STATE OF MADHYA PRADESH AND ORS.versusBHARAT HEAVY ELECTRICALS

             STATE OF MADHYA PRADESH AND ORS.                                    A
                                     v.
                   BHARAT HEAVY ELECTRICALS

                            AUGUST 14, 1997

                [J.S. VERMA CJ. AND B.N. KIRPAL, J.]                             B

      ENTRYTAX:

       The Madhya Pradesh Sthaniya Kshetra Me Mal Ke Parvesh Par Kar
Adhiniyam, 1976-Entry 'Tax Act-Sectior. 7(5)--Registered dealers of raw          C
materials-Selling finished goods in the local areas-Required to make dec-
laration as to no entry tax has been paid-Failure to make declaration as to
non-payment of entry tax-Presumption of evasion of ent1y t~Whether
presumption rebuttable, held yes-Penalty of ten times the entry tax---Levy
of-Held, not confiscatory or ultra vires, since it is variable-Constitution of
India, Arts. 14, 19.                                                             D

      The respondents who were registered dealers under the Sales Tax
Acts, were engaged in sale and purchases of various articles as raw
materials for manufacturing certain finished goods. The finished goods
were sometimes sold in areas other than the local area in which it was           E
brought.

      As per the Entry Tax Act, 1976, Section 7 (1) & (2) the registered
dealers while selling or buying certain scheduled items, were to specifically
state that the goods were local goods in relation to the relevant local area
and that no entry tax has been paid on such goods. Under Section 7(5) of F
the Entry Tax Act, 1976 if a registered dealer fails to make such a
statement as mentioned in Section 7(1) or 7(2) there is a presumption that
he has facilitated the evasion of entry tax on the local goods so sold and
the said dealer will be liable for a penalty which was one and a half times
the amount of entry tax payable. By an amendment in Clause (5) dated 20 G
October, 1982 the penalty was increased to "ten times" that of entry tax
payable.

      The respondents challenged the aforesaid provisions viz. Section
7(5) before the High Court of Madhya Pradesh on the ground that the levy
of penalty ten times the amount of tax was confiscatory in nature and ultra H
                                     435
    436                   SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R.

A vires of the provisions of the Act and violative of Articles 14 & 19 of the
    Constitution of India, and that the presumption contained in Section 7 (5)
    which was irrebuttable was ultra vires as it did not give any discretion to
    the assessing authority to reduce or waive the penalty on the ground of
    absence of malafide or any trivial or technical defect.

B         The High Court allowed the Writ Petition and held that the
    provisions of section 7(5) of the Entry Tax was ultra vires and construed it
    to mean that the presumption was irrebuttable and that the penalty for
    non-compliance could not be reduced and therefore it was confiscatory in
    nature.
c        In appeal to this Court it was contended that the approach of the
    High Court was incorrect, that looking at the scheme of the Act the
    presumption in Section 7(5) was rebuttable, and that the said provision
    did not provide for a fixed rate of penalty barring no discretion for
    imposition of lesser penalty.
D
          Allowing the appeals, this Court

           HELD : 1.1. Section 7(5) of the M.P. Entry Tax' Act should be
    construed to mean that the presumption contained therein is rebuttable.
    It places a burden of proof on the registered dealer to sh.ow that the
E   non-submission of the statement under sub- sections (1) and (2) of Section
    7 was not with a view to facilitate the evasion of entry tax. If a registered
    dealer is unable to satisfy the authorities in this regard then, in the absence
    of satisfaction, the presumption is that non-submission of statement has
    facilitated the evasion of entry tax. Construing Section 7 (5) to contain a
F   rebuttable presumption, it does not suffer from any vice. It cannot then be
    held invalid as concluded by the High Court. It is the misconstruction of
    the provision which misled the High Court to the contrary conclusion.
                                                                          [442-B-D]
        Sodhi Transport &Anr. Etc. •1, State of U.P. &Anr, Etc.. Etc., [1986] 1
G   SCR 939, relied on.

          1.2. The penalty of ten times the amount of entry tax stipuiated in
    Sec. 7(5) is only the maximum amount which could be levied and the
    assessing authority has the discretion to levy lesser amount depending
    upon the facts and circumstances of each case. Section 7(5) cannot be
H   regarded as confiscatory. The decision of the High Court that Section 7(5)
         STATE v. BHARAT HEAVY ELECTRICALS [KIRPAL, J.)                   437

is ultra vires cannot be sustained. [442-G-H]                                    A
       1.3. The judgment of the High Com1 and the assessments, if any,
 made, are set aside. The assessing authority shall now determine afresh
·the amount of penalty, if any, which is to be levied under Section 7(5) of
 the Entry Tax Act. Such determination shall take place only after notice B
 and reasonable opportunity of being heard is afforded to the respondents.
                                                                 (443-A-B]
      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 198 of
 1996 Etc.

     From the Judgment and Order dated 23. 2. 95 of the Madhya
                                                                                 c
Pradesh High Court in M.P. No. 696 of 1993.

      G.L. Sanghi, Satish K. Agnihotri, Sakesh Kumar and Ms. Madhur
 Dadlani for the Appellants.
                                                                                 D
      Shanti Bhushan, B. Sen and Soli J. Sorabjee, J.B. Dadachanji, S.
Sukumaran, Vivek Gambhir, Anip Sachthey, Niraj Sharma and Prakash .
Shrivastava for the Respondents.

      The Judgment of the Court was delivered by
                                                                                 E
        KIRPAL, J. The common question of law which arises in these
  appeals by special leave relates to the validity of Section 7(5) of the
. Madhya Pradesh Sthaniya Kshetra Me Mal Ke Parvesh Par ·Kar Ad-
  hiniyam, 1976 (hereinafter referred to, for the sake of convenience, "the
  Entry Tax Act". The said provision having been successfully challenged by      F
  the respondent before in Madhya Pradesh High Court the State of Madhya
  Pradesh has filed the present appeals.

      The facts, which are relevant for deciding the point in issue lie within
a very narrow compass. The respondents are stated to be engaged in sale
and purchase of various articles as raw material some of which are brought       G
into the local areas. They manufacture the finished goods which are sold
in local areas in which they are manufactured and, subsequently are sold
outside the local area. The respondents are all registered dealers both
under the Central and the State Sales Tax Act and it is the provisions of
that Act which are applied for assessment and recovery of entry tax.             H
    438                             SUPREME COURT REPORTS (1997) SUPP. 3 S.C.R.

A         The Entry Tax Act was enacted with the object of levying tax on the
    goods brought into the local area for consumption, use or sale therein.
    Section 3 is the charging section and sub-section (l)(a) and (b) which are
    relevant are as follows :

            "3. Incidence of taxation~· (1) There shall be levied an entry tax
B
            (a) on the entry in the course of business of a dealer of goods
            specified in Schedule II, into each local area for consumption, use
            or sale therein; and

            (b) on the entry in the course of business of a dealer of goods
c           specified in Schedule III, into each local area for consumption or
            use of such goods as (raw material or incidental goods) or as
            packing material or in the execution of works contracts but not for
            sale therein;

D           and such tax shall be paid by every dealer liable to tax under the
            Sales Tax Act who has effected entry of such goods :

                  provided that no tax under this sub-section shall be levied :

            (i) ............. .
E •.
            (ii) ..............

            (m) ............ .

             (iv) ............ ..
F            (v) ..............."

          Subsections (1), (2) and (5) of Section 7 of the Entry Tax Act, which
    are relevant for the determination of the controversy in issue, as amended
    from time to time, read as follows :
G
             "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,
             manufacturers, produces or grows any goods specified in Schedule
H            II in a local area in such manner that the goods become local goods
              STATEv. BHARATHEAVYELECTRICALS[KIRPAL,J.]                        439

             in relation to that local area, shall, on the sale of such local goods A
             to any other registered dealer, issue to him a bill, invoice or cash
             memo specifically stating in such· manner as may be prescribed,
             that the goods being sold are local goods in relation to such local
             area and that no entry tax has been paid on such goods.

             (2) Where the goods mentioned in sub-section (1) are purchased           B
             and sold in course of their business by a chain of registered dealers,
             the selling registered dealer shall issue a bill or invoice or cash
             memo, containing the statement referred to in sub-section (1);

                  Provided that where the goods are purchased by a registered         C
              dealer who effects the entry of such goods into a local area other
              than the local area in relation to which such goods are local goods,
            . it shall not be necessary for him to make the statement referred
              to in sub-section (1).

             (3) ................ .                                                   D
             (4) ............... .

             (5) Where a registered dealer referred to in sub- section (1) or
             sub-section (2) has, in the course of his business, sold local goods
             to other registered dealers and has failed to make the statement         E
             referred to in sub-section (1) (.. ), it shall be presumed that he has
             facilitated the evasion of entry tax in the local goods so sold and
             accordingly he shall be liable to pay penalty equal to (ten times)
             the amount of entry tax payable on such goods as if they were not
             goods of local origin .
                                                                                      F

-            (6) ............... "

            Prior to this amendment on 20th October, 1982, the penalty which
      was provided by sub-section (5) of Section 7 was only one and a half time
      the amount of entry tax payable on the goods. With the penalty having been G
      increased, as a consequence of amendment of sub-section (5) of Section 7,
      the respondents filed writ petitions in the Madhya Pradesh High Court
    . challenging the validity of the said provision.

          The main ground on which the challenge was based, on behalf of the
     respondents before the High Court, was that the levy of the penalty of ten       H
    440                  SUPREMECOURTREPORTS [1997JSUPP.3S.CR.

A times the amount of tax was confiscatory in nature and was ultra vires of
  the provisions of the Act and was also violative of Articles 14 and 19 of ~
  the Constitution of India. It was the contention of the respondents that the
  presumption contained in sub-section (5) of Section 7, which was regarded
  as not being rebuttable, was ultra vires as it did not give any discretion to,
B the assessing authority to reduce or waive the penalty on the ground of
  absence of ma/a fide or and trivial or technical defect.

        The High Court construed Section 7(5) of the Entry Tax Act to mean
  that the presumption contained therein was not rebuttable and, secondly
  the penalty which could be imposed for non-compliance was ten times the
C amount of tax which could not be reduced and, therefore, it was confis-
  catory in nature. Consequently the High Court came to the conclusion that
  the provisions of Section 7(5) of the Entry Tax Act were ultra vires.

        On behalf of the appellants it is submitted by Mr. G.L. Sanghi,
  learned senior counsel, that the High Court erred in coming to the con-
D clusion that Section 7(5) was ultra vires. He drew our attention to an ·
  observation in the judgment of the High Court which seems to suggest that
  the Advocate General, appearing on behalf of the appellants herein, had
  submitted that Section 7(5) should be read down. The High Court had
  observed that this was not possible and the scheme of the Act did not
E confer jurisdiction on the authorities to reduce the penalty.
          Mr. Sanghi contended that this approach of the High Court was
    incorrect and he submitted that looking at the scheme of the Act as a whole
    and Section 7 in particular he wouid concede that the presumptiou raised
    in sub-section (5) of Section 7 was rebuttable and secondly the said
F   provision did not provide for a fixed rate of penalty.

          We find merit in this contention. According to Section 3 the goods
    imported from outside the State which enter into any local area and are
    sold for consumption, use and sale therein are liable to pay entry tax if they
G   belong to 1he categories mentioned in Schedule II. Thus goods which are
    manufactured in the local area become taxable only when they first en~er
    into a local area other than the local area of its origin. It is in order to
    trace the goods manufactured in any local area and to ensure that the
    goods do not escape tax on their subsequent entry into another local area
    that certain checks and counter checks have been provided and in this
H   connection Section 7 contains the requirement for registered dealer who
         STATE v. BHARAT HEAVY ELEC1RICALS [KIRPAL, J.]                   441

sells the goods to make a statement referred to in this section. The main A
purpose of the statement required to be furnished under Section 7 is to
isolate the non-local goods from the local goods. There can be several good
reasons why a registered dealer may have failed to make the statement
required to be furnished by him by sub-section (1) and sub: section (2) of
Section 7. In our opinion it could not be the intention of the legislature B
that aii accidental omission or non-furnishing of the statement for a good
and valid reason must necessarily lead to the presumption that the
registered dealer had the intention of facilitating the evasion of entry tax.
Mr. Sanghi rightly drew our attention to a somewhat similar provision
which was contained in Section 28B of the UP Sales Tax Act, 1948. The
said section related to transit of goods by road through the State and the C
issue of transit passes. The said section reads as follows :

        "28B. Transit of goods by road through the State and issue of transit
        pass - When a vehicle coming from any place outside the State
        and bound for any other place outside the State passes through D
        the State, the driver or other person in charge of such vehicle shall
        obtain in the prescribed manner a transit p<;1ss from the officer in
        charge of the first check-post or barrier after his entry into the
        State and deliver it to the officer in charge of the check-post or
        barrier before his exist from the State, failing which it shall be
        presumed that the goods carried thereby have been sold within the E
        State by the owner or person in charge of the vehicle."

      In order to determine whether the aforesaid words "shall be
presumed occurring in Section 28B were rebuttable or not this Court in
Sodhi Transpolt and Anr. Etc. ETc. v. State of U.P. and Anr. Etc. Etc., [1986)   F
1 SCR 939, referred to Section 1 of the Indian Evidence Act and then
observed at page 953 as follows :

            "...These words, i.e., 'shall pre~ume' are being used in indian
        judicial lore for over a century to convey that they lay down
        rebuttable presumption in respect of matters with reference to G
        which they are used and we should expect that the U.P. Legislature
        also has used them in the same sense in which India courts have
        understood them over a long period and not as laying down a
        conclusive proof. In fact these presumptions are not peculiar to
        the Indian Evidence Act. They are generally used whenever fac.ts H
    442                   SUPREME COURT REPORTS [1997) SUPP. 3 S.C.R.

A            the to be ascertained by a judicial process."

         In our opinion Mr. Sanghi is right in submitting that Section 7 should
  be read as containing a rebuttable presumption. This would mean that it
  will be open to the registered dealer to satisfy the authorities concerned
  that the non-submission of the statement under sub-sections (1) and (2) of
B Section 7 w.as not with the intention to facilitate the evasion of the entry
  tax. In other words. Sub-section (5) of Section 7 places the burden of proof
  on the registered dealer to show that the non-submission or the statement
  under sub-section (1) and (2) of Section 7 was not with a view to facilitate
  the evasion of entry tax. If a registered dealer is unable to satisfy the
C authorities in this regard then, in the absence of satisfaction, the presump-
  tion is that non- submission of statement has facilitated the evasion of entry
  tax. Construing Section 7(5) to contain a rebuttable presumption, it does
  not suffer from any vice. It cannot then be held invalid as concluded by the
  High Court. It is the misconstruction of the provision which misled the
D High Court to the contrary conclusion.

        It is not necessary for us to decide whether the provision for levy of
  penalty equal to ten times the amount of entry tax would be confiscatory
  and, therefore, ultra vires since Mr. Sanghi, in fairness, submitted that the
  State treats it as the maximum limit and not fixed amount of penalty leaving
E no discretion for imposition of lesser penalty. This stand of the State itself
  concedes that the assessing authorities are not bound to levy fixed penalty
  equal to ten times the amount of entry tax whenever the provisions of
  Section 7(5) are attracted. Depending upon the facts of each case the
  assessing authority has to decide as to what would be the reasonable
  amount of penalty to be imposed, the maximum being ten times the amount
F of the. entry tax. So construed; sub-section (5) of Section 7 cannot be
  regarded as confiscatory. Consequently, this also cannot be a ground for
  holding Section 7(5) to be ultra vires.

        From the aforesaid it follows that Section 7(5) has to be construed
  to mean that the presumption contained therein is rebuttable and secondly
G the penalty of-ten times the amount of entry tax stipulated therein is only
  the maximum amount which could be levied and the assessing authority has
  the discretion to levy lesser amount, depending upon the facts and cir-
  cumstances of each case. .Construing Section 7(5) in this manner the
  decision of the High Cowt that Section 7(5) is ultra vires cannot be
H sustained.
        STATEv. BHARATHEAVYELECTRICALS[KIRPAL,J.]                  443

      For the aforesaid reasons these appeals are allowed. The judgment A
of the High Court and the assessment, if any, made, are set aside, the
assessing authority shall now determine afresh the amount of penalty, if
any, which is to be levied under Section 7(5) of the Entry Tax Act. Such
determination shall take place only after notice and reasonable opportunity
of being heard is afforded to the respondents. There will be no order as B
to costs.

V.M.                                                  Appeals allowed.