9911796707
TMI Blog1989 (8) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... ia including three in West Bengal and branches in Calcutta, Delhi, Madras and Bombay. The company has appointed a number of clearing and forwarding agents in each State where goods are stored and then despatched to different destinations as per company's instructions. The godowns of the clearing and forwarding agents are duly recorded as places of storage in the registration certificate of the company. Even the goods manufactured in its other factories located outside the State of West Bengal or goods stored in the godowns of the various clearing and forwarding agents, have to be brought for distribution through the marketing network by way of branch transfers involving inter-State carriage of goods. The petitioner-company is a registered dealer under the Bengal Finance (Sales Tax) Act, 1941 (hereinafter called "the BFST Act, 1941"), West Bengal Sales Tax Act, 1954 (hereinafter called "the Act of 1954") as also under the Central Sales Tax Act, 1956 (hereinafter called "the CST Act"). 4.. The company in the regular course of the business has to transfer goods from its factories or clearing and forwarding agents' godowns situated outside the State to the clearing and forwarding agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the Duburdih checkpost, Asansol charge, allegedly on the ground of absence of import permits. The seizures were purported to be made by the respondent No. 3 under section 7(1)(ii) of the Act of 1954, for contravention of section 6 of the said Act and the rules framed thereunder. After such seizure the Commercial Tax Officer at the check-post issued notices under rule 17A(2) of the West Bengal Sales Tax Rules, 1954, for determination of value of seized notified commodities and showing cause why penalty under section 7(2) of the Act shall not be imposed. The seizures were made in clear contravention of section 7(1)(ii) of the Act of 1954. The respondent No. 3 acted on a mere inference or suspicion that there had been a sale which was wholly unwarranted. There was no question of evasion of tax. The details of the consignments were fully disclosed and the transaction was merely a branch transfer, the consignor and the consignee being the same. 9.. The applicants contend that the provisions of sections 6 and 7 of the Act of 1954, and the rules 14 to 17 framed thereunder authorising interception, search, seizure, detention and imposition of penalty, are beyond the legislative compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged. The grounds of challenge are almost identical as in the other case. 14.. In RN-90(T) of 1989, the applicants have challenged the seizure made on 15th February, 1987, in respect of a consignment of detergent powder being transferred from the applicants' manufacturing unit at Yeotmal, outside the State of West Bengal to the godown of the clearing and forwarding agent of the applicants in Calcutta. In this case, after imposition of penalty, the applicants moved the appellate authority who, namely, the Assistant Commissioner of Commercial Taxes, Midnapore Circle, dismissed the appeal and confirmed the order of seizure and penalty. In this case also the case of the applicants are same as in Case No. RN-1 of 1989. 15.. The respondents opposed the applications on the grounds stated in their affidavits-in-opposition. Their case in brief is as follows: On 26th January, 1989, 8th February, 1989, and 10th February, 1989, the applicants attempted to transport considerable quantity of detergent powder in contravention of the provisions of section 6 of the Act of 1954. All the consignments were seized on the respective dates on the ground that they were being transported without any sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that there is no evasion of the tax imposed by this Act. (2) The State Government may prescribe conditions for regulating transport of notified commodities from any place, other than those referred to in sub-section (1), with a view to ensuring that there is no evasion of tax imposed by this Act." "7. Power to search, seize, impose penalty and dispose of seized notified commodities.-(1) The prescribed authority or any other officer who may be authorised by the State Government in this behalf may, for the purpose of verifying whether notified commodities are being or have been transported in contravention of the provisions of section 6 and subject to such restrictions as may be prescribed, (i) (a) intercept, detain and search at any place notified under section 6 or at any other place, any road vehicle, or rivercraft or any load carried by a person, or (b) search at any godown, warehouse or any other place in which according to his information such notified commodities transported in contravention of the provisions of section 6 have been stored, and (ii) seize any notified commodities referred to in section 6(a) which, in the case referred to in sub-clause (a) of clause (i), h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be recorded in writing, extend the date of payment of the penalty. (4) The notified commodities seized under clause (ii) of sub-section (1) shall be released in the prescribed manner on payment of the penalty imposed under sub-section (2). (5) If the penalty is not paid by the date specified in the notice issued under sub-section (3), the prescribed authority may, in such manner and subject to such restrictions and conditions as may be prescribed, sell the notified commodities seized under clause (ii) of subsection (1) in open auction and remit the sale proceeds thereof to a Government Treasury. (6) Notwithstanding anything contained in sub-section (4), the appellate or revisional authority, pending final disposal of an appeal or application for revision against an order for imposition of penalty under sub-section (2), or the prescribed authority, for reasons to be recorded in writing, may direct release of the notified commodities seized under clause (ii) of sub-section (1) on such terms and conditions as he may consider fit and proper." The material parts of the relevant rules are reproduced below: "14. (i) No person, other than a registered dealer, shall transport from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulating road transport and river or canal transport, and may define the boundaries of these check-posts, notify under section 6 the area of the check-posts included within such boundaries and demarcate such boundaries by means of barriers, or otherwise. (ii) No person shall transport across or beyond the notified area of a check-post any consignment of cigarettes or of a notified commodity exceeding the quantity specified in sub-rule (i) of rule 14 by any road vehicle, or by rivercraft or other vessel or by any other means except in accordance with the following conditions, namely: (a) Every such consignment shall be transported by or on behalf of a registered dealer. (b) The registered dealer who transports or on whose behalf any such consignment is being transported, shall make an application in form IV in triplicate to the appropriate Commercial Tax Officer or Inspector for a permit giving the particulars detailed in rule 14, subrule (ii), clauses (a) to (d). The appropriate Commercial Tax Officer or Inspector, if he is satisfied with regard to the bona fides of the application, shall issue a permit in form IV-A in triplicate, two copies of which shall be made over to the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, shall make a declaration in form IV within fifteen days from the date of seizure in respect of the value of the seized notified commodities and this value shall be the retail price or the aggregate of retail prices of such notified commodities at which these are likely to be sold in West Bengal at the relevant time. Such declaration shall be submitted to the appropriate Commercial Tax Officer along with a copy of the relevant bill, invoice or consignment note issued by the consignor and other documents in support of the basis of the value declared. (2) On seizure of notified commodities under section 7, the appropriate Commercial Tax Officer for the purposes of sub-section (2) of that section shall serve a notice in form VII-I upon the person from whom such commodities are seized or the owner of such notified commodities or the person who subsequently claims the ownership or possession of such notified commodities, as the case may be, as he considers appropriate in the facts and circumstances of the case,- (a) calling upon him to produce the bill or invoice or consignment note issued by the consignor or other documents of like nature, the catalogue of the manufacturer fixing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were being transported to West Bengal by way of stock transfer from its factory to the godown at Calcutta. Therefore, section 92A of List I does not come into the picture. The power to tax under entry 54 can be availed of only where there has, in fact, been a sale as recognised by the general law. But under the ancillary and incidental powers, the present entry 54 is wide enough to cover and confer power to legislate for preventing evasion of tax. 21.. The decision in the case of Abdul Quader, reported in [1964] 15 STC 403 (SC), was relied on by the applicant. That was a case concerning the vires of section 11(2) of the Hyderabad General Sales Tax Act, 1950. In dealing with the question, their Lordships of the Supreme Court observed that the power to legislate on a particular subject carries with it certain ancillary and incidental powers necessary to make the exercise of power meaningful and effective. It was observed that all powers necessary for the levy and collection of tax and for seeing that tax is not evaded are comprised within the ambit of legislative entry as ancillary or incidental. It was also observed that penalties imposed under taxing statutes are generally relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislate in respect of intra-State transactions of sale and purchase and to matters ancillary or incidental thereto; it has no power to legislate for levy of tax on sales and purchases in the course of interState transactions. The rule, it was observed, authorised restrictions on inter-State transactions and was on that account unauthorised. Here in the case before us there is no provision in section 7 of the 1954 Act or the rules framed thereunder to restrict or prohibit inter-State transactions of sale or purchase. Here the goods in question were not the subject of inter-State sale or any sale at all at the point of entry into the checkpost. It was a case of branch transfer of goods of the applicants manufactured in their own factory outside the State of West Bengal and transfer thereof to godowns at Calcutta obviously for the purposes of subsequent sale within the State or elsewhere. The section and the rules provide for safeguards to prevent evasion of tax in case of sale in West Bengal. Such provisions, it seems, are within the ancillary and incidental powers of the State to levy tax on sales or purchases. 25.. Mr. Ghosh also referred to certain decisions of different High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all goods carried in a vehicle crossing the check-post were goods which had been sold within the State of U.P. and in respect of which the liability to pay sales tax had arisen. In that view of the matter, the ratio of the decision in K.P. Abdulla's case [1971] 27 STC 1 (SC), was applied. We have already indicated that in the case before us there is hardly any scope for an assumption of the nature contemplated in K.P. Abdulla's case [1971] 27 STC 1 (SC). 28.. Another case of the Allahabad High Court* which subsequently went to the Supreme Court in appeal (Sodhi Transport Company v. State of U.P. [1986] 62 STC 381), was referred to. The Allahabad High Court had felt that the provisions of section 28-B of the U.P. Sales Tax Act contemplated a presumption that the goods carried by the vehicle at the checkpost had been sold within the State by the owner or person-in-charge of the vehicle. The Allahabad High Court held that the provision raised rebuttable presumption and not a rule of substantive law. It was accordingly held that the provision of section 28-B was not beyond the legislative competence of the State Legislature. The Supreme Court *See Sodhi Transport Co. v. State of U. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 STC 497 (SC). This was a judgment by a Constitution Bench of the Supreme Court consisting of seven judges. In that case the constitutionality of the provisions contained in sections 46(2) and 37(1)(a) of the Bombay Sales Tax Act was under challenge. It was held that the provisions of the sections referred to were not ultra vires the State Legislature inasmuch as those provisions fall within the range of ancillary or incidental powers of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution. It was further held that they also did not contravene article 14 or 19(1)(f) of the Constitution. The forfeiture clause in section 37(1) is a punitive measure to protect public interest in the enforcement of the fiscal legislation and it falls squarely within the area of implied powers. The notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability, but that it must be preceded by mens rea, is not correct. Therefore, it was held that the contention that section 37(1) fastens a heavy liability regardless of fault, has no force in depriving the forfeiture of the character of penalty. The fact that the penal forfei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the provision for imposition of penalty without such adjudication is unreasonable, arbitrary and against the principles of natural justice. He also argued that the provisions of section 7 may be saved if by way of interpretation some safeguards are provided for. It was argued that in several cases the Supreme Court has by way of interpretation incorporated the doctrine of natural justice for various legislative enactments so as to make the provision free from arbitrariness and that whenever a statutory provision is silent as to the principles of natural justice by implication the said principles would be deemed to be incorporated in the statutory provisions concerned. [See City Corner v. Personal Asstt. to Collector and Additional District Magistrate AIR 1976 SC 143 and S.L. Kapoor v. Jagmohan AIR 1981 SC 136]. 34.. Mr. Ghosh argued that unless section 7 is interpreted to mean that something more than what is merely stated in the section is read into it, the provision would be arbitrary and unreasonable and, therefore, violative of articles 14, 19 and 21. His contention is that section 7(2) empowers the officer at the check-post merely on the failure of the person carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s transport of a notified commodity exceeding such quantities and except in accordance with such conditions as may be prescribed and that such conditions shall be made with a view to ensure that there is no evasion of tax imposed by this Act. The argument of Mr. Ghosh is that the position might have been different if the statute had used the expression in section 7(1) as "in contravention of the conditions of section 6" instead of "in contravention of the provisions of section 6". We do not, however, see much of a difference in the two expressions. The conditions contemplated by section 6 and prescribed thereunder, are made with a view to ensure that there is no evasion of tax imposed by the Act. It does not say that the evasion must have already taken place or that the transportation of the goods by itself constitutes evasion. The conditions have been prescribed only to ensure evasion of tax at any stage after entry into West Bengal. The conditions obviously have been provided so that the taxing authority may keep track of the goods imported into the State and the same may not be sold without payment of tax. The condition that has been violated in these cases is the failure of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not be exercised indiscriminately and that whenever there is genuine need for search, the ground for it has to be recorded prior to the search. In this connection, a reference was made to a decision of the Calcutta High Court reported in [1977] 39 STC 333 (State of West Bengal v. Oriental Rubber Works). In this case it was observed that the purpose contemplated by sub-section (3) of section 14 of the BFST Act, 1941, under which the search was made, is a bona fide suspicion regarding evasion or attempt to evade payments of tax and that such suspicion must pre-exist and there must be a conscious application of mind by the authority authorised to search before he proceeds to make the search. It was further observed that the provision was never meant as an instrument for holding roving enquiries or fishing out evidences irrespective of any suspicion of evasion of payment of any taxes. This was a case of search conducted under section 14 of the BFST Act, 1941. The section relates to "production and inspection of accounts and documents and search of premises". The question of search of premises stands entirely on a different footing from an interception and search at a check-post. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to believe" has not been used in section 7(1) which authorises interception, detention and search at any notified place. It follows, therefore, that the scheme of the Act is that at the moment of entry into the check-post there may not be any pre-existing suspicion but if after interception necessary documents are found wanting that may by itself afford a reason to believe that the goods were being transported in contravention of the provisions of section 6. While interpreting the expression "reason to believe" the Supreme Court in [1971] 82 ITR 147; AIR 1971 SC 2451 [Sheo Nath Singh v. Appellate Assistant Commissioner of Income-tax (Central)] has held that the expression suggests that the belief must be that of an honest and reasonable person based upon reasonable grounds but not on mere suspicion, gossip or rumour. As we have already indicated, there can be no question of reason to believe that the goods were being transported in contravention of section 6 until and unless the vehicle enters into the check-post and the transporter fails to produce the documents. In such a situation, a reason certainly arises to believe that the goods were being carried in contravention of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ites and were being transported to West Bengal for storage in the godowns for eventual sale. The road permit which contains a declaration by the transporter or the owner, is a safeguard against possible evasion of tax after entry into the State of West Bengal, for, in that event the taxing authority can follow up and satisfy themselves that there is no evasion of tax in respect of the goods so transported. Such being the position, Mr. Ghosh contended that the provisions of section 7 could be saved if only it provided for an adjudication as to whether or not a consignment was supported by relevant documents. A provision such as section 7(2), it was contended, violates the constitutional mandate of articles 14 and 19(1)(g) of the Constitution of India. In this connection. a reference was made to the case of Mithu v. State of Punjab reported in AIR 1983 SC 473. In that case, the validity of section 303 of the Indian Penal Code was considered and struck down by the Supreme Court under article 14 as arbitrary and oppressive. Another case reported in (1986) 1 CHM 262 Gillanders Arbuthnot v. Corporation of Calcutta, was referred to. There it was submitted that a provision of law duly enac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not mandatory. 40.. In regard to the suggestion of Mr. Ghosh that a reasonable opportunity of at least 24 hours should be given, Mr. Chakraborty, appearing on behalf of the respondents, argued that this may create traffic dislocation and consequent problems arising therefrom. We do not see any force in this contention because, in any event, until the vehicle is released it is kept detained at the check-post. Therefore, detention of the vehicle after giving a reasonable opportunity to the transporter to produce his documents to the satisfaction of the authority concerned cannot, in our view, create any additional problem for the check-post authorities. We shall have occasion to consider the question as to whether the provisions of sub-section (2) may be read as merely directory or not, a little later. 41.. Mr. Ghosh also challenged the vires of section 7 on the ground that it violates the provisions of article 19(1)(g) of the Constitution which guarantees the fundamental right to carry on any occupation, trade or business. Clause (6) of article 19, however, permits the State to make any law imposing reasonable restrictions on the exercise of such rights. The restrictions soug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eded no penalty should be imposed and in that case the seized goods have to be released. It was also conceded that in determining the quantum of penalty the degree of remissness of the offending dealer should be the lone consideration. 43.. Having considered the respective submissions of the parties, we are unable to agree with the contentions made on behalf of the applicant with regard to the legislative incompetence of the State Legislature to enact sections 6 and 7 of the 1954 Act and the relevant rules framed thereunder, but we are of the opinion that the provisions of section 7 would be liable to be struck down as violative of article 14 unless sub-section (2) of section 7 is interpreted to be a provision not conferring an unrestricted and unqualified power on the prescribed authority to impose a penalty as a matter of course after seizure only because of the violation of some prohibitory conditions and without adjudicating as to the circumstances under which the contravention took place. It is possible to save section 7(2) by reading the word "may" as discretionary and not mandatory. Mr. Ghosh, at the initial stage of his arguments, also felt that such an interpretation may ..... 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