| SooperKanoon Citation | sooperkanoon.com/381439 |
| Subject | Sales Tax |
| Court | Karnataka High Court |
| Decided On | Jan-18-1991 |
| Case Number | S.T.A. No. 6 of 1984 |
| Judge | K.B. Navadgi and ;K. Shivashankar Bhat, JJ. |
| Reported in | 1991(1)KarLJ444; [1991]83STC49(Kar) |
| Acts | Karnataka Sales Tax Act, 1957 - Sections 22A, 28A, 28A(2), 28A(4) and 28A(5) |
| Appellant | Prakash Roadlines (P) Ltd. |
| Respondent | Commissioner of Commercial Taxes in Karnataka |
| Appellant Advocate | E.R. Indrakumar, Adv. |
| Respondent Advocate | H.L. Dattu, High Court Government Pleader |
K. Shivashankar Bhat, J.
1. The goods vehicle belonging to the appellant-concern was coming from Delhi to Bangalore with several consignments with destination at different places outside Karnataka. At Kumarapattanam of Dharwad district it was detained at the sales tax check post. The Assistant Commercial Tax Officer after examining the documents and the goods found in the vehicle, initiated penalty proceedings under section 28-A(4) of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as 'the Act') and ultimately levied a penalty of Rs. 24,750. The appeal filed by the appellant was allowed by the Assistant Commissioner of Commercial Taxes. The said authority found that the G.C. Note No. 62509 dated 15th September, 1979, was ignored by the Assistant Commercial Tax Officer in the notice issued by him and the said note showed that 55 cases of iron springs were consigned from Delhi to Madras and not to Bangalore as noted by the Check Post Officer. By referring to the records the appellate authority found that the said goods were ordered by a Madras party - M/s. Unique Automobiles, from the Delhi seller - M/s. Shyam Motor Stores. The relevant letters were referred by the appellate authority. Consequently, the appellate authority held that there was no attempt to evade the tax and that the goods were moving from Delhi to Madras via Bangalore.
The Commissioner of Commercial Taxes, however, issued a notice under section 22-A of the Act proposing to revise the order of the Assistant Commissioner of Commercial Taxes on the ground that the same was prejudicial to the interest of the Revenue and was erroneous. In the notice the Commissioner stated that in the haulage contract note produced by the driver of the vehicle 357 article were shown as destined from Delhi to Bangalore, which did not show the full name and address of the consignee with registration certificate numbers and according to the Commissioner obviously it was noticed that the consignment of 55 bundles of iron springs covered by haulage contract note No. 62509 was being transported without bills. Ultimately the basis of the notice was :
'The stand taken by the appellate authority is considered wrong, because in respect of 55 bundles of iron spring found in excess, only haulage contract note was subsequently produced and no bills were produced before the Check Post Officer. Even the bills stated to have been produced before the appellate authority revealed that the said goods were destined from Delhi to Madras and not to Bangalore. The documents for the goods under transport should be produced at the time of checking the goods vehicle and not subsequently.'
Therefore, it is clear that the failure of the driver to produce the documents at the check post was the basis for initiating action by the Commissioner. Ultimately he affirmed this stand. Before the Commissioner the appellant was not heard because his authorised representative did not appear on due dates and the Commissioner had not the benefit of any assistance to instruct him about the assessee's case.
2. The entire case of the Revenue here depends upon the construction to be placed on section 28-A(2) read with section 28-A(4) of the Act. These provisions read as follows :
'28-A(2). The owner or person in charge of a goods vehicle or boat shall carry with him a goods vehicle record, a trip sheet or a log book, as the case may be, and a bill of sale or a delivery note obtained from the prescribed authority or such other documents as may be prescribed containing such particulars as may be prescribed in respect of the goods carried in the goods vehicle or boat, as the case may be, and produce the same before any officer-in-charge of the check post or barrier or any other officer as may be empowered by the State Government in this behalf. The owner or person in charge of a goods vehicle or boat entering the State limits or leaving the State limits shall also give a declaration, containing such particulars, as may be prescribed, of the goods carried in the goods vehicle or boat, as the case may be, before the officer-in-charge of the check post or barrier or the officer empowered as a aforesaid and give one copy of the declaration to such officer and keep one copy with him.
(3) At every check post or barrier, or at any other place when so required by any Officer empowered by the State Government in this behalf, the driver or any other person in charge of a goods vehicle or boat shall stop the vehicle or boat, as the case may be, and keep it stationary as long as may be required by the Officer-in-charge of the check post or barrier or the Officer empowered as aforesaid, to examine the contents in the vehicle or boat and inspect all records relating to the goods carried, which are in the possession of such driver or other person in charge, who shall, if so required, give his name and address and the name and address of the owner of the vehicle or boat.
Explanation. - For purposes of sub-sections (2) and (3), the Officer-in-charge of check post or barrier shall be an Officer not below the rank of an Assistant Commercial Tax Officer and not higher in rank than an Assistant Commissioner of Commercial Taxes, and any other Officer not below the rank of a Commercial Tax Inspector as may be empowered by the Commissioner.
(3A) ....................
(4) The Officer-in-charge of a check post or a barrier or any other Officer not below the rank of an Assistant Commercial Tax Officer and not higher in rank than an Assistant Commissioner of Commercial Taxes may, in respect of any contravention of or non-compliance with the provisions of sub-section (2) or (3) or (3A) and for which sufficient cause is not furnished, levy a penalty not exceeding the limits specified in sub-section (5). The aforesaid Officer may also very penalty where the declaration made under sub-section (2) is false in respect of the materials furnished therein or where the particulars furnished, in the records do not tally with the goods actually being transported or are found to be not relating to such goods :
Provided that before levying any penalty under this sub-section, the Officer shall give the person in charge of the goods vehicle or boat a reasonable opportunity of being heard. (5) The penalty leviable under sub-section (4) shall not exceed double the amount of tax leviable in respect of the goods under transport.'
(Proviso and other sub-sections omitted)
Rules 23-B to 23-E are the relevant rules found in the Karnataka Sales Tax Rules, 1957. But, it is not necessary to refer them in detail.
3. The show cause notice issued to the driver by the Check Post Officer is dated 21st September, 1979. It refers to 7 G.C. Notes - Nos. 62503 to 62509. However, the notice states that in respect of 55 bundles of iron springs weighing about 2,138 kgs. no document was tendered as required under section 28-A(2). The value of these 55 bundles of iron springs was stated as Rs. 82,500. The notice directs the driver to show cause forthwith as to why penalty as proposed (Rs. 24,750) should not be levied. Thereafter it states that the driver was given 24 hours' time that is up to 22nd September, 1979, 10 a.m. to tender the documents regarding these iron springs. This notice was confirmed by him on 22nd September, 1979. The order states that the goods in question were 55 bundles of iron springs (blade sets). The nature of the document tendered was G.C. Note No. 62509 dated 15th September, 1979, issued by M/s. Prakash Roadlines (P) Ltd., Delhi and these 55 bundles were not covered by any documents. The copy of haulage contract No. 62503 was placed before us for perusal. It shows that the haulage contract was from Delhi to Bangalore. The various G.C. Notes covering the various articles carried in the vehicle are stated in the said haulage contract. From this it is clear that the destination of the various articles is not Bangalore, but various places like Madras (MDR), Erode (ERD), Kottayam (KTYM), etc. The weight of each bundle is also stated. The haulage contract paper is No. 62503 referred above; along with this other papers were there up to haulage contract No. 62509. The list refers to the 55 bundles of iron springs with the destination as Madras (MDR) weighing 2,138 kgs. The G.C. Note is given as No. 166451. The corresponding way bill pertaining to these 55 bundles of springs refers to the No. 166451 and furnishes the address of delivery office at Madras and the consignor's name as M/s. Shyam Motor Stores, Delhi and consignee as M/s. Unique Automobiles, Madras. In the course of argument this was also referred as G.C. Note. Thus, on the face of it, it is clear that the goods in question were to be transported to Madras from Delhi via Bangalore. It is obvious that the goods vehicle was carrying the goods of various descriptions to be sent to several places and the practice seems to be that at Bangalore the goods will be again loaded into different vehicles to transport them to the places of destination. In a transport business this is not at all unusual. In addition to these, the appellant produced two letters before the appellate authority as referred by the said authority pointing out that these goods in question were ordered by M/s. Unique Automobiles, Madras, from M/s. Shyam Motor Stores, New Delhi and further that the said Unique Automobiles wrote to the appellant complaining about the delay in the delivery of these goods. Thus, the bona fides of carriage of goods from Delhi to Madras, cannot be doubted in any manner. In fact none of the authorities has given any finding that there has been an attempt to evade tax and it is not the case of the Revenue that the goods were not moving in the course of inter-State trade. It is nobody's case that the final destination of the goods in question of the goods in question was Bangalore.
4. In these circumstances, the question arises :
Whether the Commissioner was justified in revising the order of the appellate authority as prejudicial to the Revenue and affirming the order of the Check Post Officer.
5. The importance of the inter-State trade and movement cannot in any way be reduced. The Constitution of India has taken great care to preserve the freedom of trade, commerce and intercourse throughout India obviously with a view to preserve the integrity of the country and to bind the different parts of the nation with each other. Though every State is competent to legislate in respect of the subject falling under List II of the Seventh Schedule of the Constitution and to some extent in respect of the subjects falling under List III of the Seventh Schedule, the State has no competence to legislate and affect a transaction beyond its territorial jurisdiction. Inter-State trade and commerce is a subject in respect of which the State has no competence at all. The subject is covered by entry 42 of List I of the Seventh Schedule read with Part XIII of the Constitution. The check post installed by the State affects the free flow of trade and commerce. This is an obvious fact. This subject has been considered by the Supreme Court on several occasions.
6. In Hansraj Bagrecha v. State of Bihar [1971] 27 STC 4, the basic question was whether imposition of a purchase tax by the State infringes the guarantee of freedom of trade, commerce and intercourse guaranteed under article 301 of the Constitution and the Supreme Court pointed out that imposition of such a tax by itself does not infringe article 301 of the Constitution. While considering this question the Supreme Court had to consider the validity of rule 31B of the Bihar Sales Tax Rules, 1959, which affect transport or movement of goods to any place outside the State of Bihar. In this context at page 11 the Supreme Court held :
'The State Legislature is competent in enacting sales tax legislation to make a provision which is ancillary or incidental to any provision relating to levy, collection and recovery of sales tax and purchase tax. A provision which is made by the Act or by the Rules which seeks to prevent evasion of liability to pay intra-State sales or purchase tax would therefore be within the competence of the Legislature or the authority competent to make the rules. But the State Legislature has no power to legislate for the levy of tax on transactions which are carried on in the course of inter-State trade or commerce or in the course if export. Section 42 of the Bihar Sales Tax Act, 1959, prevents any person from transporting from any railway station, steamer station, airport, post-office or any other place any consignment of such goods exceeding the quantity specified with a view to ensuring that there is no evasion of tax payable under the Act. But the power under section 42 can only be exercised in respect of levy, collection and recovery of intra-State sales or purchase tax. It cannot be utilised for the purpose of ensuring the effective levy of inter-State sales or purchase tax.'
Again, it was observed at page 12 :
'The power of the State Legislature is restricted to 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 inter-State transactions. The power conferred by section 42 authorising the imposition of restriction on transport or movement of goods may only be exercised in respect of transactions which facilitate levy, collection and recovery of tax on transactions of intra-State sale or purchase.'
Thus, it is obvious that the State has no competence at all to extend its law so as to affect an inter-State trade or commerce or movement.
In Check Post Officer v. K. P. Abdulla and Bros. [1971] 27 STC 1, the scope of the Madras General Sales Tax Act, 1959, which provided for the check post and the documents to be carried by a driver of the vehicle came up before the Supreme Court. The goods vehicle was moving from Madras towards Kerala border without carrying a bill of sale or the delivery note for the goods. Consequently, they were confiscated and penalty was levied. This was struck down by the Madras High Court and the decision was affirmed by the Supreme Court. The Supreme Court pointed out that sub-section (3) of section 42 of the Madras General Sales Tax Act assumed that all goods carried in a vehicle near a check post are goods which have been sold within the State of Madras without payment of sales tax unless specified documents were produced at the check post or the barrier and therefore enabled the seizure and confiscation of the goods. The Supreme Court held at page 3 :
'A provision so enacted on the assumption that goods carried in a vehicle from one State to another must be presumed to be transported after sale within the State is unwarranted. In any event power conferred by sub-section (3) to seize and confiscate and to levy penalty in respect of all goods which are carried in a vehicle whether the goods are sold or not is not incidental or ancillary to the power to levy sales tax. A person carrying his own goods even as personal luggage from one State to another or for consumption, because he is unable to produce the documents specified in clauses (i), (ii) and (iii) of sub-section (3) of section 42, stands in danger of having his goods forfeited. Power under sub-section (3) of section 42 cannot be said to be ancillary or incidental to the power to legislate for levy of sales tax.'
In Sree Hajee Ahmed Bava v. Assistant Commercial Tax Officer [1985] 60 STC 328, a Bench of this Court had to consider the validity of some by the provisions of section 28-A of the Act. These provisions are upheld by this Court on the ground that goods were not to be confiscated unlike in the Madras Act and that penalty was to be imposed by the Checking Officer only if the person concerned fails to give sufficient cause for not producing the documents. At page 340 the Bench held :
'In our view the power to levy penalty has taken the place of power to seize and confiscate, as prescribed under sub-sections (4), (5) and (6) before their substitution, and there is substantial change in the procedure and other provisions relating to the levy of penalty under the substituted provisions and they do not suffer from the same vice for which the Supreme Court declared similar provisions of the Madras Act as unconstitutional. The substituted provisions provide for opportunity to the person aggrieved to show cause or to produce the documents, and the power to levy penalty is purported to be exercised only in cases where the person concerned fails to furnish sufficient cause for the contravention or non-compliance with the provisions of sub-section (2) or (3) or (3A) of section 28A. They also provide for sufficient safeguards to the person concerned, to appeal against the order levying penalty to the higher authorities as provided under the Act. But this power has to be exercised strictly in cases where the goods leviable to tax under the KST Act are involved and in respect of which there is suspected evasion of tax. We are, therefore, of the view that the impugned provisions are not beyond the legislative competence of the State.'
7. Mr. Dattu, learned Government Pleader, however, pointed out that after this decision some provisions of section 28-A were amended by requiring the carrier to produce the documents at the check post or a barrier, failing which penalty could be imposed. The learned counsel urged that this was a salutary provision to prevent the evasion of tax and there is no difficulty for any carrier to have the documents such as bill of sale or a delivery note to show the nature of the consignment and their destination, etc.
8. In the instant case the short ground on which the penalty has been imposed was solely because the driver failed to produce the prescribed documents at the time of checking the goods vehicle and the Commissioner assumes that production of the document subsequently would not exonerate the appellant from the liability to pay the penalty. In other words, the question will be whether the levy of penalty will be automatic and follows as a matter of course under section 28-A whenever the documents in question are not produced immediately on demand at the check post or barrier. In this context the principles stated in the decision of this Court in Sree Hajee Ahmed Bava's case [1985] 60 STC 328, and by the Supreme Court in K. P. Abdulla's case [1971] 27 STC 1, are very apposite. The State has no power to affect adversely the free flow of the inter-State trade. The State's competence is confined to regulate the intra-State transactions. The object of section 28-A is to provide a machinery to prevent evasion of tax under the Act. The purpose of section 28-A is not to collect revenue by the imposition of penalties. Section 28-A is not a charging provision at all. It is only a machinery provision. Secondly, penalties are levied under section 28-A(4), inter alia, for non-compliance with the provisions of sub-section (2) and the penalty shall not exceed the limits specified in sub-section (5). However, before levying the penalty the person in charge of the goods vehicle should be given a reasonable opportunity of being heard. Levy of penalty also may be for furnishing a false declaration under sub-section (2). The entire power is to effectuate a particular purpose that is to prevent evasion of tax payable under the Act.
9. In the instant case, the Check Post Officer himself gave 24 hours' time to the driver to produce the documents. The documents produced by the driver read with the other documents produced before the appellate authority show that the goods were moving from Delhi to Madras via Bangalore. This apart, the appellate authority has given a specific finding that the papers produced by the driver and referred in the show cause notice issued to the driver clearly establish that 55 bundles of springs were covered by the G.C. Note and the way bill. For this purpose the total weight of the goods in the vehicle as shown in these documents were considered and compared. This is a very strong circumstance pointing out that 55 bundles of springs were reflected in the G.C. Note and the G.C. Note indicated that the goods were moving to Madras from Delhi.
10. The bona fides of the carrier-appellant in carrying the goods has not been found against it in any manner. The explanation that the goods were moving towards Madras also is not doubted. The penalty was imposed solely because of the alleged failure to produce the documents immediately on demand.
11. The Act does not impose a strict liability imposing penalty as a matter of course. Section 28-A(4) itself uses the word 'may' and creates a discretionary power in the authority to levy the penalty. Before levying the penalty, explanation of the person liable to pay the penalty has to be considered. Therefore, this discretionary power could be exercised only for the purpose for which the power is created. The production of the documents in question immediately on demand should not be understood in isolation to create a liability provided the bona fides of the carrier and the purpose of carrying the goods are not doubted and found against the concerned persons. Even under sub-section (5) the maximum penalty that can be imposed is stated. Nowhere it provides for a minimum liability. It is also doubtful whether any minimum penalty could be prescribed for such an omission regarding sub-section (2). Both sub-sections (4) and (5) thus confer discretionary powers and all discretionary powers should be exercised judiciously. The exercise of the power and levy of penalty as a matter of course will be an arbitrary exercise of power and the very exercise of the power may be repugnant to the provisions of article 301. The right guaranteed under article 301 and its content will have to be applied even to the exercise of an executive power traceable to the law made by the competent Legislature. It has been pointed out by the Supreme Court that even if a law is valid without contravening any of the fundamental rights, still a particular order made under such a valid law may offend a fundamental right in a given case and in such a situation the executive order will have to be set aside. This is based on the principle that the content of the law is always to be within the bounds of the constitutional limitations governing the subject-matter of legislation and, therefore, any executive order under the State law cannot traverse beyond the said content.
12. The impugned order in the instant case suffers from two patent infirmities :
(i) The penalty has been imposed only because the driver failed to produce the prescribed documents immediately on demand and production of the document subsequently will be of no avail. This is reading the relevant provisions technically and not with reference to the object of the provisions.
(ii) The maximum penalty has been imposed as provided under section 28-A(5) without considering the explanation offered in any manner and while imposing such a penalty the Check Post Officer as well as the Commissioner seem to have assumed that the maximum penalty has to be imposed as a matter of course. This itself makes the order arbitrary. There has been no judicial approach to the facts of the case while exercising the discretionary power.
13. It was also contended on behalf of the appellant that this was not a case of payment of a tax under the Act and, therefore, question of 'revenue' was not involved. Consequently, the order of the appellate authority cannot be held to be prejudicial to the interest of the Revenue and if so the Commissioner had no jurisdiction to exercise his power under section 22-A. The learned Government Pleader, however, contended that the phrase 'interest of the revenue' includes revenue administration as held by a Bench of the Madras High Court in Venkatakrishna Rice Company v. Commissioner of Income Tax : [1987]163ITR129(Mad) . We do not think that it is necessary to decide this question in the instant case having regard to our conclusion on merits of the matter.
14. In the result, the order of the Commissioner is set aside. This appeal is allowed.
15. Appeal allowed.