Back
1995 Supreme(MP) 282
U.L. Bhat, M.V. Tamaskar
Western Coal Fields Ltd.
vs
State Of Madhya Pradesh And Ors.
Decided on : 23 February, 1995
The levy of penalty for non-compliance of a provision cannot be arbitrary and must be justified as an ancillary or incidental power.
Headnote:
ENTRY TAX - Validity of Section 7(5) of M. P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 - Challenge - Levy of penalty for non-compliance of Section 7(1) and (5) of the Act, even though the goods may not be liable for any tax under the provisions of Section 3 of the Act - Held, Section 7(5) is ultra vires.
Fact of the Case:
The petitioners, engaged in the sale and purchase of various articles as raw materials, challenged the validity of Section 7(5) of M. P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (Entry Tax Act). They argued that the levy of penalty for non-compliance of Section 7(1) and (5) of the Act was arbitrary as it could be imposed even when the goods were not liable for any tax under Section 3 of the Act.
Finding of the Court:
The Court held that Section 7(5) of the Entry Tax Act was ultra vires. It reasoned that the levy of penalty for non-compliance of Section 7(1) and (5) of the Act was arbitrary as it could be imposed even when the goods were not liable for any tax under Section 3 of the Act. The Court further held that the presumption made in Section 7(5) was not rebuttable and hence the provision was arbitrary and ultra vires.
Issues: 1. Whether the levy of penalty for non-compliance of Section 7(1) and (5) of the Entry Tax Act was arbitrary? 2. Whether the presumption made in Section 7(5) was rebuttable?
Ratio Decidendi: 1. The Court held that the levy of penalty for non-compliance of Section 7(1) and (5) of the Entry Tax Act was arbitrary as it could be imposed even when the goods were not liable for any tax under Section 3 of the Act. The Court reasoned that the penalty was confiscatory in nature and could not be justified as an ancillary or incidental power. 2. The Court held that the presumption made in Section 7(5) was not rebuttable and hence the provision was arbitrary and ultra vires.
Final Decision: The Court declared Section 7(5) of the Entry Tax Act ultra vires.
M.V. Tamaskar, J.
1. The order in this petition shall also govern the disposal of M.P. No. 2557/83, Gwalior Rayon Mfg. and Anr. v. The State of U. P. and Ors., M.P. No. 3353/84, Chadha Re-rolling Mills v. The Addl. Asstt. Commr. of Sales Tax and Anr., M.P. No. 1179/85, Chadha Re-rolling Mills v. The Addl. Asstt. Commr. of Sales Tax, M.P. No. 2898/94, Kailash Auto Builders v. The State of M. P., M.P. No. 2276/85, Chadha Re-rolling Mills v. The Addl. Commr. of Sales Tax, M.P. No. 3458/85, The Tata Iron and Steel Co. v. The State of M. P., M.P. No. 1840/89, Sunil Trading Co. v. The State of M. P., M.P. No. 704/92, M. P. State Co-operative Marketing Federation Ltd. v. The State of M. P., M.P. No. 696/93, Bharat Heavy Electricals Ltd. v. The State of M. P., M.P. No. 2409/85, Kamal Dal Mill v. The State of M. P.
2. The petitioners challenge the validity of Section 7(5) of M. P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (Act No. 50/76) (hereinafter called the Entry Tax Act). In some of the petitions, final orders have been passed while in other notices have been issued for payment of Entry Tax and in some of the petitions appeals have been preferred against the orders of assessment. The petitioners are engaged in sale and purchase of various articles as raw materials, entry of which is caused into the local area. The petitioners are manufacturers of finished goods, which are sold in the local area in which they are manufactured and subsequently sold outside the local area. The petitioners are registered dealers under the Sales Tax Law of State and Central. The machinery Provisions of the Sales Tax Act are applied for assessment, qualification and recovery.
3. The Entry Tax Act was enacted by the State of Madhya Pradesh with the object of levying tax on the goods brought into local area for consumption, use or sale therein. It came into force from 1-9-1976. Section 3 is the charging section which provides for levying of an entry tax on the entry of goods in the course of business of a dealer of goods specified in Schedule II into each local area for consumption use or sale therein. The goods, such as, synthetic, silk fabrics, cotton fabrics, whole pulses, iron, steel etc. are goods mentioned in Schedule II. There are three categories of goods. The goods in Schedule I are tax free goods. The goods in Schedule II are declared goods (raw material). The goods specified in Schedule III are in relation to which entry is made for consumption and not for sale. Distinction lies between the items mentioned in Schedule II and III based on goods brought within the local area, for consumption or use under Schedule II and for sale in Schedule III.
4. Section 2(b) of the Act defines entry tax as a tax on entry of goods into local area for consumption, use or sale therein and payable in accordance with the provisions of the Act. Section 2(d) defines local area as meaning the area comprised within the limits of a local authority. Section 2(f) defines "local goods" in relation to a local area as meaning goods of local origin as distinct from goods which enter into that local area. Section 2(aa) defines entry of goods into local area as entry of goods into that local area from any place outside thereof including a place outside the State for consumption, use or sale therein. Sub-section (2) of Section 2 states that all those expressions other than the expression 'goods' and 'sale' which are used but not defined in the Entry Tax Act shall have the some meaning as defined in the Sales Tax Act.
5. Sub-sections (1), (2) and (5) of Section 7 of the Entry Tax Act as amended from time to time are reproduced below, as the whole controversy involves around the same :
"Section 7. Registered dealers to issue bill etc. stating that goods sold are local goods :- (1) Every registered dealer who, in the course of his business, manufactures, produces or grows any goods specified in Schedule II in a local area in such manner that the goods become local g
