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TMI Blog2009 (5) TMI 868X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of being heard, by order, direct the payment of a penalty, not exceeding fifty per cent of the value of the goods not accounted for, as may be fixed by such officer. ... (10) If any officer, in the course of any inspection or search of any business place, building or any other place finds that goods are stored in undeclared godown, such stock shall be treated as stock outside the regular books of account of the dealer: Provided, that godowns in respect of which prior written intimation had been given to the registering authority by the dealer shall not be treated as undeclared godowns." It is also necessary to refer to section 44(2) and (3) of the Act. They read as follows: "44. Power to order production of accounts and powers of entry, inspection, etc.-(1) ... (2) Any officer, not below the rank of an assessing authority may,- (a) enter any place of business; and (b) inspect any accounts, registers, records or other documents relating to his business and the goods in his possession. (3) If any officer not below the rank of an assessing authority has reason to believe that a dealer is trying to evade any tax under this Act, he may, for reasons to be recorded, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the matter of imposition of penalty and invariably, irrespective of circumstances including whether the goods are accounted otherwise, assuming that section 44(8) and (10) are to be read together and power under section 44(8) can be invoked in cases covered by section 44(10), section 44 (10) is clearly unconstitutional. In this connection, learned counsel for the petitioners sought to draw assistance from the following decisions: (1) Suraj Mall Mohta and Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 (SC); AIR 1954 SC 545. (2) Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552. (3) St. Michael's Oil Mills v. State of Kerala [1988] 68 STC 360 (Ker). (4) B. Ganesha Krishna Bhat v. State of Karnataka [1989] 73 STC 267 (Karn). (5) Commissioner of Income-tax (Central), Calcutta v. Moon Mills Ltd. [1966] 59 ITR 574 (SC); AIR 1966 SC 870. The learned counsel for the petitioners contended that the purport of section 44(10) is merely to raise a presumption that the goods found at the undeclared godown are to be treated as unaccounted and the presumption or the fiction stops there. He contended that when a fiction is created by provisions of law, it can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income-tax v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) at pages 748, 751; AIR 1965 SC 1358 at pages 1362 to 1363, observed: 'Though the surplus contemplated by the proviso is not in the technical sense of the term "profits" of the previous year, it is deemed to be the profits of the previous year.' The same idea is developed thus: The fiction in the second proviso is a limited one. The surplus is deemed to be the profits of the previous year. As we have pointed out earlier, it adequately serves the purpose of the section ... To sustain the argument of the Revenue, it has to be enlarged in its scope. Many words have to be read into it which are not there. We cannot accept this argument'." I feel that the decision of the apex court is clearly distinguishable. As the apex court observed, it would have required the addition of many words to produce the result which the Revenue canvassed. When the proviso contemplated the amount being received, it was noted that re-writing of the proviso to import the concepts apposite to the mercantile system of accounting and transformation of the word "received" to the word "receivable" was necessary to sustain the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmends for my acceptance. A reference to sub-section (8) would also reveal that the word "place" as it is contemplated in section 44(3) also includes godown. Search can be conducted at any other place other than the place of business of the dealer. There can be no doubting the fact that when the assessee stores his goods at an undisclosed location, normally and generally, he intends to place the veil of secrecy over his transactions and it makes the already vexed problem of tax evasion, even more intractable. The Legislature which knows the felt necessities of the times, has declared it to be so. It may not be apposite for the court under our constitutional scheme of things to veto the will of the people expressed through the legislative device unless the petitioners succeed, no doubt, in establishing that the law cannot pass muster on the anvil of any of the fundamental freedoms or any other ground available. It is true that section 67 of the Act provides for levy of penalty in various situations. It is necessary to section 67(1) of the Act which reads as follows: "67. Imposition of penalty by authorities.-(1) Notwithstanding anything contained in section 71, if any authority emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an undisclosed godown. I do not see how the provisions of section 44(8) become inapplicable, merely on account of the provisions of section 67. The further question which is posed before me is as regards the constitutionality of the provision. The learned counsel for the petitioners contended that a right of appeal is created under the Act. If in a case, even assuming that the power under section 44(8) can be invoked on the basis of section 44(10), if penalty is to be imposed at the maximum rate, then the right of appeal is rendered illusory, as no purpose would be served by appealing against the decision. He would submit that the goods have been accounted and it is only for certain reasons that the goods happened to be located in the places where they were found in the inspections. In Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552, the apex court was concerned with the challenge to the constitutionality of the Travancore-Cochin Land Tax Act, 1955 as amended by the Land Tax (Amendment) Act of 1957. Essentially, the challenge was upheld on the ground of the offending provisions being violative of article 14 of the Constitution as also article 19(1)(f). In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said forest. Hence, his liability for taxation in respect of his forest land amounts to Rs. 54,000 whereas his annual income for the time being is only Rs. 3,100 without making any deductions for expenses of management. Unless the petitioner is very enamoured of the property and of the right to hold, it may be assumed that he will not be in a position to pay the deficit of about Rs. 51,000 every year in respect of the forests in his possession. The legal consequences of his making a default in the payment of the aforesaid sum of money will be that the money will be realised by the coercive processes of law. One can easily imagine that the property may be sold at auction and may not fetch even the amount for the realisation of which it may be proposed to be sold at public auction. In the absence of a bidder forthcoming to bid for the offset amount the State ordinarily becomes the auction purchaser for the realisation of the outstanding taxes. It is clear, therefore, that apart from being discriminatory and imposing unreasonable restrictions on holding property, the Act is clearly confiscatory in character and effect. It is not even necessary to tear the veil, as was suggested in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice. He is duty bound to apply his mind to the facts of the case. He cannot act arbitrarily or mechanically. The section states that the maximum penalty leviable is 50 per cent of the value of the unaccounted stock. The language employed in section 28(8) of the Act itself shows that the levy of penalty is permissive and not compulsive. The officer should exercise his discretion and apply his mind to the facts of each case. He should be first of all satisfied that penalty is exigible. Even so, he has to further apply his mind judicially and fix the quantum of penalty to be imposed. There are thus two different stages of aspects in the matter. The mere fact that section 28(8) of the Act permits the levy of 50 per cent of the value of the unaccounted stock as penalty, does not mean that the officer can and should impose 50 per cent of the value of the unaccounted stock as penalty in all cases ..." In Suraj Mall Mohta and Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 (SC); AIR 1954 SC 545, the apex court took the view that certain provisions of the Taxation on Income (Investigation Commission) Act, 1947 were violative of article 14 of the Constitution. It took the view that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been brought on the record may not be available to him at all. He is not even entitled to see all the books of account which may have been impounded under the Act and taken possession of by the Commission. It may well happen that there are entries in those books which contain the rebuttal evidence, but the assessee is not entitled to have their copies. The assessee is not even entitled to see his own books which are in the possession of the Commission and take copies of those entries which are favourable to him and which would completely demolish the case made against the assessee by the Commission. The procedure thus prescribed in this matter by the impugned Act is substantially prejudicial to the assessee than the procedure prescribed under the Indian Income-tax Act. It was not disputed by the learned Solicitor-General that the procedure prescribed by the impugned Act in sections 6 and 7 was more drastic than the procedure prescribed in sections 37 and 38 of the Indian Income-tax Act. Again, so far as the procedure for reference under sub-section (4) of section 5 is concerned, it is also to a certain extent prejudicial to the assessee. There is no doubt that there is in this matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [1957] 354 US 457; 1 L. ED. 2d 1485 where Frankfurter, J. said in his inimitable style: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events-selflimitation can be seen to be the path to judicial wisdom and institutional prestige and stability." The court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icals Ltd. [2008] 18 VST 436. Therein, the court, inter alia, was concerned with the question whether section 78(5) of the Rajasthan Sales Tax Act, 1994 required the proving of intention or mens rea. A truck coming from Delhi was intercepted. The officer took the view that the goods were imported without the declaration form ST-18A which amounted to violation of section 78(2)(a) of the Act and penalty at the rate of thirty per cent was imposed on the price of the goods. The court held, inter alia, as follows: (page 444) "... We are not concerned with non-filing of statements before the A.O. We are concerned with the goods in movement being carried without supporting declaration forms. The object behind enactment of section 78(5) which gives no discretion to the competent authority in the matter of quantum of penalty fixed at 30 per cent of the estimated value is to provide to the State a remedy for the loss of revenue. The object behind enactment of section 78(5) is to emphasise loss of revenue and to provide a remedy for such loss. It is not the object of the said section to punish the offender for having committed an economic offence and to deter him from committing such offenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.' (See also ITW Signode India Ltd. v. Collector of Central Excise [2003] 1 RC 985; [2003] 9 SCALE 720, para 58). 72.. These decisions, therefore, show that whenever a legal fiction is created by a statute, the same shall be given full effect." I am of the firm view that it is not open to the petitioners to assail the validity of section 44(10). No compelling reasons have been made out to declare section 44(10) as unconstitutional. It is part of a fiscal statute, an economic measure. Apparently, the Legislature has deemed it fit to deal with a serious problem of rampant tax evasion practised through the medium of undisclosed godown ..... X X X X Extracts X X X X X X X X Extracts X X X X
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