation issued by the Registrar of Companies dated 13th September 2017.

The Court allowed the amendment, recognizing the change in legal identity of the petitioner company. This procedural correction was deemed necessary for accurate representation of parties and did not affect substantive rights.

(c) Validity of Penalty Imposed for Non-Production of Way-Bill

The principal issue concerned the penalty imposed on the petitioner on the ground that the driver of the vehicle did not have a valid way-bill at the time of detention at the check post on 18th September 2013.

Key facts established that:

• The driver produced a consignment note dated 12th September 2013 and an invoice from M/s. Reckitt Benckiser (India) Ltd., establishing the identity, weight, and value of the goods.
• The vehicle was detained at a check post located between Jharkhand and West Bengal, and had not entered West Bengal.
• The detaining authority granted time until 10:52 a.m. on 19th September 2013 to produce the way-bill.
• The way-bill was generated on 20th September 2013 at 08:19 a.m., approximately 45 hours after detention but before the vehicle crossed the check post.

The Court held that the petitioner did not violate the law as the valid way-bill was produced within the time permitted and before the vehicle entered the State of West Bengal. The mere absence of the way-bill at the moment of detention did not justify penalty.

The Court relied heavily on the precedent set by the High Court of Karnataka in Prakash Roadlines (P) Ltd. v. Commissioner of Commercial Taxes, which clarified that penalty under Section 28-A is discretionary and not automatic. The Karnataka Court emphasized:

"Section 28-A is not a charging provision at all. It is only a machinery provision... The Act does not impose a strict liability imposing penalty as a matter of course. Section 28-A (4) itself uses the word 'may' and creates a discretionary power in the authority to levy the penalty... The production of the documents in question immediately on demand should not be understood in isolation to create a liability provided the bona fides of the carrier and the purpose of carrying the goods are not doubted and found against the concerned persons."

The Court also noted that the penalty imposed solely due to failure to produce documents immediately on demand, without doubting the bona fides of the carrier or the legitimacy of the consignment, amounted to arbitrary exercise of power potentially infringing Article 301, which guarantees free inter-state trade.

(d) Jurisdictional Scope of Penalty for Non-Production of Way-Bill at Check Post

The Court considered whether the vehicle's detention at the check post between Jharkhand and West Bengal, without the vehicle having entered West Bengal, attracted penalty under the relevant tax provisions.

The Division Bench's decision in HDFC Bank Limited v. Sales Tax Officer was cited, which held that interception of goods at a check post does not imply that goods have been taken "across or beyond" the check post into the State for purposes of applying the Act's provisions.

Applying this principle, the Court concluded that since the vehicle had not entered West Bengal, the penalty provisions were not triggered. This supported the petitioner's position that penalty was unjustified.

(e) Application of Legal Framework and Precedents

The Court applied the legal framework under Section 28-A of the Sales Tax Act, which provides for penalties relating to non-production of prescribed documents such as way-bills. The provision confers discretionary power on authorities to levy penalties, subject to the person being given a reasonable opportunity of hearing.

Precedents emphasized the non-automatic nature of penalty imposition and the necessity to consider bona fides and the purpose of carriage of goods. The Court underscored that penalties must be exercised judiciously and not as a matter of routine or strict liability.

Moreover, constitutional safeguards under Article 301 were invoked to caution against arbitrary restrictions on free inter-state trade.

3. SIGNIFICANT HOLDINGS

The Court held:

"The Act does not impose a strict liability imposing penalty as a matter of course. Section 28-A (4) itself uses the word 'may' and creates a discretionary power in the authority to levy the penalty... The production of the documents in question immediately on demand should not be understood in isolation to create a liability provided the bona fides of the carrier and the purpose of carrying the goods are not doubted and found against the concerned persons."

Core principles established include:

• Penalty under Section 28-A is discretionary, not mandatory or automatic.
• Reasonable opportunity and consideration of bona fides of the carrier are essential before penalty imposition.
• Failure to produce way-bill immediately on demand does not ipso facto attract penalty if the way-bill is produced within the time allowed and before the vehicle crosses the check post.
• Detention at a check post located at the border does not amount to entry into the State for purposes of penalty imposition under the Act.
• Executive orders imposing penalties must conform to constitutional guarantees of free inter-state trade under Article 301.

Final determinations:

• The order dismissing the writ petition for non-prosecution was recalled and the petition restored for hearing on merits.
• The cause title was amended to reflect the petitioner's correct corporate name.
• The penalty imposed on the petitioner was set aside as unjustified.
• The petitioner was entitled to refund of the penalty amount deposited, to be processed within 12 weeks.