1993 (9) TMI 309 - SC - VAT and Sales Tax

Section 38 of the Haryana General Sales Tax Act, 1973, and rule 53 of the Haryana General Sales Tax Rules, 1975 struck down as unconstitutional Held that - Appeal dismissed. The said section 38 was beyond the purview of the State Legislature. Therefore, the said section 38 must be held to be ultra vires and bad in law. Consequently, all rules and forms in the said Rules related to the said section 38 must also be held to be bad in law.

Issues Involved:
1. Constitutionality of Section 38 of the Haryana General Sales Tax Act, 1973.
2. Constitutionality of Rule 53 of the Haryana General Sales Tax Rules, 1975.
3. Legislative competence of the State Legislature under Entry 54 of List II in Schedule VII to the Constitution.
4. Obligation and penalties imposed on clearing and forwarding agents, dalals, and other persons transporting goods.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 38 of the Haryana General Sales Tax Act, 1973:

The respondents, who are clearing and forwarding agents, challenged Section 38 of the Haryana General Sales Tax Act, 1973, which required them to furnish information about consignments and obtain a license to carry on their business. They argued that they did not come across invoices or cash memos in their business, making it impossible to comply with the obligations imposed by Section 38. The High Court found that the respondents were neither dealers nor liable to pay sales tax under the Act. The Court held that a clearing or forwarding agent or "dalal" was a stranger to the transaction of sale or purchase of goods and was not responsible for evasion of sales tax. The Court concluded that Section 38 was not ancillary or incidental to the power to levy sales tax under Entry 54, List II of the Seventh Schedule to the Constitution, and thus struck it down as unconstitutional.

2. Constitutionality of Rule 53 of the Haryana General Sales Tax Rules, 1975:

Rule 53, which required clearing and forwarding agents or dalals to furnish monthly returns and maintain records of consignments, was also challenged. The High Court found that the obligation to furnish information under Rule 53 was not possible for the respondents to perform, as they did not have access to the required information. The Court held that Rule 53 was not justified and struck it down as unconstitutional along with Section 38.

3. Legislative competence of the State Legislature under Entry 54 of List II in Schedule VII to the Constitution:

The appellants argued that Section 38 and the related rules were ancillary and incidental to the levy of sales tax and necessary to prevent its evasion. They relied on precedents that legislative entries should be read in the widest possible manner to include all subsidiary and ancillary matters. The Court acknowledged that the State Legislature had the power to legislate on taxes on the sale or purchase of goods and related ancillary matters. However, the Court found that Section 38 and the related rules went beyond what could be considered ancillary or subsidiary to the power to levy sales tax. The Court noted that the Act did not define "documents of title to goods," making it unclear which agents or persons were intended to be covered. The Court concluded that the provisions of Section 38 and the related rules were not reasonably connected with the transaction of sale and thus beyond the legislative competence of the State Legislature.

4. Obligation and penalties imposed on clearing and forwarding agents, dalals, and other persons transporting goods:

Section 38 imposed penalties on clearing and forwarding agents, dalals, and other persons transporting goods for failing to furnish information or obtain a license. The Court found that the penalties were disproportionate and could put smaller agents out of business. The Court also noted that the obligation to furnish information was not feasible for agents who did not handle documents of title to goods. The Court held that the provisions imposing penalties were unreasonable and not justified. Consequently, the Court declared Section 38 and the related rules and forms as ultra vires and bad in law.

Conclusion:

The Supreme Court upheld the High Court's decision, declaring Section 38 of the Haryana General Sales Tax Act, 1973, and Rule 53 of the Haryana General Sales Tax Rules, 1975, as unconstitutional. The Court found that the provisions were beyond the legislative competence of the State Legislature and imposed unreasonable obligations and penalties on clearing and forwarding agents, dalals, and other persons transporting goods. The appeal was dismissed with no order as to costs.

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