Case: State Of Rajasthan  Vs. M/S. D.P. Metals

2. In order to examine the issues arising in the case, we may briefly refer to the facts of the case of M/s D.P. Metals, M/s D.P. Metals carries on the business of manufacturing stainless steel sheets and had been registered under the provisions of the Rajasthan Sales Tax Act and the Central Sales Tax Act. On 22nd January, 1997 a truck was seized by the Assistant Commercial Taxes Officer, Jodhpur and as the same was found not to be carrying the declaration Form ST 18A, a show cause notice was issued to M/s D.P. Metals. After hearing, a penalty of Rs. 63,200/was levied under Section 78(5) of the 1994 Act.3. M/s D.P. Metals and other dealers, against whom similar action has been taken, filed applications before the Rajasthan Taxation Tribunal, jaipur, interalia, impugning the provisions of Section 78(5) of the 1994 Act and claimed consequential relief of the quashing of the penalty order.4. Pursuant to the abolition of the Taxation Tribunal the applications were transferred to the Rajasthan High Court and they were regarded as writ petitions. The contentions on behalf of the respondents before the High Court were that Section 78(5) was ultra vires being beyond the legislative competence of the State and also on the ground of being excessive, arbitrary and unreasonable and, therefore, violative of Articles 14, 19(1)(g), 301 and 304 of the Constitution. The Division Bench of the High Court in relation to the validity of Section 78(5) came to the following conclusionthe parent provision of the Section 78 as far as it requires carrying the documents mentioned under(2) by the transporter whose position ordinarily does not go beyond a witness about goods carried through them, for the purpose of divulging detailed information about the goods carried out by the transporter and about the consignor and the consignee itself at the check post or barrier to any authorised officer under Section 78 as part of machinery provision for collecting evidence about goods coming in or going out of or moving within the State, can be considered as intended to prevent and check evasion and avoidance of tax and in and of making effective the levy which has arisen or likely to arise within the State, are provisions incidental and ancillary in aid of main subject levy and collection of sales tax.(ii) Provision as to notice before imposing penalty is not an empty formality for imposing penalty, for non production of production of incomplete documents, but is intended to give an effective opportunity of hearing to show that no penalty is at all leviable. If it is reasonably established that such default is not with any intention to evade or avoid tax, but is bonafide default, the breach for which it is not compulsory to impose penalty. Such question has to be determined in each case on its own facts and circumstances.(iii) No opinion is expressed on the validity of requirement to carry declarations in form ST 18A or ST 18 A with goods, in view of no challenge made in the petitions.(iv) The provisions for carrying declaration of the importer in the From No. STand 18 AA by the transporter or carrier is not treated to be mandatorily required and it is held that the production of such declaration later on during the course of enquiry even by the importer is substantial compliance of the provision.(v) Lastly, the penalty under section 78(5) linked with value of goods equal to 30% thereof impossible on person incharge of the goods in transit who is not owner of the goods and who is also not a dealer in the goods door breach of obligation of divulging information and particulars relating to goods in his charge and the consignor and the consignee is highly unreasonable having no reasonable and proximate nexus with the obligation cast on transporter and the object of the provision, the same, therefore, is unconstitutional, (Santlals case).(vi) However a reasonable penalty is impossible on transporter as a consequence for breach of obligation to divulge such information truly and faithfully whcih is in his possession and can reasonably be required of them to obtain from other sources while booking good for transport. Until and specific provision for levy of tax is enacted by the legislature, he may be subjected to penalty as envisaged under Section 68 of the Act.The High Court then held Section 78(5) of the Act to be unconstitutional and ultra vires.

Reasoning:
23. From the aforesaid decisions, it would be clear that the consistent view of this Court since the case of Sodhi Transport Companys case (supra) has been that provisions similar or Section 78(5) have been held to be within the legislative competence of the State. In fact, validity of Section 22-A and 22-B of the Rajasthan Sales Tax Act which was specifically challenged in M/s Indian Roadways case (supra) and Sarna Transport case (supra) were upheld by this Court and the said provisions are in pari materia with the new Section 78 of the 1994 Act.The applicability of the decisions of Sant Lal;s case (supra) came up for consideration in Tripura Goods Transport Association and another v. Commissioner of Taxes and others, 1999(2) SCC 2543. The appellants therein were an association which was doing the business of transporting goods within and outside the State of Tripura. On the ground that they were transporters and not dealers within the meaning of the Act, the appellants therein had challenged different provisions of the Tripura Sales Tax Act and the Rules framed thereunder which had required them to obtain a Certificate of Registration and to comply with other formalities prescribed under the ACt and Rules. Rules were framed under the Act which were also impugned. Rule 46-A, inter alia, required the transporter to give a complete and correct account of the goods carried by him in a prescribed form which could be inspected by the officer in charge of the check-post or the barrier about he correctness of the statements made therein. Rule 63-A gave the power of search at any place to an officer in charge of the check-post, Superintendent of Taxes or any officer specially empowered by the Commissioner. In furtherance of this power, the driver or any other person in charge of the goods vehicle could be stopped and the vehicle examined and the records inspected. If it was found that the goods are being carried in contravention of the provisions of the Act or theRules, the officer conducting the search could seize the goods found in the vehicle along with any container or materials used for packing. rule 64-A lay down the procedure for the registration of transport etc. For the non-compliance of the provisions of the Act and the Rules, punishments were provided. On behalf of the appellants it was contended that they were mainly transporters, carrying goods of the consignor to the consignee, and they were neither a dealer nor were they doing any business of sale or purchase of any goods and hence the obligations cast on them including punishment for the offences was beyond the legislative competence of the State Legislature under Entry 54 of the List II of the Second Schedule. While upholding the validity of the aforesaid provisions, this Court observed as follows :compliance of the provisions of the Act and the Rules, punishments were provided. On behalf of the appellants it was contended that they were mainly transporters, carrying goods of the consignor to the consignee, and they were neither a dealer nor were they doing any business of sale or purchase of any goods and hence the obligations cast on them including punishment for the compliance of the provisions of the Act and the Rules, punishments were provided. On behalf of the appellants it was contended that they were mainly transporters, carrying goods of the consignor to the consignee, and they were neither a dealer nor were they doing any business of sale or purchase of any goods and hence the obligations cast on them including punishment fortaxing statute has charging sections. It lays down the procedure to assess tax and penalties etc. It also provides provisions to cover pilferage of such revenue by providing such mechanism as it deems fit, in other words, to check evasion of tax and in doing so, if any obligation is cast on any person having connections with the consignor or consignee in relation to such goods, maybe other than a dealer, to perform such obligation in aid, to check evasion and in case he is made liable for any offence for his dereliction of duty or deliberate false act contrary to what he is obligated to do. In our opinion it cannot be constructed to be beyond the competence of the State Legislature. The impugned provisions are not charging sections, no tax liability is placed on the transporters. We find neither Sections 29, 30, 32 and 36-A nor Rules 46-A, 63-A and 64. A lack any legislative competence. They are within the legislative competence of the State and would fall under List II of Entry 54 of the Seventh Schedule of the Constitution of India.It also noticed the decisions of this Court in Sodhi Transport Companys case (supra)/. After referring to Sant Lals case (supra) it was held that the same was clearly distinguishable inasmuch as the provisions of the Haryana General Sales Tax Act were not similar to those which were impugned in the Tripura Associations case (supra). It appears to us that the scheme and the provisions under the Tripura Sales Tax Act and the Rules are similar to that contained in Section 37 of the Haryana Sales Tax Act as well as to Section 22-A of the Rajasthan Sales Tax Act, 1954 and Section 78 of the Rajasthan Sales Tax Act,m 1994.29. It is thus settled law that provisions to check evasion of tax are within the legislative competence of the States under Entry 54 of the list II. This being so, the provisions to make the imposition of tax efficacious or to prevent evasion of tax are within the legislative competence. Unlike the dalals and forwarding agents, as in Sant Lals case, the persons referred to in Section 78(2) are persons concerned with the movement of goods which are sold are likely to be sold. With there begin no valid challenge to Section 78(2) a provisions contained in sub-section (5) of Section 78 which provides for levy of penalty in case of non-compliance of Section 78(2) can only be regarded as consequential and valid. if there was legislative competence to enact Section 78(2) then the same power contained in Entry 54 of List II could enable the State Legislature to provide for consequence of non-compliance by incorporating sub-section (5) therein. Section 78(5) and Section 78(8) are part of an integral scheme and deal with two separate classes of people referred to in Section 78(2).30. Unlike Sant Lals case, hereunder Section 78(5) levy of penalty is only on the person in charge of the goods. it is he who should have all the requisite documents relating to the title or sale of the goods which are begin transported. Penalty under Section 78(5) is leviable under two circumstances. Firstly if there is non-compliance with Section 78(2)(a) i.e. not carrying the documents mentioned in that sub-clause or, secondly if false or forged documents or declaration is submitted. This sub-section cannot relate to personal belongings whcih are not meant for sale but would relate to those types of goods in respect of which documents referred to in Section 78(2)(a) exist or can exist.Such submission of false or forged documents or declaration at the check-post or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. Hiding the truth and tendering falsehood would per se show existence of mens rea, even if required. Similarly where, despite opportunity having been granted under Section 78(5) if the requisite documents referred to in sub-clause 2(a) are not produced, even though the same should exist, woudl clearly prove the guilty intent. It is not possible to agree with the counsel for the respondents that breach referred to in Section 78(5) can be regarded as technical or venial. Once the ingredients of Section 78(5) are established, after giving a hearing and complying with the principles of natural justice, there is no discretion not to levy or levy lesser amount of penalty. If by mistake some of the documents are not readily available at the time of checking, principle of natural justice may require some opportunity being given to produce the same. This provision cannot be read as to imply that the penalty of 30% is the maximum and lesser penalty can be levied. The legislature thought it fit to specify a fixed rate of penalty and not give any discretion in lowering the rate of penalty. The penalty so fixed is meant to be a deterrent and we do not see anything wrong in this. This quantum of penalty under the circumstances enumerated in Section 78(5) cannot, in our opinion, be regarded as illegal. The legislature in its wisdom has though it appropriate to fix it at 30% of the value of goods and it had the competence to so fix. As held by this Court in Rai Ramakrishna & Others v. The State of Bihar, 1964(1) SCR 897 at 910; "The objects to be taxed so long as they happen to be within the legislative competence of the legislature can be taxed by the legislature according to the exigencies of its needs, because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the legislature, and in dealing with the contention raised by a citizen that the talking statute contravenes Art. 19, courts would naturally be circumspect and cautions" as such there cannot, in the present case, be any valid challenge to the rate of penalty provided for in Section 78(5) of the Act.32. Following the decisions of this Court in cases of Sodhi Transport Co. and others (supra), Delite Carriers (supra), Indian Roadways Corporation (supra) Sarna Transport Corporation (supra) and Tripura Goods Transport Association (supra) we hold that the provisions of Section 78(5) of the Rajasthan Sales Tax Act, 1994 are valid and the impugned decision of the High Court in this regard is not correct.The aforesaid decision can be of little assistance because the provision of Section 78(5) are radically different from Section 42(3) of the Madras Act with which this Court was concerned in K.P. Abdullas case (supra). Section 78(5) does not contain any power of confiscation of goods and the levy of penalty is for carrying the goods or for submitting false or forged documents or declaration. The Madras Act, on the other hand contemplated seizure and confiscation of goods if they were transported without proper documentation.From the aforesaid decision in Delite Carriers case (supra) it is evident that he Court regarded Section 37 of the Haryana General Sales Tax as being nothing more than a provision which had been enacted in the sales tax law of a State which would facilitate inspection of goods carried from one State to another and would fall within the legislative ambit of Entry 54 of List II. The said Section 37 of the Haryana Act is in parim materia with Section 78 of the Rajasthan Act.21. The provisions of Sectionand 22B of the Rajasthan Sales Tax Act, 1954were the precursor to the present Section 78 of the 1994 ACt. The validity of Sectionand other connected provisions were impugned in Writ Petition Nos.of 1983 in M/s Indian Roadways Corporation and Another v. State of Rajasthan and Others.From the aforesaid decisions, it would be clear that the consistent view of this Court since the case of Sodhi Transport Companys case (supra) has been that provisions similar or Section 78(5) have been held to be within the legislative competence of the State. In fact, validity of Sectiond 22B of the Rajasthan Sales Tax Actwhich was specifically challenged in M/s Indian Roadways case (supra) and Sarna Transport case (supra) were upheld by this Court and the said provisions are in pari materia with the new Section 78 of the 1994 Act.It is for the aforesaid reasons that Section 38 was held to be beyond the purview of the State Legislature and was struck down. It will be seen that while the validity of Section 37 of the Haryana Sales Tax Act was upheld by the Court in Delite Carriers (supra), it is Section 38, dealing with dalal or clearing or forwarding agents being required to take out a licence, that the court held the section to be ultra vires primarily for the reason that the forwarding or clearing agent or dalal does not carry on the business of selling goods and does not have in the customary course of a business authority to sell goods belonging to the dealer whose goods he books or receives. Section 37 (upheld in Delite Carriers case which is similar to 78 here) and Section 38 of the Haryana Act operate differently. The two provisions are not identical and it is presumably for this reason that there is no reference to Delite Carriets cases decision in Sant Lals case.It is thus settled law that provisions to check evasion of tax are within the legislative competence of the States under Entry 54 of the list II. This being so, the provisions to make the imposition of tax efficacious or to prevent evasion of tax are within the legislative competence. Unlike the dalals and forwarding agents, as in Sant Lals case, the persons referred to in Section 78(2) are persons concerned with the movement of goods which are sold are likely to be sold. With there begin no valid challenge to Section 78(2) a provisions contained in(5) of Section 78 which provides for levy of penalty in case ofof Section 78(2) can only be regarded as consequential and valid. if there was legislative competence to enact Section 78(2) then the same power contained in Entry 54 of List II could enable the State Legislature to provide for consequence ofion (5) therein. Section 78(5) and Section 78(8) are part of an integral scheme and deal with two separate classes of people referred to in Section 78(2).30. Unlike Sant Lals case, hereunder Section 78(5) levy of penalty is only on the person in charge of the goods. it is he who should have all the requisite documents relating to the title or sale of the goods which are begin transported. Penalty under Section 78(5) is leviable under two circumstances. Firstly if there iswith Section 78(2)(a) i.e. not carrying the documents mentioned in thator, secondly if false or forged documents or declaration is submitted. Thiscannot relate to personal belongings whcih are not meant for sale but would relate to those types of goods in respect of which documents referred to in Section 78(2)(a) exist or can exist.h submission of false or forged documents or declaration at theor even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. Hiding the truth and tendering falsehood would per se show existence of mens rea, even if required. Similarly where, despite opportunity having been granted under Section 78(5) if the requisite documents referred to in2(a) are not produced, even though the same should exist, woudl clearly prove the guilty intent. It is not possible to agree with the counsel for the respondents that breach referred to in Section 78(5) can be regarded as technical or venial. Once the ingredients of Section 78(5) are established, after giving a hearing and complying with the principles of natural justice, there is no discretion not to levy or levy lesser amount of penalty. If by mistake some of the documents are not readily available at the time of checking, principle of natural justice may require some opportunity being given to produce the same. This provision cannot be read as to imply that the penalty of 30% is the maximum and lesser penalty can be levied. The legislature thought it fit to specify a fixed rate of penalty and not give any discretion in lowering the rate of penalty. The penalty so fixed is meant to be a deterrent and we do not see anything wrong in this. This quantum of penalty under the circumstances enumerated in Section 78(5) cannot, in our opinion, be regarded as illegal. The legislature in its wisdom has though it appropriate to fix it at 30% of the value of goods and it had the competence to so fix. As held by this Court in Rai Ramakrishna & Others v. The State of Bihar, 1964(1) SCR 897 at 910; "The objects to be taxed so long as they happen to be within the legislative competence of the legislature can be taxed by the legislature according to the exigencies of its needs, because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the legislature, and in dealing with the contention raised by a citizen that the talking statute contravenes Art. 19, courts would naturally be circumspect and cautions" as such there cannot, in the present case, be any valid challenge to the rate of penalty provided for in Section 78(5) of the Act.