2011 (3) TMI 1503 - HC - VAT and Sales Tax

Whether penalty can be imposed on a transporter , who facilitates and/or abets evasion of tax by a dealer and because of whose such default, evasion of tax takes place? Whether tax, which is, otherwise, chargeable on, and recoverable from, a dealer , can be charged on, and/or recovered from, a transporter ? Whether realization of tax from a transporter under section 13A of the Tripura Sales Tax Act, 1976, and section 77 of the Tripura Value Added Tax Act, 2004, is constitutionally valid? Whether the provisions contained in section 13A of the Tripura Sales Tax Act, 1976, and section 77 of the Tripura Value Added Tax Act, 2004, imposing penalty to the extent of 150 per cent of the tax involved is constitutionally valid? Whether the subsequent insertion of section 13A in the Tripura Sales Tax Act, 1976, vide the 8th Amendment, can be sustained? Held that - Penalty can be imposed on a transporter, who facilitates and/or abetes evasion of tax and because of whose default, evasion of tax takes place. Tax can be imposed on transporters by treating a transporter as a dealer by creating legal fiction so as to treat, in the prescribed circumstances, a transporter, as a dealer, and/or by raising a legal presumption that the taxable goods, handled by a transporter, have been delivered to a dealer without any valid permit or by raising a legal presumption that the transporter has concealed the actual particulars of the goods transported by him and the goods have been sold, within the State, by the dealer without making payment of tax for such sale. The provisions of section 13A of the TST Act, 1976, and section 77 of the TVAT Act, 2004, are, so far as the same permit imposition of tax on transporters, are ultra vires entry 54 of List II of the Seventh Schedule to the Constitution of India. The provisions of section 13A of the TST Act, 1976, and section 77 of the TVAT Act, 2004, are, in so far as the same relate to levy of penalty to the extent of 150 per cent of the tax involved, intra vires entry 54 of List II of the Seventh Schedule to the Constitution of India. The provisions of the TST Act, 1976, and section 77 of the Act of the TVAT Act, 2004, do not have the effect of rendering the decision of the Supreme Court in Tripura Goods Transport Association v. Commissioner of Taxes 1998 (12) TMI 500 - SUPREME COURT OF INDIA ineffective and the said provisions have not been enacted to override the decision in Tripura Goods Transport Association abaove . 6. The orders of assessment as well as the notices of demand, which stand impugned in this set of writ petitions, are, in the light of the conclusions reached above, set aside and the same are remanded to the respondents/authorities concerned with direction to examine the question of imposition of penalty for default, if any, of the petitioners in the light of the position of law as indicated above and if the petitioners and/or any of them are found to have violated the legal obligations cast by the statutes concerned, necessary penalty, in accordance with law, may be imposed, in accordance with law, on that transporter(s), who may have violated the law.

Summary

Issues Involved:
1. Imposition of penalty on a transporter who facilitates or abets tax evasion by a dealer.
2. Charging and recovering tax from a transporter instead of a dealer.
3. Constitutionality of section 13A of the Tripura Sales Tax Act, 1976, and section 77 of the Tripura Value Added Tax Act, 2004, regarding tax realization from transporters.
4. Validity of imposing a penalty up to 150% of the tax involved under section 13A of the Tripura Sales Tax Act, 1976, and section 77 of the Tripura Value Added Tax Act, 2004.
5. Sustainability of section 13A of the Tripura Sales Tax Act, 1976, post the Supreme Court's decision in Tripura Goods Transport Association v. Commissioner of Taxes.

Detailed Analysis:

1. Imposition of Penalty on Transporters:
The court held that penalty can be imposed on a transporter who facilitates and/or abets evasion of tax by a dealer. The transporter is reasonably and proximately connected to the transactions of sale and purchase of goods. Legislative provisions can cast obligations on transporters to furnish information about consignors and consignees to prevent tax evasion. The penalty provisions are considered ancillary and incidental to the power to levy tax on sales of goods, thus falling within the legislative competence under entry 54 of List II of the Seventh Schedule to the Constitution.

2. Charging and Recovering Tax from Transporters:
The court clarified that tax cannot be directly charged on a transporter unless the transporter is treated as a dealer through legal fiction or presumption. Tax can be imposed on transporters by creating legal fiction, treating them as dealers, or raising a legal presumption that the goods transported have been sold within the state. However, without such deeming provisions, imposing tax on transporters is constitutionally impermissible.

3. Constitutionality of Section 13A and Section 77:
The court found that the provisions of section 13A of the Tripura Sales Tax Act, 1976, and section 77 of the Tripura Value Added Tax Act, 2004, are ultra vires entry 54 of List II of the Seventh Schedule to the Constitution to the extent they permit the imposition of tax on transporters. The provisions are constitutionally valid only in so far as they impose a penalty up to 150% of the tax involved, which is considered a measure or yardstick for determining the penalty.

4. Validity of Penalty Provisions:
The court upheld the validity of imposing a penalty up to 150% of the tax involved under section 13A of the Tripura Sales Tax Act, 1976, and section 77 of the Tripura Value Added Tax Act, 2004. The term "tax involved" was interpreted as the amount payable or recoverable in a given transaction as tax, not necessarily requiring prior assessment or levy. The penalty provisions are considered ancillary and incidental to the main charging section and are within the legislative competence under entry 54 of List II of the Seventh Schedule.

5. Sustainability Post Supreme Court Decision:
The court held that the insertion of section 13A in the Tripura Sales Tax Act, 1976, does not override the Supreme Court's decision in Tripura Goods Transport Association v. Commissioner of Taxes. The provisions of section 13A and section 77 are independent and not validating provisions. They do not render the Supreme Court's decision ineffective but create stricter liabilities on transporters to deter them from aiding tax evasion.

Conclusion:
1. Penalty can be imposed on transporters who facilitate or abet tax evasion.
2. Tax can be imposed on transporters by treating them as dealers through legal fiction or presumption.
3. Provisions permitting the imposition of tax on transporters are ultra vires the Constitution.
4. Provisions for imposing a penalty up to 150% of the tax involved are constitutionally valid.
5. The provisions do not override the Supreme Court's decision in Tripura Goods Transport Association v. Commissioner of Taxes.

The court set aside the impugned orders of assessment and notices of demand, remanding the cases to the authorities for re-examination in light of the legal position clarified.