2015 (11) TMI 215 - HC - VAT and Sales Tax

Constituional validity of section 49 of the KVAT Act, 2003 - power to confiscate / detain vehicles transporting goods - irrespective of whether they were covered by a transaction of sale or purchase - preventive measures - Ultra Vires of legislative competence of the State Legislature and ultra vires articles 14, 19 and 21 of the Constitution of India - Held that - Provisions of section 49 of the KVAT Act, which are essentially for the purposes of ensuring that there is no activity of smuggling, and thereby an attempted evasion of tax that is due under the KVAT Act, in respect of notified goods, is in the nature of a machinery provision under a legislation that is intended to levy a tax on the sale or purchase of goods. The said provision is intended to ensure that the charge is effective and that no amount, that is due under the Act, escapes an assessment to tax under the Act. Being in the nature of a machinery provision that is intended to further the objects of main enactment, the provision itself has to be seen as one that is incidental or ancillary to the power of the State Legislature to enact a legislation for levy of tax on sale or purchase of goods. The challenge against the validity of the said provision on this ground must necessarily fail. Provisions of section 49 of the KVAT Act, cannot be struck down as unreasonable, arbitrary or violative of article 301 of the Constitution of India. The provision provides ample safeguards for ensuring compliance with the rules of natural justice and also ensures that the person proceeded against is given ample opportunity to show cause against the proposed detention and subsequent confiscation. The defects that had been pointed out in the erstwhile provisions of section 30C of the KGST Act were removed by the Legislature while enacting the new provision under section 49 of the KVAT Act. The prescription with regard to the value of the goods, for the purposes of attracting the definition of smuggling, has also been provided under rule 66 of the KVAT Rules. In that view of the matter, when the scheme envisaged in section 49 of the KVAT Act is considered in its entirety, it cannot be said that it falls foul of the Constitutional provisions for holding it to be invalid and unconstitutional. The challenge against the constitutional validity of the said provision, therefore, fails and is repelled. - Decided against assessee.

Issues Involved:
1. Constitutional validity of Section 49 of the KVAT Act, 2003.
2. Legislative competence of the State Legislature to enact provisions for confiscation of vehicles.
3. Compliance with Articles 14, 19, 21, and 301 of the Constitution of India.
4. Availability and sufficiency of safeguards and procedural fairness under Section 49.
5. Applicability of alternate statutory remedies.

Detailed Analysis:

1. Constitutional Validity of Section 49 of the KVAT Act, 2003:
The petitioner challenged Section 49 of the KVAT Act, 2003, arguing it is unconstitutional and beyond the legislative competence of the State Legislature. The petitioner contended that the provision for confiscation of vehicles used to transport goods is not incidental or ancillary to the power to levy tax on the sale or purchase of goods. The court examined the provision in detail, which allows officers to intercept, search, and potentially confiscate vehicles transporting notified goods without valid documents, thus preventing tax evasion.

2. Legislative Competence:
The court referred to several precedents, including the Supreme Court's decisions in Tripura Goods Transport Association v. Commissioner of Taxes and State of Rajasthan v. D. P. Metals, which upheld similar provisions in other states' taxing statutes. The court concluded that provisions to check tax evasion, including the power to seize and confiscate goods and vehicles, are incidental or ancillary to the power to levy tax and fall within the legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution of India.

3. Compliance with Articles 14, 19, 21, and 301:
The petitioner argued that Section 49 violates Articles 14 (equality before the law), 19 (protection of certain rights regarding freedom of speech, etc.), 21 (protection of life and personal liberty), and 301 (freedom of trade, commerce, and intercourse). The court noted that the provision includes ample safeguards to ensure compliance with natural justice, such as the requirement for a written notice and an opportunity to be heard before any action is taken. The court held that the provision does not violate Article 301 as it is a reasonable restriction aimed at preventing tax evasion.

4. Safeguards and Procedural Fairness:
The court highlighted the procedural safeguards embedded in Section 49, including the requirement for an officer not below the rank of a Commercial Tax Officer to intercept and search vehicles, and the necessity for a written notice and an opportunity to be heard before any seizure or detention. The court found these safeguards sufficient to ensure compliance with the principles of natural justice.

5. Alternate Statutory Remedies:
The respondents argued that the petitioner had not availed of the alternate remedy of appealing the order under the KVAT Act. The court acknowledged this but provided the petitioner with an opportunity to file an appeal against the impugned order within three weeks. The court emphasized that the statutory remedy should be pursued, especially since the challenge to the validity of Section 49 had been repelled.

Conclusion:
The court dismissed the writ petition, upholding the constitutional validity of Section 49 of the KVAT Act, 2003. The court found that the provision is within the legislative competence of the State Legislature, does not violate Articles 14, 19, 21, or 301 of the Constitution, and includes sufficient procedural safeguards. The petitioner was granted an opportunity to appeal the impugned order within three weeks. The court also appreciated the valuable assistance rendered by the amicus curiae.

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