2004 (1) TMI 648 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of the amended provision of rule 45(b) of the Bihar Sales Tax Rules, 1983.
2. Whether the amended rule 45(b) is ultra vires of section 31(2a) of the Bihar Finance Act, 1981.
3. Whether the amended rule 45(b) violates articles 301 and 304 of the Constitution of India.
4. Whether the amended rule 45(b) is arbitrary, unreasonable, and oppressive.
5. Legislative competence of the State to enact rule 45(b) under entry No. 54 of List II of the Seventh Schedule to the Constitution of India.

Detailed Analysis:

Issue 1: Validity of the amended provision of rule 45(b) of the Bihar Sales Tax Rules, 1983
The petitioners challenged the validity of the amended rule 45(b) which requires the payment of disputed tax amounts as a condition for the issuance of declaration forms or exemptions. The State argued that the rule is valid, necessary to prevent tax evasion, and within the legislative competence of the State.

Issue 2: Ultra Vires of Section 31(2a) of the Bihar Finance Act, 1981
The petitioners argued that the amended rule 45(b) is ultra vires of section 31(2a) of the Act, which provides for carrying a declaration form for the transportation of goods for the purpose of obtaining particulars and information, not for tax recovery. The Court held that the provision of rule 45(b) is in line with the purpose of section 31(2a) as it aids in the verification and assessment of tax payable and prevents tax evasion. Thus, the rule is not ultra vires of section 31(2a).

Issue 3: Violation of Articles 301 and 304 of the Constitution of India
The petitioners contended that rule 45(b) imposes restrictions on inter-State movement of goods, violating article 301 of the Constitution. The Court referred to precedents, including the case of State of Bihar v. Harihar Prasad Debuka, and concluded that the rule is a regulatory measure facilitating trade rather than impeding it. It does not directly and immediately restrict the free flow of trade and commerce and is therefore not violative of article 301. The Court did not find it necessary to consider the applicability of article 304.

Issue 4: Arbitrary, Unreasonable, and Oppressive Nature of Rule 45(b)
The petitioners argued that the rule is arbitrary and oppressive as it coerces payment of disputed tax amounts. The Court noted that the rule, as amended, requires payment of tax as per notice under section 25(2) of the Act, which does not include penalties. The Court held that while the insistence on payment of admitted dues is justified to prevent tax evasion, requiring payment of disputed amounts is unreasonable and oppressive. The Court read down the provision to mean that the authorities cannot refuse declaration forms or exemptions for non-payment of disputed dues if the assessee has lawfully disputed the tax assessment.

Issue 5: Legislative Competence of the State
The petitioners questioned the State's legislative competence to enact rule 45(b) under entry No. 54 of List II of the Seventh Schedule. The Court, referring to the case of State of Bihar v. Harihar Prasad Debuka, held that the rule promotes free movement of goods and is within the legislative competence of the State. The rule is necessary to distinguish goods transported across the State and those reaching consumption points within the State to ascertain tax liability.

Conclusion:
The Court rejected the points (i), (ii), and (iv) raised by the petitioners, upholding the validity of the amended rule 45(b) in general. However, it allowed point (iii) to the extent that the authorities cannot refuse declaration forms or exemptions for non-payment of disputed taxes if the assessee has lawfully disputed the tax assessment. The writ application was partly allowed, directing the authorities to consider the petitioners' requests for exemptions or declaration forms accordingly.

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