1989 (2) TMI 367 - SC - VAT and Sales Tax

Whether the notification No. S.O. 1432 dated 28th December, 1985 and adoption of the two forms XXVIII-A and XXVIII-B would be ultra vires articles 301 and 304 of the Constitution of India? Held that - Appeal allowed. The notification and adoption of the forms to have been validly made in exercise of powers incidental to the power of levying sales tax, and that they are reasonable and in public interest, and not ultra vires the articles 301 and 304 of the Constitution of India. In the result, the impugned judgment of the High Court is set aside, and the appeals are allowed, but without any orders as to costs. Learned counsel for the appellant states that the State in these appeals was interested in the law being laid down, and that even if the validity of the notification is upheld it will not revive the proceedings against the respondent to realise the penalty.

Issues Involved:
1. Validity of Bihar Government's Notification No. S.O. 1432 dated 28th December, 1985.
2. Whether the notification violates Articles 301 and 304 of the Constitution of India.
3. Applicability of forms XXVIII-A and XXVIII-B under the Bihar Finance Act, 1981.
4. Imposition of penalty and consequential demand notice.

Issue-wise Detailed Analysis:

1. Validity of Bihar Government's Notification No. S.O. 1432 dated 28th December, 1985:
The notification was issued under sub-section (2a) of section 31 of the Bihar Finance Act, 1981, amended by the Bihar Finance Act, 1984. It mandated that persons transporting goods must carry a declaration in forms XXVIII-A or XXVIII-B for verification and assessment of tax payable. The High Court quashed the notification, deeming it violative of Articles 301 and 304 of the Constitution. However, the Supreme Court held that the notification was a regulatory measure aimed at preventing tax evasion and facilitating tax assessment, and thus, validly issued under the incidental powers of the State Legislature.

2. Whether the notification violates Articles 301 and 304 of the Constitution of India:
Article 301 guarantees freedom of trade, commerce, and intercourse throughout India, while Article 304(b) allows State Legislatures to impose reasonable restrictions in the public interest. The High Court found that the notification imposed unwarranted restrictions on inter-State trade. The Supreme Court, however, concluded that the notification did not directly and immediately restrict inter-State trade but was a regulatory measure to ensure tax compliance. The Court distinguished this case from Hansraj Bagrecha v. State of Bihar, emphasizing that the notification promoted rather than hindered free movement of goods by preventing unauthorized trade.

3. Applicability of forms XXVIII-A and XXVIII-B under the Bihar Finance Act, 1981:
Forms XXVIII-A and XXVIII-B were prescribed for carrying goods into and out of Bihar. The Supreme Court noted that the forms were meant for both intra-State and inter-State transportation and were necessary for tax verification purposes. The Court found that the requirement to carry these forms did not impede the free flow of trade but facilitated it by ensuring that tax liabilities were met. The forms were deemed reasonable and necessary for the public interest, thus falling within the permissible scope of Article 304(b).

4. Imposition of penalty and consequential demand notice:
The respondent was penalized for not mentioning the bill number in the road permit form XXVIII-B, leading to the seizure of goods and imposition of a penalty. The High Court set aside the penalty, but the Supreme Court upheld the notification's validity, implying that the penalty was justified under the regulatory framework. However, the Supreme Court noted that the State was primarily interested in the legal principles and indicated that the penalty proceedings against the respondent would not be revived.

Conclusion:
The Supreme Court set aside the High Court's judgment, upholding the validity of the Bihar Government's Notification No. S.O. 1432 and the adoption of forms XXVIII-A and XXVIII-B. The Court ruled that the notification was a regulatory measure aimed at preventing tax evasion and facilitating tax assessment, and did not violate Articles 301 and 304 of the Constitution. The appeals were allowed without any orders as to costs, and the State indicated it would not revive penalty proceedings against the respondent.

← Previous Next →