Supreme Court of India
COMMERCIAL TAX OFFICER AND ORS.versusSWASTIK ROADWAYS AND ANR.
- Citation
- 2004 INSC 108
- Decided
- 13 February 2004
- Disposal
- Appeal(s) allowed
- Bench
- P VENKATARAMA REDDI
Holding
Sections 57, 58 and 59 of the Madhya Pradesh Commercial Tax Act, 1994 are intra vires Entry 54 of List II and valid.
Summary
The Supreme Court examined the constitutional validity of Sections 57, 58 and 59 of the Madhya Pradesh Commercial Tax Act, 1994, which require clearing and forwarding (C&F) agents to furnish transaction details and impose a penalty of three times the tax evaded if they fail to do so. The High Court had struck down these provisions as beyond the State's legislative competence under Entry 54 of List II of the Seventh Schedule. The Court held that the power to levy tax includes ancillary powers to prevent tax evasion, and C&F agents have a proximate connection to the sale and purchase of goods because their information aids the assessment of tax liability. It further clarified that the penalty is a deterrent, not a tax, and is justified as an incidental measure to enforce tax collection. Consequently, the provisions were declared intra vires, and the High Court's judgment was set aside.
Issues considered
- The constitutionality of Sections 57, 58 and 59 of the MP Commercial Tax Act, 1994 under Entry 54 of List II of the Seventh Schedule
- Whether clearing and forwarding agents have a proximate connection to the sale/purchase of goods and tax evasion
- Whether the penalty of three times the tax evaded constitutes a tax or a permissible penalty
Legislation cited
- Constitution of Indias. Entry 54 of List II, Seventh Schedule
- Madhya Pradesh Commercial Tax Act, 1994s. 57, s. 58, s. 59
Subjects
commercial taxclearing and forwarding agentslegislative competencepenaltytax evasionEntry 54ancillary powersconstitutional law
Judgment
COMMERCIAL TAX OFFICER AND ORS. A
v.
SWASTIK ROADWAYS AND ANR.
FEBRUARY 13, 2004
[P.VENKATARAMA REDDY AND S.H. KAPADIA, JJ.] B
MP. Commercial Tax Act, 1994: Sections 57, 58 and 59.
""'-·
Furnishing of information-By Cleanng and Forwarding(C&F) agents-
C&F agents required to furnish particulars in respect of goods transported by C
them-Jn case of contravention Act provides imposition of penalty on the
C&F agents to three times the amount of tax evaded by the dealer-
Constitutionality of-Held: The power to levy tax includes all incidental powers
to prevent evasion of such tax-C&F agents had proximate connection with
sale and purchase of goods--The power to levy penalty is meant to check tax D
evasion-Hence, provisions of Ss. 57, 58 and 59 are intra vires Entry 54 of
List II of the Seventh Schedule to the Constitution-Constitution of India,
1950, Entry 54 List /1.
The respondents were Clearing and Forwarding (C&F) agents
engaged in the business of transporting goods. As per Sections 57, 58 and E
59 of the M.P. Commercial Tu Act, 1994, the respondents were required
to furnish statement of accounts to the Commissioner in respect of goods
transported by them. In case of failure to furnish the information penalty
to the extent of three times the amount of tax payable in respect of· the
goods transported were leviable on the respondents under Section 57(2)
of the Act. The High Court struck down Sections 57, 58 and 59 of the Act F
as unconstitutional and beyond the powers of the State Legislature under
Ent.ry 54 of List II of the Seventh Schedule to the Constitution of India.
Hence the appeal.
On behalf of the appellants, it was contended that Sections 57, 58 G
and 59 were incidental and ancillary provisions to check and prevent
evasion of tax; that the respondents had a close and proximate connection
with the sale and purchase of goods and, therefore, imposition of penalty
-
' on the respondents was justified if they did not cooperate in the enquiry
against the dealer for evasion of tax; and, therefore, provisions of Sections
373 H
374 SUPREME COURT REPORTS (2004) 2 S.C.R.
A 57, 58 and 59 were intra vires Entry 54 of List II of the Seventh Schedule
to the constitution .
Allowing the appeals, the Court
HELD: 1. The power to levy a tax includes all incidental powers to
B prevent the evasion of such tax. The powers such as the power to seize
and confiscate goods in the event of evasion of tax and the power to levy
penalty are meant to check tax evasion and is intended to operate as a
deterrent against tax evaders and are, therefore, ancillary or incidental
to the power to levy tax on the sale of goods and thus fall within the ambit
and scope of Entry 54 of List II of the Seventh Schedule to the Constitution
C of India. (381-F)
2. Under various Sections of the M.P. Commercial Tax Act, 1994,
tax-evaders are sought to be penalised and by contravening the provisions
of Sections 57 and 58 the Clearing and Forwarding (C&F) agent also
D becomes liable as he facilitates such tax evasion. In the circumstances, the
High Cour.t erred in holding that there was no proximate connection
·between the C&F agents and the tax evasion. (382-F)
3.1. The basis of penalty was three times the amount of tax evaded
by the dealer. This basis was a measure or the yardstick. It cannot convert
E a penalty on the defaulting C&F agent into a tax. The object of Section
57(2) of the Act is to penalise any person who abets in or facilitates the
evasion of tax. Therefore, a heavy penalty is prescribed to check tax
evasion, subject to the satisfaction of conditions laid down in the sub-
section. The nexus between tax evasion by the owner of goods and the
failure of C&F agent to furnish information required by the Commissioner
F is implicit in Section 57(2) and the concerned assessing authority has to
necessarily record a finding to this effect before levying penalty under
Section 57(2). [382-G, H; 383-A-B)
3.2. A bare reading of Section 57(1) and (2) shows that in cases where
G the Commissioner is satisfied about the tax evasion by the dealer, he may
call upon the C&F agent to give particulars of a transaction and if the
C&F agent fails, penalty is levied at three times the tax evaded by the
dealer. The reason is that by willful disobedience to comply with the
directions of the Commissioner, the C&F agent facilitates the tax evasion
by the dealers. Hence, it cannot be said that the information to be furnished
H by the C&F agE!nt has no proximate connection with the sale and purchase
COMMERCIAL TAX OFFICER v. SWASTIK ROADWAYS 375
of goods or realization of tax in the context of the impugned provisions. A
1384-G, H; 385-A; 388-G)
State ofRajasthan v. D.P. Metals, 12002) 1SCC279 and Tripura Goods
Transport Association v. Commissioner of Taxes, 11999) 2 SCC 253, relied
on.
B
State of Haryana v. Sant Lal, 11993) 4 SCC 380 and The Check Post
Officer v. K.P. Abdulla, 11970) 3 SCC 355, held inapplicable.
Union of India v. Bombay Tyre International Ltd., AIR (1984) SC 420;
State of Madras v. Mis. Gannon Dunkerley & Co., AIR (1958) SC 560 and
Broken Hill South Ltd. v. Commissioner of Taxation, N.S.W. 56 CLR 337, C
referred to.
4. Sections 57 and 58 of the M.P. Commercial Tax Act, 1994 have
been enacted by the State Legislature under the powers incidental to the
power to levy tax on the sale and purchase of goods under Entry 54, List D
II of the Seventh Schedule of the Constitution of India. (390-A]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9143 of
1996.
From the Judgment and Order dated 16.4.96 of the Madhya Pradesh E
High Court in W.P.No. 3756 of 1995.
WITH
C.A.No. 1783 of 1997.
P.C. Sen and Satish K. Agnihotri for the Appellants. F
A.K. Sanghi for the Respondents.
The Judgment of the Court was delivered by
KAPADIA, J. 1. These two civil appeals raise an important question G
of constitutional significance centering around Entry 54 of List JI of the
Seventh Schedule to the Constitution of India as also the extent and purport
of the ancillary power vested in the State Legislature which has enacted the
Madhya Pradesh Commercial Tax Act, 1994 (hereinafter referred to as "the
Act"). The said Act levies tax on sale .and purchase of goods. Purportedly, H
376 SUPREME COURT REPORTS [2004] 2 S.C.R.
A under the ancillary powers/powers incidental to the levy of tax on sale and
purchase of goods Sections 57, 58 and 59 are enacted. Under Section 57 the
Commissioner is empowered to call for information from clearing and
forwarding agents to give certain particulars in respect of transaction with
any dealer. By the impugned judgement, the Madhya Pradesh High Court has
struck down the provisions of Sections 57, 58 and 59 of the said Act on the
B ground of lack of legislative competence, relying on, the following judgment
of this Court in the case of State of Haryana v. Sant Lal and Anr., reported
in [ 1993] 4 sec 380.
2. The original petitioners Swastik Roadways were carrying on business
C of clearing and forwarding agents. They used to receive goods for being
consigned to places outside the area of their operation. They also used to
receive goods from place to place outside their principal place of business for
delivery to consignees. In short, they were clearing and forwarding agents
engaged in the business of transporting goods.
D 3. On 1st April, 1995, the Madhya Pradesh Commercial Tax Act, 1994
came into force. It received the assent of the President on 7th January, 1995.
In the present case as stated above Sections 57, 58 and 59 have been
challenged. As per the said three Sections the petitioners were required to
furnish information including the statement of accounts to the Commissioner
E as he may require in respect of transactions of any dealer with them (clearing
and forwarding agents) provided clearing and forwarding agents handled the
documents of title to the goods or provided they transported the goods. By
virtue of Section 57(2), in case of failure to furnish information a penalty is
provided of an amount equal to three times the amount of tax payable in
respect of the goods involved in the transaction and which appear to have
F been evaded by the owner of the goods. Section 58 speaks of control on
clearing and forwarding agents to prevent or check evasion of tax. Further
the State Government is empowered to issue directions in that regard, in
order to ensure that such persons maintain registers concerning their business
and send intimation about such business in a proforma.
G 4. By the impugned judgment, the High Court took the view that by
virtue of these provisions, the carriers and clearing and forwarding agents
were sought to be treated as dealers though they have nothing to do with the
sale or purchase of goods, and for evasion of tax by their principal, they were
sought to be penalised to the extent of a sum equal to three times the amount
H of tax payable in respect of the goods involved in the transaction. Following
COMMERCIAL TAX OFFICER v. SWASTIK ROADWAYS [KAPADIA, J.] 377
the judgment of the Supreme Court in the case of Sant Lal (supra), the High P
Court struck down the above three provisions as unconstitutional and beyond
the powers of the State Legislature under Entry 54 of List II of the Seventh
Schedule to the Constitution of India. Being aggrieved, the Department has
come by way of appeal to this Court.
5. Mr. P.C. Sen, learned counsel appearing on behalf of the appellants E
submitted that there is a very narrow controversy in this case. He submitted
that both sides agreed that the impugned Act is enacted to levy tax on sale
and purchase of goods. That both sides agreed that the incidence of tax is on
the dealer. However, the dispute is whether clearing and forwarding agents
have proximate connection with sale and purchase of goods or with evasion (
of tax by the dealers. Mr. Sen contended that in an appropriate case of tax
evasion by the dealer, the Commissioner has to make a necessary enquiry
and therefore under Section 57(1) of the Act, the Commissioner is empowered
to call upon clearing or forwarding agent or the transporter to furnish requisite
details in order to control tax evasion. That similarly Section 58 gives power
to the State Government to direct the clearing and forwarding agents to I
maintain a register in order to check or prevent tax evasion. Mr. Sen contended
that Sections 57 and 58 are a pm1 of machinery sections which help the
assessing officer to compute the tax and which helps the Department to check
and prevent tax evasion. Mr. Sen contended that under Entry 54 of List II,
the State is empowered to make a law imposing tax on sale and purchase of J
goods. He contended that the impugned provisions are incidental or ancillary
to the power of the State to impose tax on sale or purchase of goods. He
contended that clearing and forwarding agents have a close and proximatic
connection with sale and purchase of goods. He, therefore, submitted that
imposition of penalty on clearing and forwarding agents was leviable if they
-
I
did not cooperate in the enquiry against the dealer for tax evasion. He,
therefore, submitted that provisions of Sections 57, 58 and 59 are intra vires
Entry 54 of List II of the Seventh Schedule to the Constitution of India. In
this connection Mr. Sen has relied upon the judgment of the Apex Court in
State of Rajasthan and Anr. v. D.P. Metals, reported in [2002] I SCC 279.
He also relied upon the judgment of this Court in the case of Tripura Goods (l
Transport Association and Anr. v. Commissioner of Taxes and Ors. reported
in [1999] 2 SCC 253. Mr. Sen further contended that the judgment of the
Supreme Court in the case of Sant Lal (supra) had no application to the facts
of the present case as in that case transporters, clearing and forwarding agents
were required to obtain a license from the competent authority for carrying
business and consequently it was held by the Apex Court that the State ]
A
378 SUPREME COURT REPORTS [2004] 2 S.C.R.
Legislature had no power to enact the law of that nature under Entry 54 of
....
List II of the Seventh Schedule to the Constitution of India.
6. Per contra, Mr. Sanghi, learned counsel for the respondents submitted
that the impugned provisions seek to impose liabilities for tax evasion by the
dealers on clearing and forwarding agents who have no connection with the
B transaction of sale and purchase of goods. He contended that the Act
empowered the government to impose tax on sale and purchase of goods.
That the said Act empowered the government to levy tax on the dealers.
However under the impugned Act, clearing and forwarding agents who have
no connection with the transaction of sale or purchase of goods are made
C liable to pay tax in the form of penalty. In this connection reliance was
placed on section 57(2) under which clearing and forwarding agents are
penalised for not furnishing statement of accounts to the Commissioner under
section 57(1). That under section 57(2) penalty is leviable at the rate of three
times the amount of tax payable in respect of the goods involved in the
transactions which tax is evaded by the owner. It was, therefore, contended
D on behalf of the respondents that in the guise of penalty the State Government
is not empowered to recover the tax from persons who have no connection
with the transaction of sal{! and purchase of goods. Mr. Sanghi contended
that although machinery provision is a part of the taxing statute and although
the State is empowered to make regulatory measures, it cannot make a person
E liable if tax cannot be imposed on such a person. Mr. Sanghi, learned counsel
for the respondents contended that the State cannot penalise any and every
person for evasion of tax if such person is not remotely connected to the
taxable transaction. He contended that clearing and forwarding agents do not
have any proximate connection with the sale and purchase of goods. He
contended that there is no proximate nexus between clearing and forwarding
F agent on one hand and evasion of tax on the other hand. He contended that
it is the dealer, who is responsible for evasion of tax if any, for which a
clearing and forwarding agent cannot be held responsible. Mr. Sanghi
submitted that the judgment of the Supreme Court in Sant Lat's case was
clearly applicable to this case and, therefore, the High Court was right in
striking down sections 57, 58 and 59 of the said Act and rule 75 of the Rules
G as ultra vires Entry 54 of List II of the Seventh Schedule to the Constitution
of India. Mr. Sanghi further contended that under section 57(1) and under
section 58(1) every clearing and forwarding agent is required to furnish.
particulars including statement of accounts in respect of transactions of any
dealer. He submitted that clearing and forwarding agents have no connection
H with sale and purchase of goods by the dealers and in the circumstances the
COMMERCIAL TAX OFFICER v. SWASTIKROADWAYS[KAPADIA,J.] 379
Commissioner cannot call upon clearing and forwarding agents to furnish A
particulars of transactions of dealers. Mr. Sanghi, therefore, contended that in
the guise of penalty and in the guise of providing machinery to regulate tax
evasion, persons who have no connection with sale and purchase of goods
are sought to be made liable and, therefore, the impugned provisions of the
Act and rule 75 of the Rules are ultra vires Entry 54 of List II of the Seventh B
Schedule of the Constitution.
7. In view of the above arguments the point for detennination is: Whether
the High Court was right in holding that the clearing and forwarding agent
had no proximate connection with the transaction of sale and purchase of
goods or with the evasion of tax by the dealer and consequently the impugned c
provisions of sections 57, 58 and 59 were beyond the legislative competence
of the State legislature under Entry 54 of List II of the Seventh Schedule of
the Constitution of India?
8. To appreciate the scope of the controversy involved in this case, we
quote some of the provisions of the said Act, as under:- D
"Section 57: Furnishing of information by bank and clearing and
forwarding agents.- (1) Every bank including, any branch of a bank
and every clearing or forwarding agent shall, if so required by the
Commissioner, furnish such particulars including statement of accounts
and affairs verified in the manner, specified by the Commissioner as E
he may require in respect of transaction of any dealer with such bank
or with such clearing or forwarding agent which during the course of
its business handles documents of title to goods or transports goods.
, (2) If any clearing or forwarding agent contravenes the provisions of
sub-section (I), the Commissioner may, after giving such agent a F
reasonable opportunity of being heard, direct him to pay, by way of
penalty, a sum equal to three times the amount of tax payable in
respect of the goods involved in the transactions referred to in sub-
section (I) and which appear to have been evaded by the owner of
such goods due to the failure of such agent to furnish information G
pertaining thereto required of him by the Commissioner under sub-
,
section (I).
Section 58: Control on clearing and forwarding agents to prevent or
check evasion of tax.- (1) The State Government may, if it is satisfied
that it is necessary so to do with a view to prevent or check evasion H
380 SUPREME COURT REPORTS [209,4) 2 S.C.R.
A of tax under this Act in any place or places in the State, direct that-
(i) every clearing and forwarding agent who during the course of
his business handles documents of title to goods or transports
goods or despatches or takes delivery of goods and who has his
place of business at such places as may be notified by the State
B Government, shall send an intimation about his business in the
prescribed form to the prescribed authority and in the prescribed
manner before the prescribed date; and
(ii) every such clearing and forwarding agent shall maintain a register
in such form and containing such particulars of his business as
C may be prescribed which shall be open to inspection by the
Commissioner.
(2) If any clearing or forwarding agent on being directed to do so
under sub-section ( 1) contravenes the provisions thereof, the
Commissioner may, after giving such agent a reasonable opportunity
D of being heard, direct him to pay, by way of penalty a sum not
exceeding five hundred rupees.
Section 59: Clearing and forwarding agents defined.- For the purpose
of Section 57 and 58 clearing and/or forwarding agent includes a
person engaged in collecting goods from any place inside the State
E including railway premises and arranging for the transport and/or
delivery of such goods to the principal or any other person or carrier
of goods for and on behalf of the principal and in the process of
collection, transport or delivery handles documents of title to such
goods.'.'
F 9. Briefly it may. be stated that 'sale price' is defined under Section 2(u)
of the Act to inean the amount payable to a dealer as consideration for sale
of goods less discount but inclusive of any sum charged for anything done
by the dealer in respect of the goods at the time ~f or before the delivery
thereof other than the cost of freight or installation, when such cost is separately
G charged. Therefore, cost of freight or installation at the time of or before the
delivery, separately charged, is excluded from the sale price. Section 5 deals
with incidence of tax on the dealer whose turnover exceeds the prescribed
limit. Section 6 empowers the Commissioner to determine the liability of the
dealer. Section 9 deals with levy of tax payable by a dealer on the taxable
turnover relating to goods specified in Schedule II. Section 27 deals with
H
- COMMERCIAL TAX OFFICER v. SWASTIK ROADWAYS [KAPADIA J.] 381
assessment of tax. Section 28 deals with escapement of sale or purchase of
goods, chargeable to tax, from assessment on account of a wrong deduction
A
1 claimed and granted. It deals with re-opening of such completed assessments
after reasonable opportunity to the concerned dealer. It empowers the
Commissioner to impose penalty on such defaulting dealers. Similarly, section
29 cr-1powers the Commissioner to make re-assessments in cases where the
Department has rassed an order, which is prejudicial to the interest of the B
revenue. Section 57 inter alia empowers the Commissioner to call ·upon
clearing and forwarding agents to furnish such particulars as he may require
in respect of transaction between any dealer and such clearing and forwarding
agent. That in the event of contravention, a fixed penalty is leviable on the
clearing and forwarding agent equal to three times the amount of tax payable C
in respect of the goods involved in the transaction and which tax is evaded
by the owner of such goods. Under section 58, the State Government is
empowered to direct the clearing and forwarding agents to maintain a register
and give intimation about his business in the prescribed format. By rule 75,
form 60 is prescribed for intimation of particulars of business of clearing and
forwarding agent and form 61 is the prescribed register. D
10. According to the respondents, section 57 (2) is bad in law as it
seeks to levy and recover the tax on sale of goods in the form of penalty from
clearing and forwarding agents who have no proximate connection with the
sale or purchase of goods or payment of tax. This argument of the respondents E
has been accepted by the High Court in the impugned judgment.· In this
connection reliance is placed on the judgments of this Court in Sant Lal 's
case (supra) and on The Check Post Officer and Ors. v. KP. Abdulla and
Bros .. reported in [1970] 3 SCC 355.
11. We do not find any merit in the arguments advanced on behalf of p
the respondents. The power to levy a tax includes all incidental powers to
I
prevent the evasion of such tax. The powers such as the power to seize and
confiscate goods in the event of evasion of tax and the power to levy penalty
are meant to check tax evasion and is intended to operate as a deterrent
against tax evaders and are therefore ancillary or incidental to the power to
levy tax on the sale of goods and thus fall within the ambit and scope of G
Entry 54 of List II to the Seventh Schedule to the Constitution of India. This
position in law is not disputed by the respondents. What is disputed is that
when tax is sought to be recovered from the clearing and forwarding agents
in the form of penalty under section 57(2), the same falls outside the ancillary
or incidental powers of the State Legislature under Entry 54 of List II as the H
382 SUPREME COURT REPORTS [2004) 2 S.C.R.
A levy under the Act is on sale and purchase of goods and as there is no nexus
between such sale or purchase of goods and the clearing and forwarding
-
I
agents, sections 57 and 58 and especially the penalty provisions falls outside
such ancillary powers. As stated above, the said Act provides not only for
levy of tax on sale and purchase of goods but also provides for computation ,
B of tax, incidence of tax, recovery of tax, assessment and re-assessment. The
impugned provision of section 57(1) and section 58(1) operate in aid of
sections 27, 28 and 29 of the Act: To illustrate, the sale price is net of cost
of freight or installation. The dealer in his return is entitled to show such
expense as deduction. The Commissioner is entitled to verify the claim for
deduction. If the assessing authority has reason to believe in the course of
C assessment under section 27 or re-assessment under section 28 that deduction
claimed is excessive, it can call for information from the clearing and
forwarding agent. He can re-open the assessment in cases where fraud is
detected in the matter of deduction on account of excessive claims of deduction
being allowed and on that basis the assessing authority is empowered to levy
penalty on the dealer. Such particulars will be called for ifthe dealer-assessee
D has transported the goods through the clearing and forwarding agent. Where
false claims for deduction are made on taxable goods dispatched to other
places by way of sale without accounting for the same, it results in tax
evasion. To check such evasions, sections 57 and 58 are enacted. The
information sought under section 57(1) and the maintenance ofregister under
E section 58 will therefore help the revenue to identify the nature of the
transaction to verify the claims of the dealer and to trace the taxable
transactions so that a person or a transaction liable to sales tax under the State
--
(
Act does not escape payment of such tax. When the Commissioner acts under
section 57(1) he acts in cases where he detects such evasions. This is clear
from provisions of sections 57(1) and 58(1). Under various sections of the
F Act, tax-evaders are sought to be penalised and by contravening the provisions
of sections 57 and 58 the clearing and forwarding agent also becomes liable
as he facilitates such tax evasion. In the circumstances, the High Court erred
in holding that there was no proximate connection between the clearing and
forwarding agents and the tax evasion.
G 12. We also do not find merit in the contention of the respondents that
since the basis of penalty was three times the tax evaded by the owner/dealer,
section 57(2) falls beyond the ancillary powers to levy tax on the sale and
purchase of goods. In support of it, it was argued that such penalty was
indeed a tax on sale of goods. That such penalty could not have been levied
-)
H on the clearing and forwarding agent, as there was no sale or purchase in his
•
-- COMMERCIAL TAX OFFICER v. SWASTIKROADWAYS[KAPADIA,J.] 383
hands nor he has any authority to sell or purchase. In our view, the basis of
penalty was three times the amount of tax evaded by the dealer. This basis
was a measure or the yardstick. It cannot convert a penalty on the defaulting
A
clearing and forwarding agent into a tax. The object of section 57(2) is to
penalise any person who abets in or facilitates the evasion of tax. Therefore
a heavy penalty is prescribed to check tax evasion, subject to the satisfaction
-- of conditions laid down in the sub-section. The nexus between tax evasion
by the owner of goods and the failure of C & F agent to furnish information
required by the Commission is implicit in section 57 (2) and the concerned
B
assessing authority has to necessarily record a finding to this effect before
~
..... levying penalty under section 57(2) .
c
13. It is next contended on behalf of the respondents that the issue of
this case is similar to the issue in the case of Sant Lal (supra). We do not find
any merit in this argument. In Sant La/'s case, provisions of section 38 of
Haryana General Sales Tax 19 were challenged. Under section 38(2) every
clearing and forwarding agent was required to obtain a license. In addition,
every C & F agent had to give particulars and information in respect of "the D
transactions of the goods" in a prescribed format. The Act was under Entry
54 List II dealing with levy of tax on sale of goods. If there was a failure on
the part of the clearing anri forwarding agent to give particulars or to obtain
licence, a fixed penalty calculated at 20% of the value of goods in respect of
which no information was furnished as required by section 38(1) was imposed.
These provisions were challenged. It was held by this Court that the power
E
of the State Legislature was to levy tax on sale of goods and that the powers
....-i ancillary to levy of tax on sale of goods would not cover the clearing and
forwarding agents who have no connection with the transaction of sale and
purchase of goods. Hence the clearing and forwarding agents could not be
asked to obtain a license, nor can they be penalized for not giving particulars F
--- as a licensee. In that matter, section 38 applied to all clearing and forwarding
agents and transporters irrespective of the fact whether they handle documents
of title to goods and whether they handle the goods of dealers or not. They
were all required to obtain license, failing which they were not allowed to
operate as clearing and forwarding agents and that is the main reason why
section 38 was struck down. In fact section 38(2) and 38(1) were connected G
·to each other and penalty was imposed for contravention of both the sub-
sections. The Court observed at paragraph 15:
-.,
" ..... A clearing or forwarding agent or 'dalal' or person transporting
goods does not necessarily handle the booking or receipt of goods
H
384 SUPREME COURT REPORTS (2004] 2 S.C.R.
>.
A 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 t-
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
B of the State Legislature in enacting a law imposing sales tax."
As regards sub-section (3) of Section 38 which provides for levy of
-
penalty, it was held:-
c
"It is difficult to hold that a clearing or forwarding agent, 'dalal' or
person transporting goods can be made liable to a penalty equivalent
to 20 per cent of the value of the goods in respect of which no
-
particulars and information have been furnished. Given the obligation
to furnish particulars and information, a penalty for evasion of tax, in
addition to the tax evaded, can reasonably and fairly be imposed
D which bears a proportion to the quantum of tax that has escaped
assessment but it cannot reasonably and fairly bear a proportion to
the value of the goods the sale of which has occasioned the liability
to tax. A penalty as high as that sought to be imposed could well put
'
a smaller clearing or forwarding agent or 'dalal' or person transporting
goods out of business."
E
The approach of this Court on the question of legislative competence
is also discernible from paragraph 19 wherein it was held -
" ..... As we have already stated, there has to be a reasonable and
proximate connection between the transaction of sale and the clearing
F 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 goods
by a dealer and the clearing or forwarding agent, 'dalal' who books
or receives such goods or a person who transports such goods within
G the meaning of the said section 38."
The provisions in the present case are different and the ratio in Sant
La/'s case has no application. Jn: the present matter, a bare reading of Section
57(1 )(2) shows that in caSes where Commissioner is satisfied about tax evasion
H by the dealer, he may call upon the clearing and forwarding agent to give
- COMMERCIAL TAX OFFICER v. SWASTIKR,OADWAYS[KAPADIA.l.J 385
particulars of a transaction and if the clearing and forwarding agent fails,
penalty is levied at three times the tax evaded by the dealer. The reason is
A
that by will ful disobedience to comply with the directions of the
Commissioner, the clearing and forwarding agent facilitates the tax evasion
by the dealers. Similarly, under Section 58, the State is empowered to give
directions to the clearing and forwarding agent to maintain a register in Form B
- 61 under rule 75 which would give the details of consignor, consignee, the
quantity of goods carried on a particular date and time, its value, etc. Such
particulars are expected to be maintained by a clearing and forwarding agent
including a transponer in the ordinary course of business even without a
provision like Section 58. We reiterate that in the present case, the provisions
of Sections 57 and 58 are to prevent/check tax evasion. The penalty provision C
contained in Section 57(2) unlike in the case of Sant Lal .has intimate nexus
with evasion of tax by the dealer whose goods or documents are handled by
the clearing and forwarding agent (as defined by Section 59) and whose
failure to furnish information would have led to the. tax evasion. The penalty
provision in Sant Lat's case is materially different. "The reasonable and
proximate connection" is not Jacking in the present case. D
The decision in Sant Lal 's case was distinguished in two subsequent
decisions, namely, Tripura Goods Transport Association v. Commissioner of
Taxes, [ 1999] 2 SCC 253 and State of Rajasthan v. D. P. Metals, [2002] 1
sec 279. In th first case, the relevant provisions of the Tripura Sales Tax E
- Act required the persons doing transport business to obtain a certificate or
registration and further required the transporter to give a complete and correct
account of the goods carried by him in a prescribed form which could be
scrutinized by the officer-in-charge of the check-post. The driver or any other
person in-charge of the goods vehicle could be stopped and the records
inspected and if it was found that the goods were being carried in contravention F
of the provisions of the Act or the rules, the officer conducting the search
could seize th~ goods found in the vehicle. Punishment was provided for
non-compliance with the provisions of the Act and the Rules. The contention
that the sales tax legislation could not extend to them on the ground that they
were not dealers doing the business of sale or purchase of goods was negatived. G
The legislative competence was upheld. It was observed therein:
"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, H
386 SUPREME COURT REPORTS [2004) 2 S.C.R.
A if any obligation is cast on any person having connections with the
consignor or consignee in relation to such goods, may be 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
B State Legislature."
The case of State of Rajasthan v. D.P. Metals (supra) which was decided
by a three Judge Bench referred to Tripura Goods Transport case with
approval. In the Rajasthan case, the three Judge Bench reversed the decision
C of the High Court holding Section 78 of the Rajasthan Sales Tax Act
unconstitutional on the ground of legislative incompetence. Section 78 provided
for establishment of check-post and inspection of goods while in movement.
Sub-section (5) of Section 78 empowered the officer-in-charge of the check-
post to impose on the person in-charge of the goods, a penalty equal to 30%
of the value of the goods for possession or movement of goods if they are
D not covered by prescribed documents such as challans, bills of sale, declaration
forms etc., or for submission forms etc., or for submission of false or forged
documents. The challenge to legislative competence was negatived in this
case also. It was however clarified that the impugned sub-section cannot
relate to personal belongings which are not meant for sale. This Court observed:
E "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 ~vasion of tax are within the legislative
competence ..... .
F ...... .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 ..... "
Referring to Sant Lal's case, it was observed
G
" ......... 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 the goods which are sold or likely to be sold.. "
The above observations cannot be pressed into service by the respondent
H to contend that clearing and forwarding agents have no connection with
COMMERCIAL TAX OFFICER v. SWASTIK ROADWAYS [KAPADIA, J.] 387
dispatch and transport of goods of dealers or that they cannot be compelled A
to give any information to the Sales Tax Department in regard to their
transactions. If Section 78 of the Rajasthan Act was meant to check tax
evasion, sections 57 and 58 of the present Act also serve the same purpose.
The expression "movement of goods" in the above passage was used only to
explain why the driver or other person in charge of goods vehicle could be B
penalized under the Sales Tax Act.
As regards penalty, the Court observed in Rajasthan case:
" .... 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 C
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 ....."
Thus, though in Sant Lal 's case, the penalty related to value of the goods was
D
struck down, in the Rajasthan case, the three Judge Bench upheld the same.
The penalty in the present case even stands on a better footing if tested from
the angle of legislative competence. The penalty which is levied by way of
deterrent against the C & F agent is directly related to the evasion of tax by
the dealer resulting from the failure of the agent to furnish information. Thus, E
the impugned provisions are ancillary to the levy of tax on the sale or purchase
of goods by dealers falling within the ambit of Entry 54, List II.
14. Learned counsel for the respondents however placed heavy reliance
on the judgment of this Court in the case of K.P. Abdulla & Bros. (supra).
In that matter there was a challenge to Section 42 of the Madras General F
Sales Tax Act, 1959. Under Section 42, the check post officer was empowered
to stop any vehicle or boat, examine the contents of the vehicle and seize and
confiscate any goods which are under transport if not covered by a bill of
sale or delivery note, goods vehicle record etc. In lieu of confiscation, the
person affected had the option to pay in addition to the tax recoverable on G
the goods, a sum of money at double the amount of tax recoverable in case
they are taxable goods. The Constitution Bench affirming the judgment of
the High Court, declared sub-section (3) of Section 42 unconstitutional for
the reason that it is not ancillary or incidental to the power to legislature on
sales tax. It was observed:
H
388 SUPREME COURT REPORTS [2004] 2 S.C.R.
A "Sub-Section (1) and (2) of Section 42 are intended to set up machinery
for preventing evasion of sales-tax. But, in our judgment, the power
to confiscate goods carried in a vehicle cannot be said to be fairly and
reasonably comprehended in the in the power to legislate in respect
of taxes on sale or purchase of goods ...... .
B ......... 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
c
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 ..... "
-
Referring to sub-section (3) it was pointed out that even a person
carrying his own goods was also exposed to the risk of the goods being
forfeited. The ratio of this decision in our view has no application to the facts
D of the present case . Sections 57 & 58 do not deal with confiscation of goods
at all. As far as the penalty under Section 57(2) is concerned we have already
noted that it is levied only on the satisfaction being reached by the concerned
officer that the failure of the C & F agent to furnish the information required
by the Commissioner facilitated the dealer to evade the tax. It presupposes
that there was a taxable sale in respect of which the tax evasion appears to
E have occurred. The penalty under Section 57(2), unlike Section 42(3) of the
M.G.S.T. Act, is not levied on a mere assumption that a taxable sale or
purchase took place. The impugned sections of Madhya Pradesh Act are
meant to get timely information which will help the department to detect tax
evasion. As obs1erved earlier, in cases of assessment or under assessment,
Commissioner has a power to verify not only the transactions of sales entered
F
into by the dealer but he has also to cross-check the figures with the clearing
and forwarding agent in appropriate cases and for that purpose he can call
upon the agent to give particulars such as value of goods, amount of freight,
details of consignor and consignee, date of consignment, etc. Therefore, in
such cases, the Commissioner, on the basis of information furnished or the
G particulars noted in the register of the clearing and forwarding agent can
verify the quantity of goods, the value of the goods, the name of consignee,
etc. in order to check the details of the transaction under the assessment and
even trace the dealer in appropriate cases. Hence, it cannot be said that the
. information to be furnished by clearing and forwarding agent has no proximate
H connection with the sale and purchase of goods or realization of tax in the
:
.. ..
- COMMERCIAL TAX OFFICER v. SWASTIKROADWAYS[KAPADIA,J.] 389
context of the impugned provisions. A
The width of legislative power in the context of tax evasion is illustrated
by the case of Union of India v. Bombay Tyre International Ltd. reported in
AIR (1984) SC 420. By Act 22 of 1973 (w.e.f. 1.10.75) a new Section 4 in
respect of transactions effected by the assessee to or through "a related person"
was introduced in the Central Excise Act, 1944. The said new Section 4(1 )(a) B
provided that "value" shall be deemed to be the normal price and the normal
price was defined as the price at which the goods were ordinarily sold by the
assessee in the course of wholesale trade where the buyer was not a "related
person" and the price was the sole consideration for the sale. However there
were three provisos to Section 4(1)(a) which indicated circumstances under C
which normal price could vary. The third proviso to Section 4(l)(a) provided
that where the assessee so arranges that the goods are generally not sold by
him in the course of wholesale trade except to or through a related person,
the normal price of the goods sold by the assessee to or through such related
person shall be deemed to be the price at which they are ordinarily sold by
the related person in the course of wholesale trade at the time of removal, to D
dealers (not being related persons). On behalf of the assessee it was urged
that the provisions, aforestated, were whimsical and arbitrary and cannot be
said to be reasonably calculated to deal with the issue of evasion or avoidance
of excise. It was said that the assessment on the manufacturer by reference
to the sale price charged by his distributor is wholly incompatible with the E
nature of excise. This argument was rejected by this Court in following
terms:-
"It is open to the Parliament to incorporate provisions in the
section declaring that certain specified categories of transactions fall
within the tainted class, in which an irrebutable presumption will p
arise that the transactions belonging to those categories are transactions
which cannot be dealt with under the usual meaning of the expression
"normal price" set forth in Section 4(l)(a) .. "
In the said judgment it has been further held (vide para 45) that :-
"Now, it is well known legislative practice to enact provisions in G
certain limited cases where an assessee may be taxed in respect of the
income or property truly belonging to another. They are cases where
the Legislature intervenes to prevent the circumvention of the tax
obligation by tax payers seeking to avoid or reduce their tax liability
through modes resulting in the income or property arising to another..." H
A
390
case.
SUPREME COURT REPORTS [2004] 2 S.C.R.
The above observations of this Court can be pertinently applied to this -
Accordingly we hold that the impugned Sections 57 and 58 of the M.P.
Commercial Tax Act, 1994 have been enacted by the State legislature under
the powers incidental to the power to levy tax on sale and purchase of goods
B under Entry 54, List II of the Seventh Schedule of the Constitution of India.
15. We would like to conclude our judgment by quoting the following
passage from Broken Hill South Ltd. v. Commissioner of Taxation, N.S. W
reported in [56 CLR 337 at page 379] which has been approved by this Court
C in the case of The State of Madras v. Mis. Gannon Dunkerley & Co. (Madras)
Ltd., reported in AIR (1958) SC 560:
"In any investigation of the constitutional powers of these great
Dominion legislatures, it is not proper that a Court should deny to
such a legislature the right of solving taxation problems unfettered by
'a priori' lega.1 categories which often derive from the exercise of
D
legislative power in tqe same constitutional writ."
16. For the foregoing reasons, we uphold the validity of the impugned
provisions of Sections 57, 58 and 59 of the Act as intra vires Entry 54 of List
II of Seventh Schedule to the Constitution of India. Consequently we hold
E that the impugned judgment of the High Court dated 16th April, 1996 in Writ
Petition No.3756 of 1995 is not correct. Accordingly, both the civil appeals
are allowed with no order as to costs.
v.s.s. Appeals allowed.
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