TMI Blog1983 (5) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... ls upon them to pay penalties in accordance with the law as amended with retrospective effect it cannot be said that there has been any unreasonable restriction imposed on the rights guaranteed under art. 19(1)(f) and (g) of the Constitution, even though the period of retrospectivity is nearly nineteen years. It is also pertinent to refer here to sub-s. (3) of S. 9 of the Amending Act, which provides that the provisions contained in sub-s. (2) thereof would not prevent a person from questioning the imposition or collection of any penalty or any proceeding, act or thing in connection therewith or for claiming any refund in accordance with the Act as amended by the Amending Act read with sub-s. (1) of 9. of the Amending Act. Explanation to sub-s. (3) of S. 9 of the Amending Act also provides for exclusion of the period between February 27, 1975, i.e., the date on which the judgment in Khemka's case [1975 (2) TMI 91 - SUPREME COURT OF INDIA] was delivered upto the date of the commencement of the Amending Act, in computing the period of limitation for questioning any order levying penalty. In those proceedings, the authorities concerned are sure to consider all aspects of the case befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l. Advocates, with them), for the appearing parties, JUDGMENT The judgment of the court was delivered by VENKATARAMIAH J.- -The petitioners in these two batches of petitions filed under art. 32 of the Constitution have questioned the constitutional validity of sub-s. (2-A) of s. 9 of the Central Sales Tax Act, 1956 (Act No. 74 of 1956) (hereinafter referred to as " the Act "), as amended by the Central Sales Tax (Amendment) Act, 1976 (Act No. 103 of 1976) (hereinafter referred to as " the Amending Act "), and S. 9 of the Amending Act validating the levy of penalties under the Act with retrospective effect. The petitioners are dealers under the Act having their places of business in the States of Maharashtra, Haryana, etc. For the purpose of understanding the points of dispute raised in these cases, it is necessary to deal with the history of the legislation relating to taxes on inter-State sales and purchases of goods during the post-Constitution period. Under entry 54 of List II of the Seventh Schedule to the Constitution, the power to levy tax on sale or purchase of goods other than newspapers was assigned to the State Legislature. The power to levy taxes on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of art. 301 and art. 304 of the Constitution prohibited the taxation of sales or purchases involving inter-State elements by all States except the State in which the goods were delivered for the purpose of consumption therein. In other words, it was held that in the case of inter-State sales, the importing State alone was competent to levy tax on transactions of sale under its sales tax law on persons who were resident outside its territory provided the goods were delivered in the importing State for the purpose of consumption therein. The result of this decision was that a dealer carrying on business in the exporting State became amenable to the sales tax law of the importing State in which the goods were consumed. This question was again reconsidered in Bengal Immunity Company Ltd. v. State of Bihar [1955] 2 SCR 603; [1955] 6 STC 446 (SC). In that case, this court held that a reading of cl. (1)(a) read with the Explanation, cl. (1)(b), cl. (2) and cl. (3) of art. 286 showed that those clauses were intended to deal with different topics and one could not be projected or read into the other and, therefore, the Explanation to cl. (1) could not be legitimately extended to cl. (2) ei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ament was empowered to formulate principles for determining when a sale or purchase of goods took place in the course of inter-State trade or commerce. After amendment the relevant part of art. 269 of the Constitution reads : " 269. (1) The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2), namely:-... (g) taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce ...... (3) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. " In art. 286 of the Constitution, the Explanation to cl. (1) was omitted and cls. (2) and (3) were substituted by new cls. (2) and (3). Article 286 now reads as follows: " 286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State ; or (b) in the course of the import of the goods into, or export of goods out of, the territory of India. (2) P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified. Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a sale in the course of export of those goods out of the territory of India. (1-A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State ". Sub-section (2) of S. 6 of the Act deals with the circumstances when certain inter-State sales or purchases will be exempt from the liability imposed under sub-ss. (1) and (I-A) of S. 6. Section 6-A of the Act deals with the burden of proof in the proceedings under the Act. Section 7 of the Act provides for registration of dealers. Section 8 specifies the rates of tax on sales in the course of inter-State trade or commerce and S. 8-A lays down the rules relating to determination of turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, penalties, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly : Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, by rules made in this behalf, make necessary provision for all or any of the matters specified in this subsection. (3) The proceeds in any financial year' of any tax, including any penalty, levied and collected under this Act in any State (other than Union Territory) on behalf the Government of India shall be assigned to that State and shall be retained by it; and the proceeds attributable to Union territories shall form part of the Consolidated Fund of India. (Underlining by us) It is seen from sub-s. (2) of s. 9 quoted above that the authorities empowered to assess, reassess, collect and enforce payment of any tax under the general sales tax law of the appropriate State are authorised to assess, reassess and enforce payment of tax including any Penalty payable by a dealer under the Act. The authorities under the general sales tax of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of five learned judges of this court, an assessee under the Act, who was a resident of the State of Maharashtra contended that the levy of penalty under S. 16(4) of the Bombay Sales Tax Act, for delay or default in payment of tax due under the Act, was not warranted by the provisions of s. 9(2) of the Act. There were three opinions expressed in that case. A.N. Ray C. J., with whom Khanna J. agreed, held that a penalty not being merely a sanction or an adjunct to or consequential to an assessment and not being just machinery to enforce payment of a tax but in reality was a statutory liability in the absence of any express provision for levy of penalty for delay or default in payment of the tax under the Act, it was not open to the authorities under the State law to levy and recover penalty for delay or default in payment of tax under the Act. Mathew J., with whom Chandrachud J. (as he then was) agreed, took a contrary view holding that if for enforcing payment of tax due under the general sales tax law of the appropriate State the authorities thereunder had power to impose penalty, they had the same power of imposing penalty for enforcing payment of tax payable under the Act, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions relating to matters provided for in ss. 10 and 10-A of the principal Act, and the provisions relating to offences) of the general sales tax law of each State shall, with necessary modifications, apply in relation to (i) the assessment, reassessment, collection and enforcement of payment of any tax required to be collected under the principal Act, in such State; and (ii) any process connected with such assessment, reassessment, collection or enforcement of payment ; and (b) that for the purposes of the application of the provisions of such law, the tax under the principal Act, shall be deemed to be tax under such law. Sub-section (2) of S. 9 of the Amending Act, validated all actions taken in connection with the levy of penalties by declaring that notwithstanding anything contained in any judgment, decree or order of any court or Tribunal or other authority, all penalties under the general sales tax law of any State imposed or purporting to have been imposed in pursuance of the provisions of S. 9 of the Act, and all proceedings, acts or things taken or done for the purpose of, or in relation to the imposition or collection of such penalties before the commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopt the provisions relating to penalties in the general sales tax laws of the States for 'enforcing the charge under the Act, as such a course would amount to an abdication of its essential legislative function by Parliament ; 3. that the provision giving retrospective effect to sub-s. (2A) of s. 9 of the Act, and the proviso a validating all the penalties levied prior to the coming into force of the Amending Act are violative of cl. (1) of art. 20 of the Constitution ; 4. the levy of penalties with retrospective effect is also violative of art. 19(1)(f) and (g) of the Constitution; and 5. that in the case of assessees of the State of Haryana it is urged that s. 48 of the Haryana General Sales Tax Act, 1973, is void as it confers arbitrary and unguided power on the authorities to levy penalties. We shall consider these contentions seriatim. The first contention urged on behalf of the petitioners is that the lacuna in the Act which was pointed out by this court in Khemka's case [1975] 3 SCR 753; [1975] 35 STC 571 (SC), namely that there was no specific provision levying penalties in the Act as it stood before its amendment in 1976, remains unfilled up even now and hence no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2A) of s. 9 of the Act, which makes the provisions relating to penalties under the general sales tax laws of the respective States inapplicable even now to the proceedings under the Act. While sub-s. (2A) of s. 9 of the Act makes the provisions relating to both offences and penalties in the general sales tax laws of the States applicable, to the proceedings under the Act, prospectively, s. 9 of the Amending Act makes all the provisions relating to penalties only in the general sales tax laws of the States applicable to the proceedings under the Act retrospectively by adopting the same language appearing in sub-s. (2A) of 9 of the Act. This pattern of legislation had to be adopted perhaps because Parliament wished rightly not to give retrospective effect to the provisions relating to offences also which are referred to in sub-s. (2A) of s. 9. Having thus given retrospective effect to sub-s. (2A) of s. 9 with effect from January 5, 1957, in so far as penalties were concerned by enacting sub s. (1) of s. 9 of the Amending Act, Parliament removed the deficiency pointed out in Khemka's case [1975] 3 SCR 753; [197S] 35 STC 571 (SC), in the Act. In view of the retrospective amendment, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to pay sales tax. The officers who assess and collect the tax under the Act are the officers who discharge similar functions under the State laws. In this situation if Parliament has, with the knowledge of the various provisions relating to offences and penalties in the general sales tax laws of the various States, adopted them for purposes of assessment, reassessment, collection and enforcement of the provisions of the Act, it cannot be said that it has abdicated its legislative functions. In this connection it is necessary to refer to the decision of this court in State of Madras v. N. K. Nataraja Mudaliar [1968] 3 SCR 829; 22 STC 376 (SC). In that case one of the contentions raised by the assessee related to the validity of S. 8 of the Act as amended by Central Act 31 of 1958. By sub-s. (1) of s. 8 every dealer who in the course of inter-State trade or commerce sold to the Government any goods or to a registered dealer, other than the Government, goods of the description referred to in sub-s. (3) of S. 8 was liable to pay tax under the Act at the rate of one per cent. of his turnover. Under subs. (2) of s. 8, the tax payable on the turnover relating to inter-State sales n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be more than offset by the gain in revenue ultimately derived from outside consumers. The imposition of rates of sales tax is normally influenced by factors political and economic. If the rate is so high as to drive away prospective traders from purchasing a commodity and to resort to other sources of supply, in its own interest the State will adjust the rate to attract purchasers. Again, in a democratic constitution, political forces would operate against the levy of an unduly high rate of tax. The rate of tax on sales of a commodity may not ordinarily be based on arbitrary considerations, but in the light of the facility of trade in a particular commodity, the market conditions-internal and external-and the likelihood of consumers not being scared away by the price which includes a high rate of tax. Attention must also be directed to sub-s. (5) of s. 8, which authorises the State Government, notwithstanding anything contained in s. 8 in the public interest to waive tax or impose tax on sales at a lower rate on inter-State trade or commerce. It is clear that the Legislature has contemplated that elasticity of rates consistent with economic forces is clearly intended to be mai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y dealer on his turnover in so far as it related to the sale of goods in the course of inter-State trade or commerce not falling within sub-s. (1) thereof and in case of goods other than declared goods should be calculated at the rate of ten per cent. or at the rate applicable to the sale or purchase of such goods inside the appropriate State whichever was higher. This provision meant that while the tax due on the sale of the goods in question could not be less than ten per cent. of the turnover, it could be any amount higher than that as might be determined by a State Legislature in respect of the intra State transactions of sales or purchases of the said goods. In the above case there were two judgments both upholding the validity of the impugned provision. The majority judgment delivered by Khanna J. saw that there was legislative policy behind the provision, namely, that the rate of sales tax on the goods in question should be not less than ten per cent. but in any event should be the same as the local sales tax for the said goods. Khanna J., however, held that it was not possible to accept the view that the Legislature would not be abdicating its essential legislative functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly disproportionate to the extent of infringement of law. Moreover, Parliament always has the power to amend its own law, i.e., the Act, if it finds that the provisions relating to penalties in any State law cross the limits of public interest. It is of interest to note here that in the case of M. K. Papiah Sons [1975] 3 SCR 607 ; 35 STC 537 (SC), it was held that the existence of the power to repeal or modify its own law in order to bring a piece of delegated legislation in accord with its own legislative will should be considered as an effective check on the misuse of legislative power by the delegate. The power of Parliament to remedy a situation created by the levy of penalties by the general sales tax laws of the States not in consonance with its own pleasure is also an answer to the criticism that Parliament has effaced itself in enacting sub-s. (2-A) of s. 9 of the Act. As long as such power is intact and can be exercised whenever Parliament wishes to take the matter directly into its own hands, there cannot be a total effacement of the legislative power of Parliament. The above view receives support from the following passage in Australian Constitutional Law by Fajgenbau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1975] 35 STC 574 (SC), the validating provision contained in S. 9 of the Amending Act, provided in substance that in so far as penalties were concerned sub-s. (2-A) of S. 9 should be deemed to have had effect in relation to the period commencing on January 5, 1957, and ending with the date immediately preceding the date of commencement of the Amending Act. That is obvious from the similarity of the language between sub-s. (2-A) of S. 9 of the Act and s. 9(1) of the Amending Act. Section 9(2) of the Amending Act also contained the usual provision validating the levy of penalties completed prior to the commencement of the Amending Act, and authorising the continuance of the proceedings for levy of penalties in respect of the period commencing from January 5, 1957. In the instant case it may be noted that in all the general sales tax laws of the States, there were provisions requiring every dealer to comply with statutory requirements such as the filing of returns, the payment of the tax due within the specified time, etc., and they were applicable to the dealers under the Act, by reason of s. 9(2) of the Act. Notwithstanding such statutory provisions many dealers failed to perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being applicable only to legislation concerning crimes. (See Calder v. Bull [1798] 3 Dall 386). The expression It offence" is not defined in the Constitution. Article 367 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning assigned in the General Clauses Act, 1897, may be given. Section 3(38) of the General Clauses Act defines " offence " as any act or omission made punishable by any law for the time being in force. The marginal note of our art. 20 is " protection in respect of conviction for offences ". The presence of the words " conviction " and " offences ", in the marginal note " convicted of an offence ", " the act charged as an offence " and " commission of offence " in cl. (1) of art. 20, " prosecuted and punished " in cl. (2) of art. 20 and accused of an offence " and " compelled to be a witness against himself in cl. (3) of art. 20 clearly suggests that art. 20 relates to the constitutional protection given to persons who are charged with a crime before a criminal court. (See H. M. Seervai : Constitutional Law of India (3rd edn.) Vol. 1, p. 759). The word "penalty " is a word of wide signifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce'. Secondly, it provides that no person shall be 'subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence'. Clearly, therefore, art. 20 is dealing with punishment for offences and provides two safeguards, namely, (i) that no one shall be punished for an act which was not an offence under the law in force when it was committed, and (ii) that no one shall be subjected to a greater penalty for an offence than what was provided under the law in force when the offence was committed. The provision for forfeiture under s. 13(3) has nothing to do with the infliction of any penalty on any per. son for an offence. If the forfeiture provided in s. 13(3) were really penalty on a convicted person for commission of an offence we should have found it provided in the 1943 Ordinance and that penalty of forfeiture would have been inflicted by the criminal court trying the offender. " Again while upholding s. 25FFF(1) (which came into force on June 6, 1957) of the Industrial Disputes Act, 1947, which directed compensation to workers who had been retrenched earlier on and after November 28, 1956, this court observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue. In Shew Bhagwan Goenka v. CTO [1973] 32 STC 368, the Calcutta High Court observed that the retrospective operation of an amendment to the Bengal Finance (Sales Tax) Act, 1941, which imposed an unexpected liability in respect of certain transactions which when they took place were not subject to any charge or liability under that Act was opposed to art. 20(1) of the Constitution. In that case, the facts were that as a result of the modification of the definition of the word " business " with retrospective effect, the assessee became liable to pay tax on the turnover relating to sales of certain old and discarded machineries and equipments. The assessee had not been prosecuted for any offence or punished by any criminal court as a consequence of such amendment. It was open to the High Court to hold that if there was any such prosecution for any offence it was violative of art. 20(1). But in so far as realisation of tax was concerned, art. 20(l) did not in terms apply. Reference to art. 20(1) was, therefore, unnecessary for deciding that case. The observations made by this court in CWT v. Suresh Seth [1981] 129 ITR 328 ; [1981] 3 SCR 419 (SC), at p. 335 of 129 ITR to the effect: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already indicated above the circumstances under which it became necessary to levy penalties with retrospective effect and to validate all the proceedings relating to levy of penalties and recovery thereof. The scope of the power of a Legislature to make a law validating the levy of a tax or a duty retrospectively was considered by this court in Chhotabhai Jethabai Patel Co. v. Union of India [1962] Supp l 2 SCR 1 ; AIR 1962 SC 1006. The court held that Parliament acting within its Legislative field bad the power and could by law both prospectively and retrospectively levy excise duty under the Central Excises and Salt Act, 1944, even where it was established that by reason of the retrospective effect being given to the law, the assessees were incapable of passing on the excise duty to the buyers. After considering certain American decisions, Ayyangar J., observed at p. 1022 of AIR 1962 SC thus: "It would thus be seen that even under the Constitution of the United States of America the unconstitutionality of a retrospective tax is rested on what has been termed " the vague contours of the 5th Amendment Whereas under the Indian Constitution the ground on which infraction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unconstitutional or the Rules made thereunder during the period from April 1, 1950, to July 31, 1961, i.e., till the date on which an Ordinance which was replaced by the Validating Act in question came into force, should be deemed to have been commenced and conducted in accordance with the provisions of the Validating Act, and if not already completed should be continued and completed in accordance with the Validating Act, was opposed to art. 304(b) and art. 19(1)(f) and (g). It was urged in that case on the basis of the observation made in Sutherland on Statutes and Statutory Constructions to the effect that: " Tax statutes may be retroactive if the legislature clearly so intends. If the retroactive feature of a law is arbitrary and burdensome the statute will not be sustained. " that the length of retrospectivity, that is, eleven years was an unreasonable restriction on the rights guaranteed under art. 19(1)(f) and (g). This contention was rejected by this court at p. 183 of 50 ITR of the report as follows : " We do not think that such a mechanical test can be applied in determining the validity of the retrospective operation of the Act. It is conceivable that cases may a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said two suits and their final disposal by this court cannot be pressed into service for challenging the reasonableness of the retrospective operation of the Act. " In the instant case, the facts are one shade better. There is no dispute in this case about the validity of the tax payable under the Act, during the period between January 1, 1957, and the date of commencement of the Amending Act. It has to be presumed that all the tax has been collected by the dealers from their customers. There is also no dispute that the law required the dealers to pay the tax within the specified time. The dealers had also the knowledge of the provisions relating to penalties in the general sales tax laws of their respective States. It was only owing to the deficiency in the Act, pointed out by this court in Khemka's case [1975] 3 SCR 753; [1975] 35 STC 571 (SC), the penalties became not payable. In this situation, where the dealers have utilised the money which should have been paid to the Government and have committed default in performing their duty, if Parliament calls upon them to pay penalties in accordance with the law as amended with retrospective effect it cannot be said that there has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Haryana is that this section which authorises the levy of penalty at " a sum not less than twice and not more than ten times the amount of tax " on proof of the defaults mentioned therein is violative of art. I 4 as there is no guidance given to the authority levying the penalty about the quantum of penalty. There is no substance in this plea. The provision in question itself suggests that the levy to be made under it is in the nature of a penalty which requires the authority concerned to apply his mind to all relevant aspects of the default alleged to have been committed by a dealer. First, the default committed by the dealer should be established at an enquiry after giving the dealer concerned an opportunity of being heard. The degree of remissness involved in the default is a relevant factor to be taken into account while levying penalty. The section provides both the minimum and the maximum amount of penalty leviable and it is correlated to the amount of tax which would have been avoided if the turnover returned such dealer had been accepted as correct. The order levying penalty is quasi. judicial in character and involves exercise of judicial discretion. The considerations w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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