1996 (2) TMI 491 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of sub-sections (2a) and (2b) of section 31 of the Bihar Finance Act.
2. Ancillary power to seize, confiscate, and levy penalty under sub-section (2b) and sub-section (3) of section 31.
3. Violation of Articles 301 and 304 of the Constitution.
4. Unbridled and unguided power under sub-section (2a) and sub-section (3) of section 31.
5. Absence of notification prescribing the form of declaration under sub-section (2a) after Bihar Ordinance 20 of 1993.

Detailed Analysis:

1. Constitutionality of sub-sections (2a) and (2b) of section 31 of the Bihar Finance Act:
The petitioners argued that sub-sections (2a) and (2b) of section 31 of the Act are unconstitutional as they exceed the legislative jurisdiction of the State under entry 54 of List II of the Seventh Schedule to the Constitution. They contended that these provisions interfere with inter-State trade, which is beyond the State's legislative competence. The State's power is limited to intra-State transactions, and it cannot impose taxes or penalties on inter-State sales transactions. The Court, however, noted that the Supreme Court in State of Bihar v. Harihar Prasad Debuka impliedly upheld the validity of sub-section (2a) of section 31, suggesting limited scope for challenging these provisions.

2. Ancillary power to seize, confiscate, and levy penalty under sub-section (2b) and sub-section (3) of section 31:
The petitioners claimed that the power to seize, confiscate, and levy penalties is not ancillary to the power to levy sales tax. They cited the Supreme Court's decision in Check Post Officer v. K.P. Abdulla and Bros., which held that the power to confiscate goods is not incidental to the power to levy sales tax. The Court agreed that mere contravention of sub-section (2a) does not justify penal action unless there is a likelihood of tax evasion. The prescribed authority must have positive materials to derive satisfaction that the goods were sold or purchased in Bihar and were being clandestinely transported to evade taxes.

3. Violation of Articles 301 and 304 of the Constitution:
The petitioners argued that the provisions of sub-sections (2a) and (2b) of section 31 violate Articles 301 and 304, which guarantee freedom of trade, commerce, and intercourse throughout India. They contended that these provisions impose restrictions on inter-State trade. The Court referred to the Supreme Court's decision in State of Bihar v. Harihar Prasad Debuka, which upheld the requirement of carrying declaration forms as a regulatory measure to prevent tax evasion, not as a restriction on inter-State trade.

4. Unbridled and unguided power under sub-section (2a) and sub-section (3) of section 31:
The petitioners contended that these provisions confer arbitrary power on the prescribed authority without any guidelines, violating Article 14 of the Constitution. The Court noted that the provisions are regulatory and aim to prevent tax evasion. The prescribed authority can exercise power only if there is a likelihood of tax evasion, and reasons must be recorded for such satisfaction.

5. Absence of notification prescribing the form of declaration under sub-section (2a) after Bihar Ordinance 20 of 1993:
The petitioners argued that no notification was issued prescribing the form of declaration after the Ordinance, making it illegal to penalize them for not carrying the forms. The Court agreed, stating that in the absence of a notification, there is no scope for penal action under sub-sections (2b) and (3) for contravention of sub-section (2a). The Court held that the proceedings initiated against the petitioners were illegal and without jurisdiction.

Conclusion:
The petitions were allowed in part, and the impugned proceedings and orders under sub-sections (2b) and (3) of section 31 were quashed. Penalties realized were ordered to be refunded. The Court did not consider all points raised, leaving them open for future consideration. No order as to costs was made. The judgment was concurred by both judges.

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