Important Point
The provisions of Section 78(5) of the Rajasthan Sales Tax Act, 1994 are valid and the impugned decision of the High Court holding it unconstitutional and ultra vires is incorrect.

Headnote:The Rajasthan Sales Tax Act, 1994—Section 78(5)—Constitution of India —7th Schedule List II, Entry 54 — High Court holding that Section 78(5) of the Act is unconstitutional and ultra vires—Whether correct? (No)—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 — Similar provision under other State enactments are upheld by Apex Court, the decision of High Court is not correct — Case law reviewed.
       Held : 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 die 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 submission of false or forged documents or declaration. Such penalty is to he 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, it any, accompanying the goods as the incharge thereof. Whereas movement or 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. (Paras 10 to 14)
       Held further : From the aforesaid decision in Delite Carries case [(1990) 77 STC 170 (SC)] 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. (Para 20)
       Held also : From the aforesaid decisions, it would be clear that the consistent view of this Court since the case of Sodhi Transport Company’s case [1986(2) SCC 486] has been that provisions similar to Section78(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 [W.P. No. 1555-56 of 1983 dated 23.4.1986 (SC)] and Sarna Transport case [Civil Appeal No. 152 of 1990 dated 23.7.1996 (SC)] were upheld by this Court and the said provisions are in pari materia with the new Section 78 of the 1994 Act. (Para 23)
       Held in addition : After referring to Sant Lal’s case [(1993) 4 SCC 380] 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 Association’s case [(1999) 2 SCC 253]. It appears to us that the scheme and the scheme and the provisions under the Tripura Sales Tax and the Rules are similar to that contained in Section 37 of the Haryana Sales Tax as well as to 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 State 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 Lal’s 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 Lal’s 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. The 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 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 the Court in Rai Ramakrishna & Others vs. The State of Bihar [(1964) 1 SCR 897] 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. (Paras 28 to 31)
       Held finally : 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. The appeals, except Civil Appeal No. 1321 of 2001, are according allowed. Civil Appeal No. 1321 of 2001 is dismissed. Parties to bear their own costs. (Para 32)

Judgment

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 respodents, held that Section 78(5) of the Rajasthan Sales Tax Act, 1994 was unconstitutional and ultra vires.

2. 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 Rdjasthan 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 16A, 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.

3. 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.

4. 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 cm 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 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 tar 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 Stare, 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 at 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 due 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 nor 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 die consignor and the consignee is highly unreasonable havi

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2001 Supreme(SC) 1369

Important PointThe provisions of Section 78(5) of the Rajasthan Sales Tax Act, 1994 are valid and the impugned decision of the High Court holding it unconstitutional and ultra vires is incorrect.

Cases Referred (6)

Important Point
The provisions of Section 78(5) of the Rajasthan Sales Tax Act, 1994 are valid and the impugned decision of the High Court holding it unconstitutional and ultra vires is incorrect.