STATE OF HARYANA AND ORS.versusSANT LAL AND ANR.

A                     STATE OF HARYANA AND ORS.
                                     v.
                             SANT LAL AND ANR.

                              SEPTEMBER 9, 1993

B            (B.P. JEEVAN REDDY AND S.P. BHARUCHA, JJ.)

           Haryana General Sales Tax Act, 1973: Section 3&-Constitutional
    validity of-Held ultra vires and beyond the purview of State Legislature.

C        Haryana General Sales Tax Rules, 1975: Rules 48, 52 and 53-Validity
    of-Held ultra vires and bad in law.

           Constitution of India, 1950: Seventh Schedul~ist II-Entries-Inter-
    pretation of

D          Entry 54-'Tax on sale or purchase of goods'-Power of state Legisla-
    t!':re-Includes ancilliary or subsidiary matters,-Provisions of Section 38 of
    Haryana General Sales Tax Act-Held beyond the ancilliary and subsidiary
    powers of State Legislature.

E          Ta;r-Penalty for evasion-Reasonableness of~ust bear a proportion
    to the tax evaded.

         Under section 38(1) of the Haryana General Sales Tax Act, 1973 read
  with Rule 53 of the Haryana General Sales Tax, 1975 every clearing or
  forwarding agent, 'dalal' or any other person transporting goods, within
p the State, who, during the course of his business handled documents of
  title to goods, for or on behalf of any dealer is obliged to furnish to the
  assessing authority the particulars and information in respect of the
  transactions of the goods in the prescribed forms viz. regarding the
  consignments handled by him from month to month. Under sub-section
G (2) of Section 38 read with rule 48 all clearing or forwarding agents, 'dalal'
  or other persons transporting goods within the State are debarred from
  carrying on their business unless they are licensed under the Act. Sub-sec-
  tion (3) of Section 38 provides that contravention of the provisions of
  sub-sections (1) or (2) would entail a penalty of an amount equivalent to
  20% of the value of goods in respect of which no particulars and informa-
H tion has been furnished under sub-section (1).
                                         238
                           STATE v. SANT LAL                            239

      The respondents carrying on business of clearing and forwarding           A
agents, filed a petition challenging the constitutional validity of these
provisions. The State contested the petition contending that the trade of
getting the goods booked with the railways on behalf of dealers and getting.
the delivery of the goods from the railway by the dealers through the 'dalal'
was ancillary and incident to the business of sale and purchase of goods.       B
Therefore, the State Legislature was empowered under Entry 54 of List-II
in the Seventh. Schedule to the Constitution to enact law for taxation on
the sale or purchase of goods.

      The High Court struck down Section 38 and Rule 53 as unconstitu·
tional holding (i) that it could not be said that the provisions contained C
in Section 38 were intra vires the State Legislature being ancillary and
incidental to the power to levy sales tax under Entry 54, List II of the
Seventh Schedule to the Constitution; (ii) a cl1!3ri~g or forwarding agent
or 'dalal' was a stranger to the transaction of sale or purchase of the goods. ,
He was not iiable to pay sales tax nor was he responsible for its evasion
inasmuch as be was not a dealer; there was no justification to raise a D
presumption of evasion of sales tax in the transactions in respect of which
an agent or 'dalal' was required, or had failed to furnish particulars and
information. Against the decision of the High Court State preferred an
appeal in this Court.
                                                                                E
      Dismissing the appeal, this Court

      HELD : 1. Section 38 of the Haryana General Sales Tax Act is beyond
the purview of the State Legislature. It is ultra vires and bad in law.
Consequently, all rules and forms in the said Rules related to the said
section are also bad in law. (253-B]                                            F
       2. There can be no doubt that the State Legislature had by reason of
Entry 54 of List II in the Seventh Schedule to the Constitution the power
to legislate in respect of taxes on the sale or purchase of goods, and it had,
therefore, the power to legislate with respect to the imposition of a sale G
tax, to prescribe the machinery for the collection of such tax, to designate
officers by whom such liability could be enforced and in respect of all
matters ancillary or subsidiary thereto which could fairly and reasonably
be said to be comprehended within the legislative entry. (250-BC]

     Navinchandra Mafatlal v. C.l. T., A.I.R. (1955) S.C. 58, United Provin- H
    240                   SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.

A ces v. Mt. Atiga Begum, A.l.R. (1941) FC and Baldeo Singh v. CIT, A.l.R.
    (1961) S.C. 736, referred to.

          3. The State Legislature is entitled to impose sales tax upon a person
    who carries on the business of selling goods and who has in the customary
    course of business authority to sell goods belonging to the principal. A
B   clearing or forwarding agent, 'dalal' or person transporting goods does not
    carry on the business of selling goods and does not have, in the customary
    course of this business, authority to sell goods belonging to the dealer whose
    good~ he books or receives. There has to be a reasonable and proximate
    connection between the transaction of sale and the clearing or forwarding
C   agent, 'dalal' or person transporting goods before the State legislature can,
    in exercise of the power to levy sales tax enact legislation concerning him.
    There is no such close and direct connection between the transaction of sale
    of goods by a dealer and the clearing or forwarding agent or 'dalal' who
    books or receives such goods or a person who transports such goods within
    the meaning of the Section 38. [252-GH, 253-A]
D
          M/s. Chowringhee Sale Bureau (P) Ltd. v. C.l.T., A.l.R. (1973) S.C.
    376, held inapplicable.

          4. A. clearing or forwarding agent or 'dalal' or person transporting
E goods does not necessarily handle the booking or receipt of goods which
    have been sold, they could very well be handling goods which a consignor
    may consign to him self from one town or village to another in the State.
    The Act does not take account of this and requires all forwarding and
    clearing agents, 'dalals' and persons transporting goods to be licensed
    under the said Act. To this extent the said Section 38 goes beyond the
F   ancillary and subsidiary powers of the State legislature in enacting a law
    imposing sales tax. [251-D-E]

        5. It is difficult to hold that a clearing or for warding 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
G 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 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
H the sale of which has occasioned the liability to tax. A penalty as high as

                                                                                     c
                    STATE v. SANTLAL[BHARUCHA,J.]                       241

that sought to be imposed could well put a smaller clearing or forwarding      A
agent or 'dalal' or person transporting goods out of business. [251-F-G]

         6. The definition of 'person transporting goods' in the Explanation
to Section 38 includes the manager, driver and employee of the owner of
the goods. Such manager, driver or employee would be required to be
licensed under sub-section (2) of the said Section 38 and would be liable      B
to penalty and cancellation of his licence in the event that he did not
furnish the information and particulars required by sub-section (1)
provided he had handled the documents of title to the goods. Where the
owner of the goods is a company or firm the booking and taking delivery
of goods and the handling of documents of title thereto would necessarily      C
be done by one or other employee of the company or firm and it is not
reasonable or fair to require all such employees to be licensed under the
said Act. [251-H, 252-A-B]

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1410 of
1993.                                                                          I)

     From the Judgment and Order dated 29.5.84 or the Punjab and
Haryana high Court in Civil Writ Petition No. 7208 of 1976.

     Dr. Abhishek Manu Singhvi, Maninder Singh, Pushpinder Bansal
and Ms. Indu Malhotra for the Appellants.                                      E
         B.S. Jain, H.D. Pathak (NP) and Vishnu Mathur for the Respon-
dents.

         The Judgment of the Court was delivered by
                                                                               F
       BHARUCHA, J. This is an appeal by special leave against the judg-
ment and order of a Division Bench of the Punjab & Haryana High Court
whereby the writ petition filed by the respondents was allowed and section
38 of the Haryana General Sales Tax Act, 1973 and rule 53 df die Haryana
General sales Tax Rules, 1975 were struck down as unconstitutional.
                                                                               G
      The respondents claimed in their writ petition to be clearing and
forwarding agents. They rendered to their clients the service of booking
and taking delivery of consignments at the railway stations at Sirsa and
Hissar. On the instructions of their clients they arranged for booking of
consignments to be transported by railway from the aforesaid railway           H
    242                  SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.

A stations and obtained the necessary documents in the names of their
  clients, similarly they took delivery of consignments on behalf of their
  clients at the aforesaid railway stations and handed over the same and the
  documents relative thereto to their clients. For such services they were
  remunerated by their clients. By virtue of sub-section (1) of the said section
  38 of the Haryana General Sales Tax Act, 1973 (hereinafter referred to as
B 'the said Act') they were obliged to furnish information in respect of such
  consignments to, and by virtue of sub-section (2) they were debarred from
  carrying on their business unless they obtained a licence for the purpose
  the assessing authority under the said Act. Sub-section (3) made them
  liable to the imposition of a penalty in an amount equivalent to 20 per cent
  of the value of ~he goods in respect of which particulars and information
c had not been furnished. Rule 48 of the Haryana General Sales Tax Rules,
  1975 (hereinafter referred to as 'the said Rules') was made with reference
  to the said section 38. It was contended in the writ petition that the
  respondents did not in the course of their business come across invoices
   or cash memos so that they were not in a position to ascertain the value of
D the goods booked or taken delivery of through them. The obligation
  imposed upon them by the said section 38 was, therefore, not possible of
   performance. The petitioners in their written statements before the High
   Court do not appear to have controverted the averment that the respon-
   dents in the course of their business did not get all the information which
   they were required by the said section 38 to furnish and for breach of which
E obligation they were exposed to a penalty. In the written statements the
   petitioners contended that the respondents were known as 'dalals' in
   common parlance and carried on the well established business of acting at
   railway stations on behalf of the various types of dealers. The dealers sent
   their goods for booking at the railway stations through 'dalals' and all the
   formalities were performed by the 'dalals' for sending the goods to their
F
   destinations. Similarly, when goods of the dealers were received at the
   railway station, the delivery was taken by the dealers through the 'dalals'.
   It had been observed that, generally, bogus transactions were carried on
   by various dealers. The goods were booked in assumed names and these
   were addressed to consignees in assumed names and in this way the
G revenue of the State in the form of tax was jeopardised. It was contended
    that the trade of getting the goods booked with the railways on behalf of
    the dealers and getting the delivery of the goods from the railway by the
   dealers through the 'dalals' is ancillary and incidental to the business of
    sale and purclrase of goods. The State Legislature is empowered under
    Entry 54 of the List II in the VII Schedule to the Constitution to enact law
H
                   STATE v. SANTLAL[BHARUCHA,J.]                             243

fo~. taxation on the sale or purchase of goods ............ The livelihood of the   A
 petitioners is not taken away in any way". The High Court found that the
 respondents were admittedly neither dealers nor liable to pay sales tax
 under the said Act. No foundation, however remote, had been laid in the
written statements to warrant the finding that the respondents were not
 strangers to the sale or purchase of goods handled by them on behalf of
their clients. The question, therefore, was whether the State Legislature B
was competent to legislate in respect of the respondents. The High Court,
after reference to various authorities, held that a clearing or forwarding
agent or 'dalal' was a stranger to the transaction of sale or purchase of the
goods. He was not liable to pay sales tax nor was he responsible for its
evasion inasmuch as he was not a dealer. This apart, there was no justifica- C
tion tp raise a presumption of evasion of sales tax in the transactions in
respect of which an agent or 'dalal' was required to furnish particulars and
information under the said section 38. Similarly, it was wrong to assume
evasion of sales tax in the transactions the particulars and information of
which an agent ~r 'dalal' had failed to furnish. Moreover, the responsibility
in regard to the evasion of sales tax was that of the dealer and it could not D
justifiably be foisted on the agent or 'dalal'. There being no liability upon
the agent or 'dalal' to pay the sales tax or an attempt on his part or
suspicion agents him to escape its payment, it could not be held that the
provisions contained in said section 38 were intra vires the State Legisla-
ture being ancillary and incidental to the power to levy sales tax under
Entry 54, List II of the Seventh Schedule to the Constitution. The High E
Court, therefore, allowed the writ petition and struck down the said section
38 and the said rule 53 as unconstitutional.

      To appreciate the controversy in the appeal, the said section 38 must
be reproduced :
                                                                                    F
        38. Furnishing of information by clearing and forwarding agents,
        etc. -

        (1) Every clearing or forwarding agent, Dalal or any other person
        transporting goods, within the State, who, during the course of his G
        business, handles documents of title to goods for on behalf or any
        dealer, shall furnish to the assessing authority the particulars and
        information in respect of the transact;tons of the goods in such form
        and manner, as may be prescribed.

        (2) No clearing or forwarding agem, Dalal or any other person H
    244                  SUPREME COURT REPORTS [1993) SUPP. 2 S.C.R.

A           transporting goods within the State shall carry on his business
            unless he obtains from the assessing authority, on payment of a fee
            not exceeding fifty rupees. a license in the form and manner and
            subject to such conditions as may be prescribed.

            (3) If any clearing or forwarding agent or Dalal or person
B           transporting goods within the State contravenes the provisions of
            sub-section (1) or sub-section (2), the Commissioner or any person
            appointed to assist him under sub-section (1) of section 3 may,
            after giving the person concerned a reasonable opportunity of
            being heard, direct him to pay by way of penalty, an amount
c           equivalent to twenty per centum of the value of goods in respect
            of which no particulars and information has been furnished under
            sub-section (1).     ·

            Explanation - For the purpose of this section-

D           (i) Dalal shall irn;ludes a person who renders his services for
            booking of, or taking delivery of, consignments of goods at a
            Railway Station booking agency, goods transport company office,
            or any place of loading or unloading of goods or contrives, makes ,
            and concludes bargains and contracts for or on behalf of any dealer
E           for a fee, reward, commission, remuneration or other valuable
            consideration or otherwise.

            (ii) "person transporting goods shall, besides the owner, include
            the manager, agent, driver, employee of the owner or person
            incharge of a place ofloading or unloading of goods or of a Railway
F           out-agency, city booking office or city booking agency whom run
            by a private person under a contract with the Railways but exclud-
            ing a rail head or a post office, or of a goods carrier carrying such
            goods, or a person who accepts consignments of such goods for
            despatch to other places or gives delivery of any consignment of
G           such goods to the consignee."

          Section 2( c) of the Act defines 'dealer' thus :

            "dealers" means any person including a department of Government
            who carries on, whether regularly or otherwise, trade, whether
H           without a profit motive, directly or otherwise whether for cash,
                 STATE v. SANT LAL [BHARUCHA,J.]                          245

        deforred payment, commission, remuneration or other valuable             A
        consideration, of purchasing, selling, supplying or distributing any
        goods in the State, or importing into, or exporting out of, the State,
        any goods irrespecting of the fact that the main place of business
        of such person is outside the State and where the main place of
        business of such person is not in the State, includes the local
        manager or agent of such person in the State in respect of such
                                                                                 B
        business;

        Provided that a person or a member of his family who sells within
        the State exclusively the agricultural produce grown by himself or
        grown on any land in which he has an interest whether as owner,          C
        usufructuary, mortgagee, tenant or otherwise, shall not be deemed
        to be a dealer.

        Explanation (ii) to section 2( c) read thus :

        (ii) a factor, a broker, a commission agent, a del credere agent, a      D
        dealer's agent, an auctioneer or any other mercantile agent by
        whatever' name called and whether of the same description as
        hereinbefore mentioned or not, who carries on any trade as prin-
        cipal or agent or in any other capacity, is a dealer.

       Section 6 is the charging section of the said Act and it imposes on a
                                                                                 E
dealer whose gross turnover exceeds the taxable quantum the liability to
pay tax on the sale or purchase of goods by him in the State of Haryana
at the stages and rates therein mentioned. Section 37 provides for the
establishment of check posts or barriers and the inspection of goods in
transit. It is a very detailed provision which, among other thing, makes the F
driver or any other person in charge of a goods carrier to produce proper
and genuine documents relating to the goods and also makes him liable to
penalty in the event that the revenue officer concerned finds that there has
been an attempt to evade tax due under the said Act, such penalty being
of an amount not less than 10 per cent and not more than 25 per cent of G
the value of the goods.

     Rule 53 of the said Rules reads thus :

        53. Furnishing of information by clearing and forwarding agents
        [Section 38] - Every clearing or forwarding agent or Dalal shall, as     H
    246                  SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.

A           required under sub-section (1) of section 38, furnish to the assess-
            ing authority granting the licence a return in for ST 43 for every
            month within a period of ten days of close of each month regarding
            the consignments handled by him during the month and shall keep
            and maintain true and correct record in form ST 44 in respect of
            consignments of goods handled by him.
B
    Rule 48 provides for the licensing of clearing and forwarding agent, and it
    reads thus:

            48. Licensing of clearing and forwarding agent, etc. (Section 38] -
c           ( 1) Application for licence required to be obtained under section
            38 shall be in form ST 40 and shall be to the assessing authority
            of the area in which the place of business of the forwarding or
            clearing agent or dalal or the person transporting goods is located,
            within a period of thirty days of the coming into force of these
D           rules.

            (2) The application shall be accompanied by a treasury receipt for
            five rupees on account of fee.

            (3) When the assessing authority after making any enquiry that he
E           may consider necessary, is satisfied that the applicant has correctly
            given the requisite information, that he has deposited the licence
            fee into the appropriate Government treasury and that the applica-
            tion is in order he shall issue a licence in form ST 41.

            (4) The licence shall be held subject to the conditions set forth
F           therein and the provisions of the Act and these rules.

            (5) A record of the licences issued shall be kept in a register in
            form ST 42.

G Rule 52 empowers the assessing authority granting such licence to cancel
    it in case of breach of the said Rules, failure to furnish any information as
    required under Rule 53 or furnishing of false information.

          The application for the grant of such a licence is required to be made
    in Form ST 40 prescribed in the said Rules. It is required to be made by
H   the person in charge of the business of clearing/forwarding/transporting
                  STATE v. SANTLAL[BHARUCHA,J.]                        247

goods". Among other things, it requires information regarding the goods A
 carriers owned by the applicant and the route permit on which they are
authorised to operate. Form ST 41 is the form to be filled in for a licence
authorising a person to function as a clearing or forwarding agent, dalal or
for transporting goods within the State Haryana". It also seeks information
about the goods carrier owned by the applicant. Form ST43 prescribes the
format of the "monthly return of clearing/forwarding house/dalal". It re-
                                                                              B
quires the agent or 'dalal' not only to give the name and full address of the
consignor and the consignee but also their registration certificate numbers,
presumably under the said Act. And it requires, inter alia, a statement of
the weight of the goods consigned. Form ST44 is the record that the
"clearing/forwarding agent/dalal" must keep in respect of the goods hand-    c
led by him. It also requires the recording of, inter alia, the weight of the
consignments and the numbers of the registration certificates under the
said Act of the consignor and the consignee. Form ST 45 provides the
format of the booking and delivery register. Here again, the registration
certificate numbers of the consignor and the consignee are required to be D
noted as also the weight and value of the goods in the consignments. Form
ST 46 prescribes the format for the return of goods transported or
delivered during a particular month. The information required to be fur-
nished is substantially similar to that which is to be noted in the booking
and delivery register in Form ST 45.
                                                                             E
       Sub-section (1) of the said section 38 requires every clearing or
forwarding agent, 'dalal' or other person transporting goods within the
State, who, during the course of his business, handles documents of title to
goods for or on behalf of any dealer to furnish to the assessing authority
such particulars and information as may be prescribed. What precisely is p
meant by the phrase 'documents of title to goods' is not made clear in the
said Act, but it would appear that it is only that clearing or forwarding
agent or 'dalal' or other person transporting goods who handles documents
of title to goods who is required to furnish the requisite particulars and
information. However, sub-section (2) of the said section 38 debars all
clearing or forwarding agents, 'dalals' or other persons transporting goods G
within the State from carrying on their business unless they are licenced
under the said Act and the penalty that is provided for in sub-section (3)
is applicable to any clearing or forwarding agent, 'dalal' or person
transporting goods if he contravenes the provisions of sub-section (1) or
(2). Therefore, it would appear that a clearing or forwarding agent or H
    248                   SUPREME COURT REPORTS [1993] SUPP. 2 S.C.R.

A 'dalal' or other person transporting goods within the State, even though he
   may not be handling documents of title to goods, is obliged to take a licence
   under the said Act though he may not liable to the penalty as hereinafter
   explained. Under the provisions of sub-section (3) the Commissioner or
   any person appointed to assist him may impose the penalty after giving the
   perrnn proposed to be penalised a reasonable opportunity of being heard
B and that penalty shall be of an amount equivalent to 20 per cent of the
   value of goods in respect of which no particulars and information has been
   furnished. There is no discretion in the matter of the quantum of the
   penalty. But, since it is to be calculated as a percentage of the value of the
   goods in respeqt of which no particulars or information have been fur-
C nished, it cannot be imposed for the failure of a clearing or forwarding
    agent or 'dalal' or person transporting goods who does not handle docu-
   ment of title to take a licence under sub-section (2). The word 'dalal' is
    defined in the Explanation to the said section 38 to include a person who
    renders the service of booking or taking delivery of consignment, but it also
D includes a person who 'makes and concludes bargains and contracts for or
    on behalf of any dealer for a fee, reward, commission, remuneration or
    other valuable consideration or otherwise'. It is, therefore, not only a
   person who renders the service of booking or taking delivery of goods who
   is required to be licenced under sub-section (2) of section 38 but also any
    person who 'makes and concludes bargains and contracts' so whatsoever
E nature for or on behalf of any dealer for consideration and who, th(:refore,
    may fall within the definition of 'dealer' in the said Act. A 'person
  . transporting goods' is also defined by the Explanation to the said section
   38 and it includes, besides the owner of the goods, his manager, agent,
    driver and employee. It is, therefore, necessary that the owner of the goods,
F which would in the context mean the dealer himself, should be licenced
    under sub-section (2) and, besides him, his manager, driver employee, if
    they book or take delivery of his goods.

          Rule 48 of the said Rules speaks of the licence that the clearing or
    forwarding agent or 'dalal' or person transporting goods had to obtain. It
G   states that 'the licence shall be Jleld subject to the conditions set forth
    therein and the provisions of the Act and these rules'. Rule 52 empowers
    the assessing authority granting the licence to cancel it in case of breach
    of the said Rules or failure to furnish information as required under rule
    53 or on the furnishing of false information. Rule 53 requires the clearing
H   or forwarding agent or 'dalal' to furnish to the assessing authority returns
                  STATE v. SANT LAL [BHARUCHA, J.]                      249

in the prescribed form regarding the consignments handled by him from A
month to month and to keep and maintain a true record thereof. Reading
the said section 38 with the afore-mentioned rules makes it clear that for
breach of the provisions of the said Rules the licence that is mandatory for
carrying on the business of a clearing or forwarding agen.t or 'dalal' or
transporter of goods can be cancelled, in which event the clearing or B
forwarding agent or 'dalal' or person transporting goods stands to lose his
livelihood. This provision is applicable also, having regard to the definition
of 'person transporting goods', to an employee of the owner of the goods
who books or receives them, so that he too stands in danger of losing his
employment. The forms which have been referred to require the clearing
and forwarding agent, 'dalal' and person transporting goods to maintain C
records of and furnish information regarding the numbers of the registra-
tion certificates under the said Act of the consignor and the consignee. It
is not clear from the said Act or otherwise that the clearing or forwarding
agent or 'dalal' or person transporting goods would necessarily have this
information. The clearing or forwarding agent, '.dalal' and person D
transporting goods is also required to maintain a record of and furnish
information regarding the weight and value of the goods booked or taken
delivery of through him. It is not clear how he can state, otherwise than on
the information, if any provided by the dealer, what the weight or value or,
indeed, the content of the consignment is.
                                                                               E
      Mr. AM. Singhvi, learned counsel for the appellants, submitted that
the provisions contained in the said section 38 and the said Rules were
machinery provisions designed to ensure recovery of the tax imposed by
the said Act. He submitted that it was well established that legislative
entries had to be given the widest possible meaning. In his submission, the    F
said section 38 and the said Rules were ancillary and incidental to the levy
of the tax under the said Act and necessary to prevent the evasion thereof.

       In Navinchandra Mafatlal v. CIT, AIR (1955) S.C. 58, the observa-
tions of G\vyer, CJ. in United Provinces v. Mt. Atiga Begum, AIR (1941)
FC 16, were approved, namely, that entries in legislative lists were not to G
be read in a narrow or restricted sense and each general word therein
should be read to eX::end to all ancillary or subsidiary matters which could
fairly illld reasonably be said to,be comprehended in it. In Baldeo Singh v.
CIT, AIR (1961) S.C. 736, this Court held that legislative entries had to be
read in a very wide manner and so as to include all subsidiary and ancillary H
    250                   SUPREME COURT REPORTS (1993] SUPP.2S.C.R.

A matters. An entry authorising the imposition of a tax should be read as also
    authorising an r.nactment which prevented the tax from being evaded. If it
    were not to be w read then the admitted power to tax might often be made
    infructuous by ingenious contrivances. Experience had shown that attempts
    to evade tax were often made.

B         There can, therefore, be no doubt that the State Legislature had by
    reason of Entry 54 of List II in the Seventh Schedule to the Constitution
    the power to legislate in respect of taxes on the sale or purchase of goods,
    and in had, therefore, the power to legislate with respect to the imposition
    of a sales tax, to prescribe the machinery for the collection of such tax, to
C   designate officers by whom such liability could be enforced and in respect
    of all matters ancillary or subsidiary thereto which could fairly and
    reasonably be said to be comprehended within the legislative entry. Having
    regard to the analysis of the said section 38 and the relevant rules and
    forms made hereinabove, the question is whether the same can be said to
D   be ancillary or subsidiary matters which are fairly and reasonably com-
    prehended within the power to levy sales tax.

           If a clearing or forwarding agent or 'dalal' or person transporting
     goods is indeed re;u;onably and proximately connected with the sale oc-
     casioning the liability to the sales tax, it is legitimate to require him to
E    licence himself under the said Act and maintain and furnish such informa-
     tion and particulars to the assessing authority thereunder as he would in
     the course of his business come to possess. It is legitimate then to make
     him liable for such escapement of tax as has resulted from the breach by
     him of such obligation and to a reasonable penalty.
F
         As is clear from a reading of sub-section (1) of the said section 38,
  it is not every clearing or forwarding agent or 'dalal' or person transporting
  goods who come into possession of the particulars and information re-
  quired to be furnished under the said Act and Rules for the sub-section
  itself casts that obligation only upon such clearing or forwarding agents,
G 'dalal' or persons transporting goods who during the course of their busi-
  ness handle 'documents of title to goods for or on behalf of any dealer. It
  is, therefore, at best, only such clearing or forwarding agents or 'dalals' or
  other persons transporting goods who handle documents of title to goods
  for or on behalf of dealers who can be said to have a connection with the
H transaction of sale thereof. It is only such clearing or forwarding agents,
                   STATE v. SANTLAL[BHARUCHA,J.]                          251

'dalals' or other persons transporting goods who can be required to obtain A
from the assessing authority under the said Act a licence for carrying on
their business and be made liable to cancellation of such licence and
penalty for breach of their obligations under the said Act. However,
inasmuch as the said Act does not define what precisely it means by the
expression 'documents of title to goods', it is unclear which class of
forwarding or clearing agents of 'dalals' or persons transporting goods it
                                                                               B
intends to bring within the ambit thereof. To clearing and forwarding
agents, 'dalals' arid other persons transporting goods who do not handle
documents of title to goods for or on behalf of any dealer, the provisions
of the said Act can have no application at all. In respect of such persons
the State Legislature has no power of legislation under the legislative entry    c
concerned. Qua them the legislation is not in respect of any matter ancillary
or subsidiary to the legislative entry which entitles the state Legislature to
impose a tax on the sale of goods.

       The same point can be stated differently. A clearing or forwarding D
agent or 'dalal' or person transporting goods does not necessarily handle
the booking or receipt of goods which have been sold; they could very well
be handling goods which a consignor may consign to himself from one town
or village to another in the State. The said Act does not take account of
this and requires all forwarding and clearing agents, 'dalals' and person
transporting goods to be licenced under the said Act. To this extent the E
said section 38 goes beyond the ancillary and subsidiary powers of the State
Legislature in enacting a law imposing sales tax.

       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       F
per cent of the value of the goods in respect of which no particulars and
information have been furnished. Given the obligation to· furnish par-
ticulars and information, a penalty for evasion of tax, in addition to the tax
evaded, can reasonably and fairly be imposed 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     G
occasioned the liability to tax. A penalty as high as that sought to be
imposed could well put a smaller clearing or forwarding at;ent or 'dalal' or
person transporting goods out of business.

      The definition of 'person transporting goods' in the Explanation to H
    252                   SUPREME COURT REPORTS (1993] SUPP. 2 S.C.R.

A the said section 38 includes the manager, driver an employee of the owner
    of the goods. Such manager, driver or employee would be required to be
    licenced under .sub-section (2) of the said section 38 and would be liable
    to penalty and cancellation of his licence in the event that he did not furnish
    the information and particulars required by sub-section (1) provided he
    had handled the documents of title to the goods. It seems to us that where
B   the owner of the goods is a company or firm the booking and taking
    delivery of goods and the handling of documents of title thereto would
    necessarily be done by one or other employee of the company or firm and
    it is not reasonable or fair to require all such employees to be licenced
    under the said Act.
c
          Before we part with this judgment we must give due attention to the
    decision of this Court in Mis. Chowringhee Sales Bureau (P) Ltd. v. CIT,
    AIR (1973) S.C. 376, which was cited by Mr. Singhvi. This was a case where
    the definition of 'dealer' in the Bengal Finance (Sales-Tax) Act, was
D   questioned as being ultravires the powers of the State Legislature on the
    ground that it purported to levy a tax on an auctioneer, a person who was
    neither a seller nor a purchaser. It was held that in view of the wide
    amplitude of the power of the state Legislature to impose tax on transac-
    tions of sale of goods it was impermissible to read a restriction on the
    power of the State Legislature as would prevent it from imposing the tax
E   on an auctioneer, who carried on the business of selling goods and had, in
    the customary course of business, authority to sell goods belonging to the
    principal. What was sought to be taxed was the transaction of the sale of
    goods. If there was a close and direct connection between the transaction
    of sale and the person made liable for the payment of sales tax, the
F   statutory provision providing for such levy of sales tax was not offensive.

        There can be no doubt that the State Legislature would be entitled
  to impose sales tax upon a person who carries on the business of selling
  goods and who has in the customary course of business authority to sell
  goods belonging to the principal. A clearing or forwarding agent, 'dalal' or
G person transporting goods does not carry on the business of selling goods
  and does not have, in the customary course of his business, authority to sell
  goods belonging to the dealer whose goods he books or receives. As we
  have already stated, there has to be a reasonable and proximate connection
  between the transaction of sale and the clearing or forwarding agent, 'dalal'
H or person transporting goods before the State Legislature can, in exercise·
                  STATE v. SANTLAL[BHARUCHA,J.]                          253

of the power to levy sales tax, enact legislation concerning him. We are not    A
satisfied that there is such close and direct connection between the trans-
action of sale of goods by a dealer and the clearing or forwarding agent or
'dalal' who books or receives such goods or a person who transports goods
within the meaning of the said section 38.

       For the aforementioned reasons we are of the view that the said          'B
section 38 was beyond the purview of the State Legislature. Therefore, the
said section.38 must be he.Id to be ultra vires and bad in law. Consequently,
all rules and forms in the said Rules related to the section 38 also be held
to be bad in law.

      The appeal, therefore, fails and is dismissed. There shall be no order    C
as to costs.

T.N.A.                                                    Appeal dismissed.