TMI Blog1970 (2) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... India. It claims to have been engaged in sending goods to places outside the Pondicherry and Kerala States. The territory of Mahe aforesaid is land-locked on all sides by frontiers of the Kerala State. Nearly five miles to the north of it lies Tellicherry, and about six or seven miles to the south of it lies Muttangal, where a check-post has been established under the provisions of section 29 of the Act. The petitioner is possessed of registration certificates issued under the Central Sales Tax Act, 1956, and under the Pondicherry General Sales Tax Act, 1967, which came into force on 20th November, 1967 [vide exhibits P and P(a)]. In August, 1967, a vehicle which was carrying certain goods of the petitioner was intercepted at the Muttangal check-post and exhibit P-1 notice dated 31st August, 1967, was issued threatening confiscation of the goods as the transport was not accompanied by proper documents as required by the Act. The petitioner appeared with its accounts, and by exhibit P-2 order dated 1st September, 1967, after verification of the accounts, the goods were ordered to be released. A second consignment of goods was intercepted with a similar show cause notice [vide exhibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms in respect of the inter-State sales evidenced by exhibits P-3(b) and P-3(c). The petitioner has sought to quash the notices, exhibit P-4 series, exhibit P-5 series and exhibit P-6, besides getting section 29 of the Act and rule 35 of the Rules framed thereunder declared unconstitutional and invalid. 3.. It is unnecessary to quote section 29 of the Act and rule 35 thereof in extenso, as they are both far too long, and the rule largely repeats the terms of the section. Clause (1) of section 29 authorises the Government, with a view to prevent or check the evasion of tax under the Act, to set up check-posts at such place or places as they deem necessary. Clause (2) of the section reads: "No person shall transport within the State across or beyond the notified area any consignment of goods exceeding such quantity or value as may be prescribed by any vehicle or vessel, unless he is in possession of- (a) either a bill of sale or delivery note or way-bill or certificate of ownership containing such particulars as may be prescribed, and (b) a declaration in such form and containing such particulars as may be prescribed when the vehicle or vessel enters or leaves the State limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of goods transported which are exempted from tax under any of the provisions of this Act without any condition or restriction." Turning now to rule 35, clause (2), except for specifying the limit of the value of the goods referred in clause (2) of section 29 as not exceeding Rs. 5, practically repeats the provisions of clause (2) of the section. Clause (3) of the rule again, practically repeats clause (3) of section 29. Clause (5) of the rule reads: "(5) If on such examination any such officer finds that any consignment of goods (the value whereof exceeds rupees five) or the entire goods are not covered by proper documents or that the documents carried by the driver or any other person in charge of the vehicle or vessel are defective or suspects that the documents are bogus or false, the said officer shall immediately issue a notice to the said person to show cause why further steps should not be taken against him under section 29. If the officer is satisfied as to the reason or reasons for the omission or the defects as the case may be, he may allow the goods to pass through the notified area after recording his findings therefor. If he is not satisfied with the reasons, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt parts of the section and the rule which have been attacked before us. The grounds of attack against these provisions are: (1) that they violate the freedom of trade enjoined by article 301 of the Constitution and are bad for want of Presidential sanction under article 304(b) of the Constitution, quite irrespective of whether they can be regarded as reasonable restrictions in the interests of the general public; (2) that the power to confiscate goods conferred by the section and the rule is beyond the limits of entry 54 of List II of Schedule VII of the Constitution which authorises the levy of a tax on sale or purchase of goods (except certain excepted items), and even beyond the powers incidental and ancillary thereto; (3) that the power of confiscation offends articles 14 and 19(1)(f) and (g) of the Constitution; and (4) that rule 35(5) in any event, goes beyond the limits of section 29 of the Act. We shall proceed to deal with these objections. 5.. Article 301 of the Constitution of India, which occurs in Part XIII thereof, provides that, subject to the other provisions of that Part, trade and commerce throughout the territory of India shall be free. Article 304(b) which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, J., speaking for the majority of the court observed: "that which in reality facilitates trade and commerce is not a restriction, and that which in reality hampers or burdens trade and commerce is a restriction. It is the reality or substance of the matter that has to be determined. It is not possible a priori to draw a dividing line between that which would really be a charge for a facility provided and that which would really be a deterrent to a trade but the distinction, if it has to be drawn, is real and clear. " Subba Rao, J., who agreed with the majority in the Rajasthan Transport caseA.I.R. 1962 S.C. 1406., observed: "Restrictions obstruct the freedom, whereas regulations promote it. Police regulations, though they may superficially appear to restrict the freedom of movement, in fact provide the necessary conditions for the free movement. Regulations such as provision for lighting, speed, good condition of vehicles, timings, rule of the road and similar others, really facilitate the freedom of movement rather than retard it. So too, licensing system with compensatory fees would not be restrictions but regulatory provisions; for without it, the necessary lines of comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng some indirect or consequential impediment which may fairly be regarded as remote. In the application of these general propositions, in determining whether an enactment is regulatory or something more, or whether a restriction is direct or only remote or incidental, there cannot fail to be differences of opinion. The problem to be solved will often be not so much legal as political, social, or economic, yet it must be solved by a court of law. For where the dispute is, as here, not only between Commonwealth and citizen but between Commonwealth and intervening States, on the one hand, and citizens and States, on the other, it is only the court that can decide the issue. It is vain to invoke the voice of Parliament." We need not encumber this judgment further, with citation of authorities under section 92 of the Australian Constitution. 9.. Proceeding to examine the impugned provisions in the light of the above principles, it appears to us that they cannot be regarded as merely regulatory of the free flow of trade. Sub-section (2) of section 29 ordains that no person shall transport goods across a check-post unless the transport is accompanied by certain documents. The prohibit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the petitioner will have to allay the suspicions of the officer at the spot, in regard to the documents accompanying the transport or otherwise. For, as it is, neither the Act nor the Rules afford any guarantee that clearance at one check-post will afford a sufficient passport at another, at least in respect of the matters checked and verified. 10.. Counsel appearing for the respondents drew our attention to the observations in certain decisions that sales tax laws normally and generally do not violate article 301 of the Constitution. No exception can be taken to the statement in that form. But where any particular provision operates as a restriction on the free flow of trade, there can be little doubt that, if enacted by a State Legislature, it should pass the test of article 304(b). 11.. We may now refer to the decision in State of Mysore v. H. SanjeeviahA.I.R. 1967 S.C. 1189. The same was concerned with the validity of the rules under the Mysore Forest Act to regulate the transit of forest produce. Section 37(1) of the Mysore Forest Act authorised the framing of rules to regulate such transit, and clause (2) permitted rules to prohibit inter alia the moving of forest pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. R.M.D. Chamarbaugwala[1957] S.C.R. 874. In that case the court was called upon to consider the validity of the Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act, 1952. The challenge to the Act proceeded on two grounds, (1) that it violated the fundamental right guaranteed under article 19(1)(g), and (2) that it offended against the provisions of article 301. The challenge on the first ground was repelled because it was held that gambling cannot be treated as trade or business under article 19(1)(g). This conclusion was sufficient to repel also the other ground on which the validity of the Act was challenged because, if gambling was not trade or business under article 19(1)(g), it was also not trade or commerce under article 301. On the conclusion reached by this court that gambling is not a trade this position would be obvious. Even so, the learned Chief Justice incidentally applied the test of pith and substance, and observed that the impugned Act was in pith and substance an Act in respect of betting and gambling, and since betting or gambling was not trade, commerce or business 'the validity of the Act had not to be decided by the yardstick of reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nwealth of Australia v. Bank of New South Wales[1950] A.C. 235., dealing with section 92 of the Australian Constitution Lord Porter observed: "An analogous difficulty in one section of constitutional law, viz., in the determination of the question where legislative power resides, has led to the use of such phrases as 'pith and substance' in relation to a particular enactment. These phrases have found their way into the discussion of the present problem also and, as so used, are the subject of just criticism by the learned Chief Justice. They, no doubt, raise in convenient form an appropriate question in cases where the real issue is one of subject-matter, as when the point is whether a particular piece of legislation is a law in respect of some subject within the permitted field. They may also serve a useful purpose in the process of deciding whether an enactment which works some interference with trade, commerce and intercourse among the States is, nevertheless, untouched by section 92 as being essentially regulatory in character. But where, as here, no question of regulatory legislation can fairly be said to arise, they do not help in solving the problem which section 92 presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of a single Judge, which was followed, Rama Transport Co. (P.) Ltd. v. State of Uttar Pradesh[1957] 8 S.T.C. 725., was one rendered before the pronouncements in the Atiabari Tea Co.'s caseA.I.R. 1961 S.C. 232. and the Rajasthan Transport caseA.I.R. 1962 S.C. 1406., which clarified and crystallised the distinction between regulation and restriction in the region of article 301. Neither in the Allahabad case, nor in the Division Bench ruling of this court, was there any discussion as to whether the impugned provisions were regulatory or restrictive of the free flow of trade. The Allahabad decision itself states that the impugned provisions only required the production of a declaration in such form and in such manner as may be prescribed. An examination of the relevant statute (the U.P. Sales Tax Act) has disclosed that there was no provision for confiscation of goods. With respect, we cannot, in the circumstances, accept the ruling of the Division Bench in Sree Narayana Transports case[1965] 16 S.T.C. 659. in so far as it relates to article 301, as correct. 14.. We shall next consider the contention that the power of confiscation is beyond entry 54 of List II of Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e power of confiscation being incidental and ancillary to the taxing entry under entry 54 of List II, each maintaining that its decision on this aspect was unaffected by the Supreme Court's pronouncement in Jhaver's case(2). The Madras decision subsequent to the Supreme Court's pronouncement is K.P. Abdulla Bros. and Another v. The Check Post Officer[1968] 22 S.T.C. 552. and the Andhra decision is Kalangi Krishna Murty Co. and Others v. The Commercial Tax Officer, Guntur, and Others[1968] 22 S.T.C. 540. The Mysore High Court in P. Venkatachalapathi and Others v. Commercial Tax Inspector, Intelligence Section, and Others[1965] 16 S.T.C. 894., also considered the vires of the provision for confiscation of goods at check-posts in the Mysore Sales Tax Act. It was of the view that the power was incidental and ancillary to the powers conferred by entry 54 of List II (see 16 S.T.C. 894 at 903, 907 and 909). In the view that we take regarding the validity of the provision, assuming there is power to enact it, and as the provisions have anyway to be struck down as violative of article 301, we do not think it necessary to express a final and concluded opinion on the question. 15.. We s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing action are defined by section 29(2) and (4) of the Act, and the scope and purpose of the enquiry are defined by rule 35(5); in the face of which, we cannot hold, as the Mysore High Court did in Venkatachalapathi's case[1965] 16 S.T.C. 894. , that once the absence of the documents was disclosed, confiscation was bound to follow, and there was no further scope or purpose for an enquiry. The owner is also given an option, for what it is worth, to avoid confiscation by furnishing cash security to the extent of twice the amount of the tax payable on the goods. With the safeguards thus thrown in, we find it difficult to hold that the power of confiscation violates article 14. Whether they are reasonable restrictions on the fundamental rights to acquire and hold property and to carry on a trade or business, is a different matter. 16.. We may next turn to the attack based on article 19(1)(f) and (g). These clauses of the article provide for the fundamental right to acquire, hold and dispose of property and to practice any profession or to carry on any occupation, trade or business. By reason of clauses (5) and (6) of the article, these rights are subject to reasonable restrictions in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 29, and of rule 35, have been sufficiently set out and stressed. They amply bring out that unless the owner travels with the goods, the notice provided is hardly likely to reach him in time to avoid the catastrophe of confiscation. We have already noticed the disparity between section 29(4) and rule 35(6) in providing for notice to the owner, the former directing notice if the owner is "ascertainable", and the latter, only if he is "present". The further provisions in sub-rule (8) to ascertain the address and particulars of the owner, and afford him an opportunity, are, in the nature of things, illusory and ineffective, unless the owner travels with the goods or is near at hand to the check-post. It is little consolation for the owner that confiscation can be avoided by tendering twice the amount of tax payable on the goods, under clause (5) of section 29 read with clause (15) of rule 35. The effectiveness of these provisions as a sufficient safeguard stands considerably attenuated, if not entirely destroyed, by the prospect of his having to do so at successive check-posts, or in respect of successive consignments of goods at the same check-post, to allay the suspicions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it has proceeded beyond the limits of reasonableness? We would answer this in the negative." The guarded language in which the above observations are couched, and the background against which they were made, taken along with the test propounded by Patanjali Sastri, C.J., in V.G. Rao's caseA.I.R. 1952 S.C. 196., which we have extracted earlier, make it impossible for us to apply the same yard-stick in judging the reasonableness of the restrictions to prevent evasion of sales tax. Dealers in goods, liable for payment of sales tax are by no means a "small section of the public" such as those who traffic in smuggled goods, which were the subject-matter of decision in Nathella Sampathu Chetty's case(1). Nor are we satisfied that the magnitude of the evil of sales tax evasion could be met only by a law in such form and of such amplitude as have been enacted by the impugned section and rule. We rather feel that some analogy is afforded by the decision in Hamdard v. The Union of IndiaA.I.R. 1960 S.C. 554., where the court struck down the provision for forfeiture of certain articles on the ground that the same goes far beyond the purpose of the Act and contained no safeguards. We are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his registration certificate under the Central Sales Tax Act-or how the officer can direct an enquiry at the check-post into the genuineness of the purchases purported to have been effected in Mahe. These appear to us to be wholly outside the province of the machinery of setting up check-posts for evasion of tax. These notices only confirm the apprehension expressed in several quarters and even in the Nataraja Pillai Committee's Report that these provisions have to be worked carefully, so as to avoid harassment. Quite . apart from the constitutionality of the provisions impugned, on this ground again, the notices in question appear to be open to objection. 20.. In the light of our discussion and conclusion, we hold that clauses (3), (4) and (5) of section 29 of the Act, and clauses (3) to (12) and (15) of rule 35 of the Rules are invalid and unconstitutional. 21.. We may now proceed briefly to deal with the individual O.Ps. O.P. No. 4977 of 1967 In the light of our above conclusion the proceedings evidenced by exhibits P-4 series, P-5 series and P-6 are quashed. The goods have been released to the petitioner, pending this writ petition on its furnishing security in this court. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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