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CASE NO.:

Appeal (civil) 5085 of 2000

PETITIONER:

STATE OF RAJASTHAN & ANR.

Vs.

RESPONDENT:

M/S D.P. METALS

DATE OF JUDGMENT: 04/10/2001

BENCH:

B.N. Kirpal, N. Santosh Hegde & B.N. Agrawal

JUDGMENT:

W I T H

C.A. Nos. 5086, 5087, 5088, 5763, 5764 of 2000 and 1321,

1736, 1737, 1738, 1739, 1740, 1741, 1742, 1743, 1744,

1745, 1746, 1747, 1748, 1749, 1750, 1751, 1752, 1753,

1754, 1755, 1756, 1757, 1758, 1759, 2893, 2557, 3424,

3425, 3426, 3427, 3697, 4033 of 2001.

J U D G M E N T

KIRPAL, J.

The State of Rajasthan has filed these appeals against the

decision of the High Court which had, while allowing the Writ

Petition of the respondents, held that Section 78(5) of the Rajasthan

Sales Tax Act, 1994 was unconstitutional and ultra vires.

In order to examine the issues arising in this case, we may

briefly refer to the facts of the case of M/s D.P. Metals. M/s D.P.

Metals carries on the business of manufacturing stainless steel sheets

and had been registered under the provisions of the Rajasthan Sales

Tax Act and the Central Sales Tax Act. On 22nd January, 1997 a

truck was seized by the Assistant Commercial Taxes Officer, Jodhpur

and as the same was found not to be carrying the declaration Form ST

18A, a show cause notice was issued to M/s D.P. Metals. After

hearing, a penalty of Rs. 63,200/- was levied under Section 78(5) of

the 1994 Act.

M/s D.P. Metals and other dealers, against whom similar action

has been taken, filed applications before the Rajasthan Taxation

Tribunal, Jaipur, inter alia, impugning the provisions of Section 78

(5) of the 1994 Act and claimed consequential relief of the quashing of

the penalty order.

Pursuant to the abolition of the Taxation Tribunal, the

applications were transferred to the Rajasthan High Court and they

were regarded as writ petitions. The contentions on behalf of the

respondents before the High Court were that Section 78 (5) was ultra

vires being beyond the legislative competence of the State and also on

the ground of being excessive, arbitrary and unreasonable and,

therefore, violative of Articles 14, 19(1)(g), 301 and 304 of the

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Constitution. The Division Bench of the High Court in relation to the

validity of Section 78(5) came to the following conclusion:-

(i) the parent provision of the Section 78 as far as it requires

carrying the documents mentioned under sub-section (2) by the

transporter whose position ordinarily does not go beyond a witness

about goods carried through them, for the purpose of divulging

detailed information about the goods carried out by the transporter

and about the consignor and the consignee itself at the check post

or barrier to any authorised officer under sec. 78 as part of

machinery provision for collecting evidence about goods coming in

or going out of or moving within the State, can be considered as

intended to prevent and check evasion and avoidance of tax and in

aid of making effective the levy which has arisen or likely to arise

within the State, are provisions incidental and ancillary in aid of

main subject levy and collection of sales tax.

(ii) Provision as to notice before imposing penalty is not an empty

formality for imposing penalty, for non production of production of

incomplete documents, but is intended to give an effective

opportunity of hearing to show that no penalty is at all leviable. If it

is reasonably established that such default is not with any intention

to evade or avoid tax, but is bonafide default, the breach for which

it is not compulsory to impose penalty. Such question has to be

determined in each case on its own facts and circumstances.

(iii) No opinion is expressed on the validity of requirement to carry

declarations in form ST 18 A or ST 18 AA with goods, in view of

no challenge made in the petitions.

(iv) The provisions for carrying declaration of the importer in the

Form No. ST 18-A and 18 AA by the transporter or carrier is not

treated to be mandatorily required and it is held that the production

of such declaration later on during the course of enquiry even by

the importer is substantial compliance of the provision.

(v) Lastly, the penalty under section 78(5) linked with value of

goods equal to 30% thereof imposable on person incharge of the

goods in transit who is not owner of the goods and who is also not

a dealer in the goods for breach of obligation of divulging

information and particulars relating to goods in his charge and the

consignor and the consignee is highly unreasonable having no

reasonable and proximate nexus with the obligation cast on

transporter and the object of the provision, the same, therefore, is

unconstitutional, (Santlals case).

(vi) However a reasonable penalty is imposable on transporter as a

consequence for breach of obligation to divulge such information

truly and faithfully which is in his possession and can reasonably be

required of them to obtain from other sources while booking goods

for transport. Until any specific provision for levy of tax is enacted

by the legislature, he may be subjected to penalty as envisaged

under Section 68 of the Act.

The High Court then held Section 78(5) of the Act to be

unconstitutional and ultra vires.

In these appeals, it was contended by learned counsel for the

appellants that the High Court erred in coming to the conclusion that

Section 78 (5) was ultra vires. It was submitted that the power

contained in Section 78 (5) was incidental to the power of levy of sales

tax and was within the legislative competence of the State under Entry

54 of List II of the Constitution. It was submitted that Rajasthan as

well as other States had enacted provisions in the Sales Tax Acts with

a view to check evasion of taxes by transporters who were found

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carrying goods with fake bilties, incomplete documents and under

suspicious names. Similar provisions had been upheld by this Court

and, therefore, the decision of the High Court is not correct.

Mr. Manish Singhvi, counsel appearing for the respondents,

submitted that the penalty sought to be imposed under Section 78 (5)

had no nexus with the tax evaded. The effect of this provision, it was

contended, was that even when there was total absence of mens rea

and the breach is unintentional and completely bona fide still an

innocent transporter can be subjected to penalty under Section 78 (5)

of the 1994 Act. It was submitted that Section 78 (5) was analogous

to Section 38 of the Haryana General Sales Tax Act, 1973 which had

been held to be ultra vires by this Court in State of Haryana and

Others vs. Sant Lal and Another . It was urged that the breach of

obligation of carrying the documents over which the transporter may

have no control cannot be attributed to him and levy of penalty

@ 30% merely on account of such breach is harsh and oppressive.

Penalty under Section 78 (5) could not be regarded as being linked

with evasion of tax. It was further contended that the only way in

which the validity of Section 78(5) can be upheld is to read into it the

element of mens rea as a precondition for imposition of penalty and

mere technical breach without any mens rea should not by itself invite

penalty under Section 78 (5). While referring to a decision in the

case of The Check Post Officer and Others vs. K.P. Abdulla and

Bros. it was submitted even in cases like carrying personal goods for

consumption penalty under Section 78 (5) would be leviable because

of alleged breach of Section 78 (2) even though sale of goods is not

involved. Section 78 (5), it was submitted, contained no guidelines

saving such bonafide cases from the vice of Section 78 (5) and,

therefore, was violative of Article 14 of the Constitution.

The Rajasthan Sales Tax Act, 1954 was a precursor to the 1994

Act. In the 1954 Act, Section 22A(7) was the provision which

enabled the appellant to impose penalty in the event of the person in

charge of the goods not possessing or producing mandatory documents

or if a false declaration was made. Section 22A (7) of the 1954 Act

reads as follows:

(7)(a) The Officer incharge of the check-post or barrier or any

other officer not below the rank of an Assistant Commercial Taxes

Officer, empowered in this behalf may, after giving the owner or

person incharge of the goods a reasonable opportunity of being

heard and after holding such further enquiry as he may deem fit,

impose on him for possession of goods not covered by goods

vehicle record, and other documents prescribed under sub-section

(3) or for submission of false declaration or documents a penalty

(equal to five times of the rate of tax notified under section 5 of the

Act, for such goods or) (30%) of the value of such goods, as may

be determined by such officer (whichever is less)

(Provided that where the goods are being carried without

proper documents as required by sub-section (3) or with any false

declaration or statements and the owner or the incharge or the

driver of the vehicle, boat, or animal carrying such goods is found

in collusion for such carrying of goods, the vehicle, boat or animal

shall also be seized by the officer empowered under sub-section

(7), and such officer, after affording an opportunity of being heard

to such owner, incharge or driver may impose a penalty not

exceeding 30% of the value of the goods carried and shall release

the vehicle, boat or animal on the payment of the said penalty or on

furnishing such security in such form as prescribed under clause (b)

of sub-section (7):

Provided further that when an owner, incharge or driver of

a vehicle, boat or animal is found guilty second time of the offence

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mentioned in the preceding proviso, he shall be liable to a

maximum penalty as mentioned in the preceding proviso and the

vehicle, boat or animal carrying the goods may be kept seized and

detained for a period not exceeding 30 days after the date of the

payment of the penalty or furnishing of the security.

(Provided also that where a transporter is found to be in

collusion with a trader to avoid or evade tax during the course of

movement of the goods through his vehicle, such vehicle may, after

an opportunity of being heard has been afforded, be confiscated by

the Commercial Taxes Officer of the area in whose jurisdiction the

case was detected with the prior approval in writing of the Deputy

Commissioner (Administration) having jurisdiction and in case of

confiscation of the vehicle no penalty shall be imposed in the

preceding first proviso)

(b) Such officer may release any of the goods seized under sub-

section (5) or sub-section (6) on payment of the penalty under

clause (a) or on furnishing such security in such form as may be

prescribed for the payment thereof, as he may consider necessary.

[(c) Such officer may, for sufficient reasons, release any of the

goods seized as aforesaid even before proceeding under clause (a)

or during the course of proceeding under that clause, on furnishing

of security of an amount equal to the estimated value of the goods

to be released if he considers it necessary so to release the goods.]

With the repeal of the 1954 Act, a provision similar to Section

22A (7) of the old Act was incorporated as Section 78(5). It will,

however, be appropriate to refer to Section 78. Section 78 provides

for establishment of check-post and inspection of goods while in

movement. The said section, along with incorporation of sub-sections

(11) and (12) in 1999 reads as follows:

78. Establishment of check-post and inspection of goods while

in movement.- (1) The Commissioner may, with a view to prevent

or check avoidance or evasion of tax, by notification in the Official

Gazette, direct the setting up of a check-post at such place and for

such period as may be specified in the notification, and every

officer or official who exercises his powers and discharges his

duties at such check-post by way of inspection of documents

produced and goods being moved, shall be its Incharge.

(2) The driver or the person incharge of a vehicle or carrier or of

goods in movement shall-

(a) carry with him a goods vehicle record including challans and

bilties, bills of sale or despatch memos and prescribed

declaration forms;

(b) stop the vehicle or carrier at every check-post set up under

sub-section (1);

(c) produce all the documents including prescribed declaration

forms relating to the goods before the Incharge of the check-

post;

(d) give all the information in his possession relating to the goods;

and

(e) allow the inspection of the goods by the Incharge of the check-

post or any other person authorised by such Incharge.

Explanation-For the purposes of this Chapter-

(i) vehicle or carrier shall include any means of transportation

including an animal to carry goods from one point to

another point;

(ii) goods shall include animals also, and

(iii) goods in movement shall means-

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(a) the goods which are in the possession or control of a

transporting agency or person or other such bailee;

(b) the goods which are being carried in a vehicle or carrier

belonging to the owner of such goods; and

(c) the goods which are being carried by a person.

(3) Where any goods are in movement within the territory of the

State of Rajasthan, an officer empowered by the State Government

in this behalf may stop the vehicle or the carrier or the person

carrying such goods, for inspection, at any place within his

jurisdiction and the provisions of sub-section (2) shall mutatis

mutandis apply.

(4) Where any goods in movement, other than exempted goods, are

without documents, or are not supported by documents as referred

to in sub-section (2), or documents produced appear false or

forged, the Incharge of the check-post or the officer empowered

under sub-section (3), may

(a) direct the driver or the person incharge of the vehicle or

carrier or of the goods not to part with the goods in any

manner including by retransporting or rebooking, till a

verification is done or an enquiry is made, which shall not take

more than seven days;

(b) seize the goods for reasons to be recorded in writing and shall

give a receipt of the goods to the person from whose

possession or control they are seized;

(c) release the goods seized in clause (b) to the owner of the good

or to anybody else duly authorised by such owner, during the

course of the proceeding if the adequate security of the amount

equal to the estimated value of the goods is furnished.

(5) The Incharge of the check-post or the officer empowered under

sub-section (3), after having given the person incharge of the goods

a reasonable opportunity of being heard and after having held such

enquiry as he may deem fit, shall impose on him for possession or

movement of goods, whether seized or not, in violation of the

provisions of clause (a) of sub-section (2) or for submission of false

or forged documents or declaration, a penalty equal to thirty

percent of the value of such goods.

(6) During the pendency of the proceeding under sub-section (5), if

anybody appears before the Incharge of the check-post or the

officer empowered under sub-section (3) and prays for being

impleaded as a party to the case on the ground of involvement of

his interest therein, the said incharge or the officer on being

satisfied may permit him to be impleaded as a party to the case; and

thereafter, all the provisions of this section shall mutatis mutandis

apply to him.

(7) The incharge of the check-post or the officer empowered under

sub-section (3) may release the goods to the owner of the goods or

to anybody else duly authorised by such owner, if seized and not

already released under clause (c) of sub-section (4), on payment of

the penalty imposed under sub-section (5) or on furnishing such

security for the payment thereof, as such incharge or officer may

consider necessary.

(8) Where the driver or the person incharge of the vehicle or the

carrier is found guilty for violation of the provisions of sub-section

(2), subject to the provisions of sub-section (10), the incharge of

the check-post or the officer empowered under sub-section (3) may

detain such vehicle or carrier and after affording an opportunity of

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being heard to such driver or person incharge of the vehicle or the

carrier, may impose a penalty on him as provided in sub-section

(5).

(9) The incharge of the check-post or the officer empowered under

sub-section (3) may release the vehicle or the carrier on the

payment of the amount of penalty imposed under sub-section (8) or

on furnishing such security as may be directed by such Incharge or

Officer.

(10) Where a transporter, while transporting goods, is found to be

in collusion with a trader to avoid or evade tax, the Incharge of the

check-post or the officer empowered under sub-section (3) shall

detain the vehicle or carrier of such transporter and after affording

him an opportunity of being heard and with the prior approval in

writing of the Deputy Commissioner (Administration) having

jurisdiction, may confiscate such vehicle or carrier.

(11) If a transporter fails to give information as required from him

under clause (d) of sub-section (2) about the consignor, consignee

or the goods within such time as may be specified or transports the

goods with forged documents, besides imposing the penalty under

sub-section (5), it shall be presumed that the goods so transported

have been sold in the State of Rajasthan by him and he shall be

deemed to be a dealer for those goods under this Act.

(12) The provisions of this Act shall, for the purpose of levy,

collection and assessment of tax, determination of interest, payment

and recovery of tax and interest, appeal, review or revision, apply

to the transporter deemed to be a dealer under sub-section (11).

The scheme of Section 78 is that sub-section (1) authorises the

Commissioner to set up check-posts with a view to prevent or check

avoidance or evasion of tax. These check-posts are to be set up by

issuance of a notification in that behalf and every officer appointed at

the check-post shall be the in charge of the check-post.

Sub-section (2) of Section 78 imposes an obligation on (a)

driver; or (b) person in charge of a vehicle or carrier (compendiously

referred to as the person in charge of the vehicle) and (c) person in

charge of the goods in movement. Persons so named in sub-section

(2) then have an obligation to comply with sub-clauses (a) to (e) of

Section 78(2). Such a person under Section 78(2)(a) is required to

carry with him (a) goods vehicle record including challans and bilties;

(b) bills of sale or despatch memos and (c) prescribed declaration

forms.

Sub-section (3) of Section 78 permits an officer empowered by

the State Government to stop the vehicle or the carrier or the person

for inspection of the goods in movement within the territory of the

State of Rajasthan. In case of goods, other than exempted goods,

which are in movement are found to be without documents or are not

supported by documents referred to in Sub-section (2) or the

documents produced are false or forged, then under Section 78(4) the

in charge of the check-post or the empowered officer may direct non-

parting of the goods till the verification is done or an enquiry made or

seize the goods after recording reasons for doing so or release the

seized goods to the owner or anybody authorised by him if adequate

security of the amount equal to the estimated value of the goods is

furnished.

Sub-section (5) enables the levy of penalty equal to 30% of the

value of the goods being imposed for possession or movement of

goods only if there is violation of clause (a) of sub-section (2) or for

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submission of false or forged documents or declaration. Such penalty

is to be levied only after giving a reasonable opportunity of being

heard and holding such enquiry as the in charge officer empowered

may deem fit. During the pendency of the enquiry a person having

interest therein can get himself impleaded under sub-section (6). On

payment of penalty imposed under sub-section (5) or on furnishing

security for payment thereof, goods can be released under sub-section

(7). As sub-section (5) expressly contemplates giving a hearing to the

person incharge of the goods before imposing penalty this means that

action under Section 78(5) can only be taken on the person incharge of

the goods. He may, in a given case, be the driver or any other

person, if any, accompanying the goods as the incharge thereof.

Whereas movement of goods in violation of sub-section (2) (a)

attract the provisions of sub-section 5 in respect of vehicle or carrier

which is found guilty or violating the provisions of sub-section (2) of

Section 78, Sub-section (8) allows the detention of such vehicle or

carrier. Penalty as provided under sub-section (5) can be imposed

after hearing the driver or the person in charge of the vehicle.

Release of the vehicle is provided for by sub-section (9) and if the

transporter is found to be guilty of collusion with the trader to avoid

or evade tax, power is given under sub-section (10) for confiscation of

such vehicle or carrier.

In K.P. Abdullas case (supra) this Court considered the validity

of Section 42 (3) of the Madras General Sales Tax Act, 1959 which

gave the power to the officer in charge of the check-post or barrier or

any other duly authorised officer to seize and confiscate the goods

which were not covered by the documents specified therein. It was

held that the power to confiscate the goods carried in a vehicle cannot

be said to be fairly and reasonably comprehended in the power to

legislate under Entry 54 of List II in respect of taxes on sale or

purchase of goods. The reason for this conclusion was that sub-

section (3) assumed all goods carried in the vehicle as been those

which had been sold within the State and authorised the check-post

officer to seize them unless the specified documents were produced at

the check-post or the barrier. A provision so enacted on the

assumption that goods carried in a vehicle from one State to another

must be presumed to have been transported after sale within the State

was held to be unwarranted and, therefore, the power to seize and

confiscate was struck down and was held not to be ancillary or

incidental with the power to legislate for levy of sales tax.

The aforesaid decision can be of little assistance because the

provisions of Section 78(5) are radically different from Section 42(3)

of the Madras Act with which this Court was concerned in K.P.

Abdullas case (supra). Section 78(5) does not contain any power of

confiscation of goods and the levy of penalty is for carrying the goods

or for submitting false or forged documents or declaration. The

Madras Act, on the other hand contemplated seizure and confiscation

of goods if they were transported without proper documentation.

In Sodhi Transport Co. and Others vs. State of U.P. and

Others this Court was required to adjudicate upon the validity of

Section 28-B of the U.P. Sales Tax Act, 1948 and U.P. Sales Tax

Rules, 1948. Section 28 of the U.P. Act contemplated establishment

of check-posts and barriers while Section 28-B made a provision for

the procedure to be followed by persons who intend to transport goods

by road into the State of U.P. from places outside the State but for the

purpose of transporting them to places situated outside that State. A

vehicle at the time of entry was required under Rule 87 to obtain

transit pass which was to be delivered to the officer in charge of the

check-post or barrier before the exit from the State. If the driver or

the person in charge failed to do so Section 28-B presumed that the

goods carried thereby had been sold within the State by the owner or

the person in charge of the vehicle and all the liabilities under the Act

regarding the levy of sales tax etc. were to arise. While analysing the

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provisions this Court held that the presumption under Section 28-B

was a rebuttable one and if it was not rebutted it was to be presumed

that the goods had been sold in the State of U.P. While upholding the

validity of Section 28-B and Rule 87 it was held that these were

machinery provisions, which did not levy any charge by themselves,

but were enacted to ensure that there was no evasion of tax. It was

noticed that these provisions are enacted to make the law workable

and to prevent evasion. Such provisions fall within the ambit and

scope of the power to levy the tax itself. Thus it was by reference to

Entry 54 of List II that the validity of the impugned provisions were

upheld.

In Delite Carriers (Regd.) vs. State of Haryana and Others

validity of Section 37 of the Haryana General Sales Tax Act, 1973

was challenged on the ground of lack of legislative competence. The

said Section 37 reads as follows:

37. Establishment of check-post or barriers and inspection of

goods in transit.- (1) If with a view to preventing or checking

evasion of tax under this Act in any place or places in the State, the

State Government, considers it necessary so to do, it may, by

notification direct the establishment of a check-post or the erection

of a barrier or both, at such place or places as may be notified.

(2) The owner or person in charge of the goods and, when the

goods are carried by a goods carrier, the driver or any other person

in charge of the goods carrier, shall carry with him a goods carrier

record, a trip sheet or log-book, as the case may be, along with a

bill of sale in respect of the goods meant for the purpose of trade

and are carried by him or in the goods carrier and produce the

same before an officer-in-charge of a check-post or barrier or any

officer of the department not below the rank of an Assistant Excise

and Taxation Officer or such other officer, as the State Government

may, by notification, appoint, for checking the goods carrier at any

place.

(3) At every check-post or barrier or at any other place, when so

required by any officer referred to in sub-section (2) in this behalf,

the owner or person in charge of the goods shall stop and the driver

or any other person in charge of the goods carrier, entering or

leaving the limits of the State, shall stop the goods carrier and keep

it stationary, as long as may reasonably be necessary, and allow the

officer-in-charge of the check-post or barrier, or the officer as

aforesaid to examine the goods carried by him or in the goods

carrier, by breaking open the package or packages, if necessary,

and inspect all records relating to the goods carried which are in

the possession of such owner or person in charge of the goods or

the driver or other person in charge of the goods carrier, who shall

also furnish such other information, as may be required by the

aforesaid officer, who, if considered necessary, may also search the

goods carrier and the driver or other person in charge of the goods

carrier or of the goods.

(4) The owner or person in charge of the goods or goods carrier,

entering or leaving the limits of the State, shall furnish in duplicate

a declaration containing such particulars, as may be prescribed, of

the goods carried by him or in such carrier, as the case may be,

before the officer-in-charge of the check-post or barrier and shall

produce the copy of the said declaration duly verified and returned

to him by the officer-in-charge of the check-post or barrier before

any other officer as mentioned in sub-section (2).

Where it is contended by the owner of the goods that the goods

were not sold within the State after their import and were either

consumed or exported by him or were sold in the course of inter-

State trade or commerce or in the course of export out of the

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territory of India, the Assessing Authority may call for such other

information and documents as he thinks fit:

Provided that where the owner or person in charge of the goods or

the driver or the person in charge of the goods carrier bound for

any place outside the State passes through the State, such owner or

person in charge of the goods or the driver or other person in

charge of such carrier shall furnish, in duplicate, to the officer-in-

charge of the check-post or barrier of his entry into the State, a

declaration in the prescribed form and obtain from him a copy

thereof duly verified. The owner or person in charge of the goods

carrier or the driver or other person in charge of the goods carrier

shall deliver within twenty-four hours the said copy to the officer-

in-charge of the check-post or barrier at the point of his exit from

the State, failing which he shall be liable to pay a penalty, to be

imposed by the officer-in-charge of the check-post or barrier of the

entry, not exceeding two thousand rupees or twenty per centum of

the value of the goods, whichever is greater:

Provided further that no penalty shall be imposed unless the person

concerned has been given a reasonable opportunity of being heard:

Provided further that where the owner or person in charge of the

goods or the driver or other person in charge of the goods or

carrier bound for any place inside the State has to pass through

another State, such owner or person or the driver or other person

shall furnish, in duplicate, to the officer-in-charge of the check-post

or barrier of his exit from the State, a declaration in the prescribed

form and obtain from him a copy thereof duly verified and shall

deliver the same to the officer-in-charge of the check-post or

barrier of his entry into the State, within four hours of his exit from

the previous barrier or check-post in the State, failing which he

shall be liable to pay a penalty to be imposed by the officer-in-

charge of the check-post or barrier of his entry, not exceeding two

thousand rupees or twenty per centum of the value of the goods,

whichever is greater, unless he explains the time taken in excess to

the satisfaction of the officer-in-charge of the entry barrier or

check-post.

(5) If the officer-in-charge of the check-post or barrier or other

officer as mentioned in sub-section (2) has reasons to suspect that

the goods under transport are not covered by proper and genuine

documents as mentioned in sub-section (2) or sub-section (4), as the

case may be or that the person transporting the goods is attempting

to evade payment of the tax due under this Act, he may, for

reasons to be recorded in writing, and after hearing the said person,

order the unloading and detention of the goods and shall allow the

same to be transported only on the owner of the goods, or his

representative or the driver or other person in charge of the goods

carrier on behalf of the owner of the goods, furnishing to his

satisfaction a security, in the prescribed form and manner, for an

amount not less than ten per centum and not more than twenty-five

per centum of the value of the goods:

Provided that such officer may, if he deems fit, having regard to

the nature of the carrier or the goods and other relevant matters,

allow such goods to be transported, on the owner of the goods or

his representative or the driver or other person in charge of the

goods carrier, executing, in a prescribed manner, a bond with or

without sureties for securing the amount due as security:

Provided further that where any goods are detained, a report shall

be made immediately and in any case within twenty-four hours of

the detention of the goods by the officer detaining the goods to the

officer-in-charge of the district seeking the latters permission for

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the detention of the goods for a period exceeding twenty-four hours

as and when so required and if no intimation to the contrary is

received from the latter, the former may assume that his proposal

has been accepted.

(6) The officer detaining the goods shall record the statement, if

any, given by the owner of the goods or his representative or the

driver or other person in charge of the goods carrier and shall

require him to produce proper and genuine documents as referred

to in sub-section (2) or sub-section (4), as the case may be. If,

after the enquiry, such officer finds that there has been an attempt

to evade the tax due under this Act, he shall, by order, impose on

the owner of the goods and in case the owner is not forthcoming or

his identity is not disclosed by the person in charge of the goods or

the driver or person in charge of the goods carrier, in which goods

are being carried, on the person in charge of the goods or the goods

carrier or the driver, a penalty of not less than ten per cent and not

more than twenty-five per cent of the value of the goods, and in

case he finds otherwise, he shall order the release of the goods:

Provided that no penalty shall be imposed unless the owner of the

goods or his representative or person in charge of the goods or the

goods carrier or the driver has been given a reasonable opportunity

of being heard.

(7) If the owner of the goods or his representative or the driver or

other person in charge of the goods carrier does not furnish

security or execute the bond as required by sub-section (5) within

ten days from the date of detaining the goods or goods carrier, the

officer referred to in that sub-section may order further detention of

the goods, and in the event of the owner of the goods not paying

the penalty imposed under sub-section (6) within twenty days from

the date of the order imposing the penalty, the goods detained shall

be liable to be sold for the realisation of the penalty in the manner

provided in sub-section (9).

(8) When any goods are detained under sub-section (7), the officer

detaining the goods shall issue to the owner of the goods, if present

or, if the owner of the goods is not present, to his representative or

the driver or other person in charge of the goods carrier, a receipt

specifying the description and quantity of the goods so detained and

obtain an acknowledgement from such person or, if such person

refuses to give an acknowledgement, record the fact of refusal in

the presence of two witnesses.

(9) The goods detained under sub-section (7) shall be sold, by the

officer who imposed the penalty, by public auction in the manner

prescribed, and the sale proceeds shall be deposited in the

Government treasury.

(10) If the goods detained are of a perishable nature, or subject to

speedy and natural decay, or when the expenses of keeping them in

custody are likely to exceed their value, the officer-in-charge of the

check-post or barrier or any other officer empowered under sub-

section (2), as the case may be, shall immediately sell such goods

or otherwise dispose them of and deposit the sale proceeds of such

goods, or the amount obtained by the disposal of such goods

otherwise than by way of sale, in the Government treasury.

(11) If the order of imposition of penalty under sub-section (6) or

of detention of goods under sub-section (7) is in the meantime set

aside or modified in appeal or other proceedings, the officer

detaining the goods and imposing the penalty, as the case may be,

shall also pass consequential orders for giving effect to the order in

such appeal or other proceedings, as the case may be.

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(12) Where the detained goods are sold or otherwise disposed of

under this section, the owner thereof shall be liable to pay the

expenses and other incidental charges incurred in detaining and

disposing of the same.

(13) If the sale proceeds of any goods sold or the amount obtained

on the disposal of any goods otherwise than by way of sale under

the provisions hereinbefore contained exceeds the penalty imposed

in respect of such goods, such excess amount after deducting the

expenses, and incidental charges referred to in sub-section (12)

shall be returned by the officer who conducted the sale or otherwise

disposed of the goods, to the owner of the goods.

(14) At every station of transport of goods, bus stand or any other

station or place of loading or unloading of goods, other than a post

office, when so required by the Commissioner or any other person

appointed to assist him under sub-section (1) of section 3, the

owner or person in charge of the goods or the driver or other

person in charge of the goods carrier shall produce for examination

transport receipts and all other documents and account books

concerning the goods carried, transported, loaded, unloaded,

consigned or received for transport, to be maintained by him in the

prescribed manner and the Commissioner or the person so

appointed shall have, for the purpose of examining that such

transport receipts and other documents and account books are in

respect of the goods carried, transported, loaded, unloaded or

consigned or received for transport, the power to break open any

package or packages of such goods. If the Commissioner or the

person so appointed is satisfied that it is necessary for the purposes

of investigation or verification, he may seize the transport receipts,

documents or account books so produced for examination or found

lying at such a station of transport of goods, bus stand or any other

station or place of loading or unloading of goods. The Officer

seizing the transport receipts, documents or account books shall

forthwith grant a receipt for the same and shall return to the person

from whose custody these were seized after examination or

completion of investigation or verification within a period of sixty

days. Where the transport receipts, documents or account books so

seized are required to be retained beyond the aforesaid period of

sixty days, the authority so retaining them shall record the reasons

in writing and shall obtain the approval of the Commissioner for so

doing.

(15) Except in accordance with such conditions, as may be

prescribed, with a view to ensuring that there is no evasion of tax

imposed by or under this Act,-

(a) no driver or person in charge of a goods carrier or any person

in charge of a place of loading or unloading of goods, other than a

post office, shall accept any consignment of such goods for

transport or give delivery of any consignment of such goods, other

than personal luggage of goods for personal consumption;

(b) no dealer or any person including a carrier of goods acting on

behalf of a dealer, shall take delivery of, or transport from any

station of transport of goods, bus stand or any other station or

place, of loading or unloading of goods, airport or any other place,

whether of similar nature or otherwise other than a post office, any

consignment of goods referred to above.

Emphasis added

Following the decision in Sodhi Transport Companys case

(supra) this Court in Delite Carriers case held as follows:

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We have explained in Sodhi Transport Co. v. State of U.P.

[1986] 62 STC 381, decided on March 20, 1986, the object of

establishing check-posts and introducing provisions in the sales tax

law of a State which would facilitate inspection of goods which are

carried from one State to another through a third State. In the

above-mentioned decision we have upheld the provisions of section

28-B of the U.P. Sales Tax Act, 1948 and the rules made

thereunder. For the same reasons we uphold the provisions of

section 37 of the Haryana General Sales Tax Act, 1973, rule 45

and form Nos. 38 and 39 of the Haryana General Sales Tax Rules,

1975. These writ petitions are disposed of accordingly. There will

be no order as to costs.

From the aforesaid decision in Delite Carriers case (supra) it is

evident that the Court regarded Section 37 of the Haryana General

Sales Tax as being nothing more than a provision which had been

enacted in the sales tax law of a State which would facilitate inspection

of goods carried from one State to another and would fall within the

legislative ambit of Entry 54 of List II. The said Section 37 of the

Haryana Act is in pari materia with Section 78 of the Rajasthan Act.

The provisions of Sections 22-A and 22-B of the Rajasthan

Sales Tax Act, 1954 were the precursor to the present Section 78 of

the 1994 Act. The validity of Section 22-A and other connected

provisions were impugned in Writ Petition Nos. 1555-56 of 1983 in

M/s Indian Roadways Corporation and Another vs. State of

Rajasthan and Others. By a short order dated 23rd April, 1986 the

validity of these provisions were upheld in the following words:

We have explained in M/s Sodhi Transport Co. & Anr. vs. State

of U.P. & Anr. decided on March 20, 1986 the object of

establishing check posts and introducing provisions in the sales tax

law of a State which would facilitate inspection of goods which are

carried from one State to another through a third State. In the

above-mentioned decision we have upheld the provision of section

28-B of the Uttar Pradesh Sales Tax Act, 1948 and the rules made

thereunder. For the same reasons we uphold the provisions of

section 22-A and 22B of the Rajasthan Sales Tax Act, 1954 and

Rules 61, 62, 62A, 62B and 63 and Forms 18-A and 18B of the

Rajasthan Sales Tax Rules, 1955. These writ petitions are disposed

of accordingly. There will be no order as to costs.

Yet another challenge to the vires of Sections 22-A and 22-B of

the Rajasthan Sales Tax Act was made but was repelled in Civil

Appeal No. 152 of 1990 in Sarna Transport Corporation vs. The

State of Rajasthan & Others by an order dated 23rd July, 1996 which

reads as follows:

The Writ Petition that the appellants filed in the Rajasthan High

Court sought to challenge the vires of Sections 22-A and 22-B of

the Rajasthan Sales Tax Act, 1954. The Writ Petition was rejected.

The challenge to these Sections has been repelled by this Court by

its Order dated 23rd April, 1986 in Writ Petition Nos. 1555-56 of

1983 M/s Indian Roadways Corpn. & Anr. Vs. State of

Rajasthan & Ors.

Mr. Puri, learned counsel for the appellants, submitted that,

nonetheless, an order should be made in terms of an interim order

made by this Court in some matters. There is no prayer for such

relief in the Writ Petition that was filed before the High Court.

Secondly, that was an order pending the disposal of the Civil

Appeals that were then before this Court. Such an order cannot,

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therefore, be passed in this matter.

The appeal is dismissed. No order as to costs.

From the aforesaid decisions, it would be clear that the

consistent view of this Court since the case of Sodhi Transport

Companys case (supra) has been that provisions similar to Section

78(5) have been held to be within the legislative competence of the

State. In fact, validity of Sections 22-A and 22-B of the Rajasthan

Sales Tax Act which was specifically challenged in M/s Indian

Roadways case (supra) and Sarna Transport case (supra) were upheld

by this Court and the said provisions are in pari materia with the new

Section 78 of the 1994 Act.

Mr. Singhvi learned counsel for the respondents, however,

relied upon a Division Bench decision of this Court in the case of Sant

Lals case (supra). It is primarily because of this decision that the

High Court in the present case has come to the conclusion that Section

78(5) was ultra vires. In Sant Lals case (supra) the challenge before

the High Court, which succeeded, was to the validity of Section 38 of

the Haryana General Sales Tax Act, 1973 and Rule 53 of the Haryana

General Sales Tax Rules, 1975 framed thereunder. Section 38

required the clearing or forwarding agents etc. to furnish information

and to get a license. The same reads as follows:

38. Furnishing of information by clearing and forwarding agents,

etc.- (1) Every clearing or forwarding agent, Dalal or any other

person transporting goods, within the State, who, during the course

of his business, handles documents of title to goods for or on behalf

of any dealer, shall furnish to the assessing authority the particulars

and information in respect of the transactions of the goods in such

form and manner, as may be prescribed.

(2) No clearing or forwarding agent, Dalal or any other person

transporting goods within the State shall carry on his business

unless he obtains from the assessing authority, on payment of a fee

not exceeding fifty rupees, a license in the form and manner and

subject to such conditions as may be prescribed.

(3) If any clearing or forwarding agent or Dalal or person

transporting goods within the State contravenes the provisions of

sub-section (1) or sub-section (2), the Commissioner or any person

appointed to assist him under sub-section (1) of Section 3 may,

after giving the person concerned a reasonable opportunity of being

heard, direct him to pay by way of penalty, an amount equivalent

to twenty per centum of the value of goods in respect of which no

particulars and information has been furnished under sub-section

(1).

Explanation.- For the purpose of this section-

(i) Dalal shall include a person who renders his services for

booking of, or taking delivery of, consignments of goods at a

Railway Station, booking agency, goods transport company office,

or any place of loading or unloading of goods or contrives, makes

and concludes bargains and contracts for or on behalf of any dealer

for a fee, reward, commission, remuneration or other valuable

consideration or otherwise;

(ii) person transporting goods shall, besides the owner, include

the manager, agent, driver, employee of the owner or person

incharge of a place of loading or unloading of goods or of a

Railway out-agency, city booking office or city booking agency,

when run by a private person under a contract with the Railways

but excluding a rail head or a post office, or of a goods carrier

carrying such goods, or a person who accepts consignments of such

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goods for despatch to other places or gives delivery of any

consignment of such goods to the consignee.

After referring to the definition of dealer in Section 2(c) and

taking note of the fact that Section 37 provided for the establishment

of check-post or barrier and the inspection of the goods in transit, this

Court analysed Section 38(1) and observed as follows:

14. As is clear from a reading of sub-section (1) of the said

Section 38, it is not every clearing or forwarding agent or dalal or

person transporting goods who comes into possession of the

particulars and information required to be furnished under the said

Act and Rules for the sub-section itself casts that obligation only

upon such clearing or forwarding agents, dalals or persons

transporting goods who during the course of their business handle

documents of title to goods for or on behalf of any dealer'. It is,

therefore, at best, only such clearing or forwarding agents or

dalals or other persons transporting goods who handle documents

of title to goods for or on behalf of dealers who can be said to have

a connection with the transaction of sale thereof. It is only such

clearing or forwarding agents, dalals or other persons transporting

goods who can be required to obtain from the assessing authority

under the said Act a licence for carrying on their business and be

made liable to cancellation of such licence and penalty for breach

of their obligations under the said Act. However, inasmuch as the

said Act does not define what precisely it means by the expression

documents of title to goods, it is unclear which class of

forwarding or clearing agents or dalals or persons transporting

goods it intends to bring within the ambit thereof. To clearing and

forwarding agents, dalals and other persons transporting goods

who do not handle documents of title to goods for or on behalf of

any dealer, the provisions of the said Act can have no application at

all. In respect of such persons the State Legislature has no power

of legislation under the legislative entry concerned. Qua them the

legislation is not in respect of any matter ancillary or subsidiary to

the legislative entry which entitles the State Legislature to impose a

tax on the sale of goods.

15. The same point can be stated differently. A clearing or

forwarding agent or dalal or person transporting goods does not

necessarily handle the booking or receipt of goods which have been

sold; they could very well be handling goods which a consignor

may consign to himself from one town or village to another in the

State. The said Act does not take account of this and requires all

forwarding and clearing agents, dalals and persons transporting

goods to be licenced under the said Act. To this extent the said

Section 38 goes beyond the ancillary and subsidiary powers of the

State Legislature in enacting a law imposing sales tax.

This Court then concluded as follows:

19. There can be no doubt that the State Legislature would be

entitled to impose sales tax upon a person who carries on the

business of selling goods and who has in the customary course of

business authority to sell goods belonging to the principal. A

clearing or forwarding agent, dalal or person transporting goods

does not carry on the business of selling goods and does not have,

in the customary course of his business, authority to sell goods

belonging to the dealer whose goods he books or receives. As we

have already stated, there has to be a reasonable and proximate

connection between the transaction of sale and the clearing or

forwarding agent, dalal or person transporting goods before the

State Legislature can, in exercise of the power to levy sales tax,

enact legislation concerning him. We are not satisfied that there is

such close and direct connection between the transaction of sale of

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goods by a dealer and the clearing or forwarding agent or dalal

who books or receives such goods or a person who transports such

goods within the meaning of the said Section 38.

It is for the aforesaid reasons that Section 38 was held to be

beyond the purview of the State Legislature and was struck down. It

will be seen that while the validity of Section 37 of the Haryana Sales

Tax Act was upheld by this Court in Delite Carriers (supra), it is

Section 38, dealing with dalal or clearing or forwarding agents being

required to take out a licence, that the court held the section to be

ultra vires primarily for the reason that the forwarding or clearing

agent or dalal does not carry on the business of selling goods and does

not have in the customary course of a business authority to sell goods

belonging to the dealer whose goods he books or receives. Section 37

(upheld in Delite Carriers case which is similar to 78 here) and

Section 38 of the Haryana Act operate differently. The two provisions

are not identical and it is presumably for this reason that there is no

reference to Delite Carriers cases decision in Sant Lals case.

The applicability of the decision of Sant Lals case (supra) came

up for consideration in Tripura Goods Transport Association and

Another vs. Commissioner of Taxes and Others . The appellants

therein were an association which was doing the business of

transporting goods within and outside the State of Tripura. On the

ground that they were transporters and not dealers within the meaning

of the Act, the appellants therein had challenged different provisions

of the Tripura Sales Tax Act and the Rules framed thereunder which

had required them to obtain a Certificate of Registration and to

comply with other formalities prescribed under the Act and Rules.

Rules were framed under the Act which were also impugned. Rule

46-A, inter alia, required the transporter to give a complete and

correct account of the goods carried by him in a prescribed form

which could be inspected by the officer in charge of the check-post or

the barrier about the correctness of the statements made therein. Rule

63-A gave the power of search at any place to an officer in charge of

the check-post, Superintendent of Taxes or any officer specially

empowered by the Commissioner. In furtherance of this power, the

driver or any other person in charge of the goods vehicle could be

stopped and the vehicle examined and the records inspected. If it was

found that the goods are being carried in contravention of the

provisions of the Act or the Rules, the officer conducting the search

could seize the goods found in the vehicle along with any container or

materials used for packing. Rule 64-A lay down the procedure for the

registration of transporter etc. For the non-compliance of the

provisions of the Act and the Rules, punishments were provided. On

behalf of the appellants it was contended that they were mainly

transporters, carrying goods of the consignor to the consignee, and

they were neither a dealer nor were they doing any business of sale or

purchase of any goods and hence the obligations cast on them

including punishment for the offences was beyond the legislative

competence of the State Legislature under Entry 54 of List II of the

Second Schedule. While upholding the validity of the aforesaid

provisions, this Court observed as follows:

Every taxing statute has charging sections. It lays down the

procedure to assess tax and penalties etc. It also provides

provisions to cover pilferage of such revenue by providing such

mechanism as it deems fit, in other words, to check evasion of tax

and in doing so, if any obligation is cast on any person having

connections with the consignor or consignee in relation to such

goods, maybe other than a dealer, to perform such obligation in

aid, to check evasion and in case he is made liable for any offence,

for his dereliction of duty or deliberate false act contrary to what he

is obligated to do. In our opinion it cannot be construed to be

beyond the competence of the State Legislature. The impugned

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provisions are not charging sections, no tax liability is placed on

the transporters. We find neither Sections 29, 30, 32 and 36-A nor

Rules 46-A, 63-A and 64-A lack any legislative competence. They

are within the legislative competence of the State and would fall

under List II of Entry 54 of the Seventh Schedule of the

Constitution of India.

It also noticed the decisions of this Court in Sodhi Transport

Companys case (supra). After referring to Sant Lals case (supra) it

was held that the same was clearly distinguishable inasmuch as the

provisions of the Haryana General Sales Tax Act were not similar to

those which were impugned in the Tripura Associations case (supra).

It appears to us that the scheme and the provisions under the Tripura

Sales Tax Act and the Rules are similar to that contained in Section 37

of the Haryana Sales Tax Act as well as to Section 22-A of the

Rajasthan Sales Tax Act, 1954 and Section 78 of the Rajasthan Sales

Tax Act, 1994.

It is thus settled law that provisions to check evasion of tax

are within the legislative competence of the States under Entry 54 of

List II. This being so, the provisions to make the imposition of tax

efficacious or to prevent evasion of tax are within the legislative

competence. Unlike the dalals and forwarding agents, as in Sant Lals

case, the persons referred to in Section 78(2) are persons concerned

with the movement of goods which are sold or likely to be sold. With

there being no valid challenge to Section 78(2) a provision contained

in sub-section (5) of Section 78 which provides for levy of penalty in

case of non-compliance of Section 78(2) can only be regarded as

consequential and valid. If there was legislative competence to enact

Section 78(2) then the same power contained in Entry 54 of List II

could enable the State Legislature to provide for consequence of non-

compliance by incorporating sub-section (5) therein. Section 78(5)

and Section 78(8) are part of an integral scheme and deal with two

separate classes of people referred to in Section 78(2).

Unlike Sant Lals case, here under Section 78(5) levy of penalty

is only on the person in charge of the goods. It is he who should have

all the requisite documents relating to the title or sale of the goods

which are being transported. Penalty under Section 78(5) is leviable

under two circumstances. Firstly if there is non-compliance with

Section 78(2)(a) i.e. not carrying the documents mentioned in that

sub-clause or, secondly if false or forged documents or declaration is

submitted. This sub-section cannot relate to personal belongings

which are not meant for sale but would relate to those types of goods

in respect of which documents referred to in Section 78(2)(a) exist or

can exist.

Such submission of false or forged documents or declaration at

the check-post or even thereafter can safely be presumed to have been

motivated by desire to mislead the authorities. Hiding the truth and

tendering falsehood would per se show existence of mens rea, even if

required. Similarly where, despite opportunity having been granted

under Section 78(5) if the requisite documents referred to in sub-

clause 2(a) are not produced, even though the same should exist,

would clearly prove the guilty intent. It is not possible to agree with

the counsel for the respondents that breach referred to in Section 78(5)

can be regarded as technical or venial. Once the ingredients of

Section 78(5) are established, after giving a hearing and complying

with the principles of natural justice, there is no discretion not to levy

or levy lesser amount of penalty. If by mistake some of the

documents are not readily available at the time of checking, principles

of natural justice may require some opportunity being given to

produce the same. This provision cannot be read as to imply that the

penalty of 30% is the maximum and lesser penalty can be levied.

The legislature thought it fit to specify a fixed rate of penalty and not

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give any discretion in lowering the rate of penalty. The penalty so

fixed is meant to be a deterrent and we do not see anything wrong in

this. The quantum of penalty under the circumstances enumerated in

Section 78(5) cannot, in our opinion, be regarded as illegal. The

legislature in its wisdom has thought it appropriate to fix it at 30% of

the value of goods and it had the competence to so fix. As held by

this Court in Rai Ramakrishna & Others vs. The State of Bihar at

910; The objects to be taxed so long as they happen to be within the

legislative competence of the legislature can be taxed by the

legislature according to the exigencies of its needs, because there can

be no doubt that the State is entitled to raise revenue by taxation. The

quantum of tax levied by the taxing statute, the conditions subject to

which it is levied, the manner in which it is sought to be recovered,

are all matters within the competence of the legislature, and in dealing

with the contention raised by a citizen that the taxing statute

contravenes Art. 19, courts would naturally be circumspect and

cautious as such there cannot, in the present case, be any valid

challenge to the rate of penalty provided for in Section 78(5) of the

Act.

Following the decisions of this Court in cases of Sodhi

Transport Co. and others (supra), Delite Carriers (supra), Indian

Roadways Corporation (supra) Sarna Transport Corporation (supra)

and Tripura Goods Transport Association (supra) we hold that the

provisions of Section 78(5) of the Rajasthan Sales Tax Act, 1994 are

valid and the impugned decision of the High Court in this regard is

not correct. These appeals, except Civil Appeal No. 1321 of 2001,

are accordingly allowed. Civil Appeal No. 1321 of 2001 is dismissed.

Parties to bear their own costs.

.....J.

[ B.N. Kirpal ]

...J.

[ N. Santosh Hegde ]

.J.

[ B.N. Agrawal ]

October 4, 2001.