1977 (8) TMI 140 - SC - VAT and Sales Tax

Whether the provision as to the forfeiture in the impugned section is a penalty or whether it is merely a device to collect the amount unauthorisedly realised by the dealer? Held that - Appeal allowed. It was submitted by the learned counsel for the assessees that apart from the question of legislative competence and the challenge based on articles 14 and 19(1)(f) certain questions of facts arise and they will have to be dealt with by the High Court. On ascertainment of such cases a direction will issue to the High Court to decide those cases on merits.

Summary

Issues Involved:
1. Legislative Competency
2. Contravention of Article 19
3. Breach of Processual Equality Guaranteed under Article 14

Issue-wise Detailed Analysis:

1. Legislative Competency:
The pivotal problem is the legislative competency of the State Legislature to enact provisions under entry 54 read with entry 64 of List II of the Seventh Schedule of the Constitution. The primary contention is whether the State Legislature can enact laws that require sums collected by dealers by way of sales tax, which are not exigible under the State law, to be forfeited to the public exchequer.

Key Findings:
- The High Court of Gujarat held the provisions of sections 37(1) and 46 of the Bombay Sales Tax Act, 1959, as ultra vires, stating that the State Legislature does not have the authority to enact such provisions.
- The Supreme Court, however, opined that the State Legislature has the power to enact penal provisions, including forfeiture, to ensure the proper enforcement of the sales tax law.
- The Court emphasized that forfeiture is a form of penalty and falls within the ancillary powers of the legislature to enforce the fiscal legislation.
- The Court rejected the notion that forfeiture is merely a device to collect amounts unauthorizedly collected and held it as a punitive measure within the legislative competency.

Conclusion:
The provisions of section 37(1) of the Bombay Sales Tax Act, 1959, are within the legislative competency of the State Legislature, as they are penal in nature and necessary for the enforcement of the sales tax law.

2. Contravention of Article 19:
The challenge based on Article 19(1)(f) (right to property) was considered in light of the procedural safeguards provided under the Act.

Key Findings:
- The Supreme Court noted that in Kantilal Babulal's case, the provision was struck down for lack of procedural safeguards. However, the current Act provides for a proper inquiry and the opportunity for the assessee to show cause against the levy of penalty or forfeiture.
- The Court emphasized that the procedural safeguards, including the right to appeal and revision, are sufficient to meet the requirements of Article 19(1)(f).

Conclusion:
The provisions of section 37(1) do not contravene Article 19(1)(f) as they provide adequate procedural safeguards, ensuring that the right to property is not violated without due process.

3. Breach of Processual Equality Guaranteed under Article 14:
The challenge based on Article 14 (right to equality) was addressed by examining the discretionary power given to the authorities under the Act.

Key Findings:
- The Supreme Court held that there is no arbitrary or uncanalized power given to the authority. The discretion to proceed under section 37 or section 63(1)(h) is based on the nature of the contravention.
- Section 37(4) ensures that no prosecution for an offense under the Act shall be instituted in respect of the same facts on which a penalty has been imposed under section 37, thereby preventing double jeopardy.
- The Court found that the provisions are reasonable and do not violate Article 14.

Conclusion:
The provisions of section 37(1) do not contravene Article 14 as they provide clear guidelines for the exercise of discretion by the authorities and ensure that the principles of equality and non-arbitrariness are upheld.

Separate Judgments:
- Justice Krishna Iyer delivered the main judgment, addressing all the issues comprehensively.
- Justice Kailasam delivered a separate judgment, agreeing with the conclusions reached by Justice Krishna Iyer but providing additional analysis on the points raised in the appeals.

Final Decision:
The appeals were allowed, and the provisions of sections 37(1) and 46 of the Bombay Sales Tax Act, 1959, were upheld as valid and within the legislative competency of the State Legislature. The Court directed that separate directions be issued for appeals raising points unconnected with constitutionality but turning on facts and legislative construction.