TMI Blog2004 (2) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... 783 of 1997, W.P. No. 3756 of 1995 - - - Dated:- 13-2-2004 - VENKATARAMA REDDI P. AND KAPADIA S.H. JJ. A.K. Sanghi, Advocate, for the respondents. P.C. Sen and Satish K. Agnihotri, Advocates, for the respondent. -------------------------------------------------- The judgment of the Court was delivered by S.H. KAPADIA, J.- These two civil appeals raise an important question of constitutional significance centering around entry 54 of List II of the Seventh Schedule to the Constitution of India as also the extent and purport of the ancillary power vested in the State Legislature which has enacted the Madhya Pradesh Commercial Tax Act, 1994 (hereinafter referred to as "the Act"). The said Act levies tax on sale and purchase of goods. Purportedly under the ancillary powers/powers incidental to the levy of tax on sale and purchase of goods sections 57, 58 and 59 are enacted. Under section 57 the Commissioner is empowered to call for information from clearing and forwarding agents to give certain particulars in respect of transaction with any dealer. By the impugned judgment Reported in [1996] 103 STC 106., the Madhya Pradesh High Court has struck down the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 321., 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 powers to the State Government to direct the clearing and forwarding agent to mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale or purchase of goods are made liable to pay tax in the form of penalty. In this connection reliance was placed on section 57(2) under which clearing and forwarding agents are penalised for not furnishing statement of accounts to the Commissioner under section 57(1). That under section 57(2) penalty is leviable at the rate of three times the amount of tax payable in respect of the goods involved in the transactions which tax is evaded by the owner. It was, therefore, contended on behalf of the respondents that in the guise of penalty the State Government is not empowered to recover the tax from persons who have no connection with the transaction of sale and purchase of goods. Mr. Sanghi contended that although machinery provision is a part of the taxing statute and although the State is empowered to make regulatory measures, it cannot make a person liable if tax cannot be imposed on such a person. Mr. Sanghi, learned counsel for the respondents, contended that the State cannot penalise any and every person for evasion of tax if such person is remotely connected to the taxable transaction. He contended that clearing and forwarding agents do not have any proximate connection wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of accounts and affairs verified in the manner, specified by the Commissioner as he may require in respect of transaction of any dealer with such bank or with such clearing or forwarding agent which during the course of its business handles documents of title to goods or transports goods. (2) If any clearing or forwarding agent contravenes the provisions of sub-section (1), the Commissioner may, after giving such agent a reasonable opportunity of being heard, direct him to pay, by way of penalty, a sum equal to three times the amount of tax payable in respect of the goods involved in the transactions referred to in sub-section (1) and which appear to have been evaded by the owner of such goods due to the failure of such agent to furnish information pertaining thereto required of him by the Commissioner under sub-section (1). Section 58: Control on clearing and forwarding agents to prevent or check evasion of tax.-(1) The State Government may, if it is satisfied that it is necessary so to do with a view to prevent or check evasion of tax under this Act in any place or places in the State, direct that- (i) every clearing and forwarding agent who during the course of hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted 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 reassessments in cases where the department has passed an order, which is prejudicial to the interest of the revenue. Section 57, inter alia, empowers the Commissioner to call upon clearing and forwarding agents to furnish such particulars as he may require in respect of transaction between any dealer and such clearing and forwarding agent. That in the event of contravention, a fixed penalty is leviable on the clearing and forwarding agent equal to three times the amount of tax payable in respect of the goods involved in the transaction and which tax is evaded by the owner of such goods. Under section 58, the State Government is empowered to direct the clearing and forwarding agents to maintain a register and give an 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation from the clearing and forwarding agent. He can reopen 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 penali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated at 20 per cent 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 licence, nor can they be penalised for not given 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 licence, 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 See page 330 of 91 STC.: "...... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of section 57(1) and (2) shows that in cases where Commissioner is satisfied about tax evasion by the dealer, he may call upon the clearing and forwarding agent to give particulars of a transaction and if the clearing and forwarding agent fails, penalty is levied at three times the tax evaded by the dealer. The reason is that by wilful disobedience to comply with the directions of the Commissioner, the clearing and forwarding agent facilitates the tax evasion by the dealers. Similarly, under section 58, the State is empowered to give directions to the clearing and forwarding agent to maintain a register in form 61 under rule 75 which would give the details of consignor, consignee, the quantity of goods carried on a particular date and time, its value, etc. Such particulars are expected to be maintained by a clearing and forwarding agent including a transporter in the ordinary course of business even without a provision like section 58. We reiterate that in the present case, the provisions of sections 57 and 58 are to prevent/check tax evasion. The penalty provision contained in section 57(2) unlike in the case of Sant Lal (1993) 4 SCC 380 has intimate nexus with evasion of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. Metals (2002) 1 SCC 279 See [2001] 124 STC 611 (SC) which was decided by a three-Judge Bench referred to Tripura Goods Transport case (1999) 2 SCC 253 See [1999] 112 STC 609 (SC) with approval. In the Rajasthan case, the three-Judge Bench reversed the decision of the High Court holding section 78 of the Rajasthan Sales Tax Act unconstitutional on the ground of legislative incompetence. Section 78 provided for establishment of check-post and inspection of goods while in movement. Sub-section (5) of section 78 empowered the officer in-charge of the check-post to impose on the person in-charge of the goods, a penalty equal to 30 per cent of the value of the goods for possession or movement of goods if they are not covered by prescribed documents such as challans, bills of sale, declaration forms, etc., or for submission of 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of tax by the dealer resulting from the failure of the agent to furnish information. Thus, the impugned provisions are ancillary to the levy of tax on the sale or purchase of goods by dealers falling within the ambit of entry 54, List II. 14.. Learned counsel for the respondents however placed heavy reliance on the judgment of this Court in the case of K.P. Abdulla Bros. (1970) 3 SCC 355. In that matter there was a challenge to section 42 of the Madras General Sales Tax Act, 1959. Under section 42, the check-post officer was empowered to stop any vehicle or boat, examine the contents of the vehicle and seize and confiscate any goods which are under transport if not covered by a bill of sale or delivery note, goods vehicle record, etc. In lieu of confiscation, the person affected had the option to pay in addition to the tax recoverable on the goods, a sum of money at double the amount of tax recoverable in case they are taxable goods. The Constitution Bench affirming the judgment of the High Court, declared sub-section (3) of section 42 unconstitutional for the reason that it is not ancillary or incidental to the power to legislate on sales tax. It was observed: "........Sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 AIR 1984 SC 420. By Act 22 of 1973 (w.e.f. October 1, 1975) 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 the "value" shall be deemed to be the normal price and the normal price was defined as the price at which the goods were ordinarily sold by the assessee in the course of wholesale trade where the buyer was not a "related person" and the price was the sole consideration for the sale. However there were three provisos to section 4(1)(a) which indicated circumstances under which normal price could vary. The third pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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