1986 (3) TMI 303 - SC - VAT / Sales Tax

Constitutionality of Section 28-B and Rule 87 upheld; rebuttable presumption allows sales tax assessment when goods sold in-state

Sodhi Transport Co. and Another Versus State of UP. and Another (and other appeals and writ petitions)

SC upheld the constitutionality of section 28-B and rule 87, holding that the statutory rebuttable presumption (e.g., failure to hand over transit pass) ... Validity of sections 28, 28-B and rule 87 - Entitlement to levy tax on sales under entry 54 of List II of the Seventh Schedule to the Constitution - Restrictions imposed on them by section 28-B of the Act and rule 87 of the Rules and the orders of assessment passed under the Act against them by the sales tax authorities of the State of Uttar Pradesh - Rebuttable presumptions of law - business of transport of goods belonging to others for hire from one place to another and who in the course of their business have to carry goods from one State to another State along roads lying in the State of Uttar Pradesh. Held that:- It is seen that if the transit pass is not handed over to the officer-in-charge of the check post or barrier before his exit from the State, it shall be presumed that the goods carried thereby have been sold inside the State by the person-in-charge of the said goods. It is contended that the said rule virtually makes a person who has not actually sold the goods liable to pay sales tax and it is further argued that a transporter being just a transporter cannot be treated as a dealer within the meaning of that expression as it was defined in the Act at the time when section 28-B was introduced into the Act. The authority concerned before levying sales tax arrives at the conclusion by a judicial process that the goods have been sold inside the State and in doing so relies upon the statutory rule of presumption contained in section 28-B of the Act which may be rebutted by the person against whom action is taken under section 28-B of the Act. When once a finding is recorded that a person has sold the goods which he had brought inside the State, then he would be a dealer even according to the definition of the word 'dealer' as it stood from the very commencement of the Act subject to the other conditions prescribed in this behalf being fulfilled. A person who sells goods inside the State of Uttar Pradesh and fulfills the other conditions prescribed in that behalf is a dealer even as per amendments made in 1959, 1961, 1964, 1973 and 1978 to the said definition. There is, therefore, no substance in the contention that a transporter was being made liable for the first time after 1979 with retrospective effect to pay sales tax on a transaction which is not a sale. Tax becomes payable by him only after a finding is recorded that he has sold the goods inside the State though with the help of the presumption which is a rebuttable one. The levy of sales tax on goods which are held to have been sold inside the State cannot be considered as contravening article 301 of the Constitution. The restrictions imposed are not also shown to be unreasonable. They do not unduly hamper trade. On the other hand they are imposed in the public interest. The contentions based on article 301 and article 19(1)(g) of the Constitution are, therefore, without substance. The contentions regarding legislative competence or unreasonale character of the provisions contained in section 29-B of the Act and rule 87 of the Rules. They are introduced, as stated earlier, to check evasion and to provide a machinery for levying tax from persons who dispose of goods inside the State and avoid tax which they are otherwise liable to pay. The law provides enough protection to them and makes provision to enable them to show that they are in fact not liable to pay any tax. The decision of the High Court upholding the constitutionality of section 28-B of the Act and rule 87 of the Rules does not call for any interference. We uphold the validity of the said provisions. It would meet the ends of justice if the cases of the appellants and petitioners are permitted to be dealt with accordingly. We give our approval to the said proposals and make an order accordingly. Any assessment made pursuant to the above orders shall not be open to question on the ground that it does not satisfy the period of limitation contained in section 21 of the Act. We also make it clear that any person who is aggrieved by the order of assessment may question it in appeal or revision as provided by the Act on all grounds except on the ground that it had been passed beyond time. We also direct that if any of the appellants or petitioners has, depending upon the pendency of these appeals or petitions, not filed any appeal or revision against any order passed under the Act, such appellant or petitioner may prefer such appeal or revision, as the case may be, on or before April 30, 1986, and if any such appeal or revision is filed it shall be disposed of by the concerned authority without raising any objection as to the period of limitation. Issues Involved:1. Constitutionality of Section 28-B of the Uttar Pradesh Sales Tax Act, 1948, and Rule 87 of the Uttar Pradesh Sales Tax Rules, 1948.2. Legislative competence under Entry 54 of List II of the Seventh Schedule to the Constitution.3. Infringement of freedom of trade, commerce, and intercourse under Article 301 of the Constitution.4. Imposition of unreasonable restrictions on the freedom of trade under Article 19(1)(g) of the Constitution.5. Interpretation of the presumption under Section 28-B of the Act.Detailed Analysis:1. Constitutionality of Section 28-B and Rule 87:The Supreme Court upheld the constitutionality of Section 28-B of the Uttar Pradesh Sales Tax Act, 1948, and Rule 87 of the Uttar Pradesh Sales Tax Rules, 1948. The Court observed that these provisions are machinery provisions designed to prevent tax evasion and do not themselves levy any charge. They are enacted to ensure that goods transported through Uttar Pradesh are not sold within the state without paying the requisite sales tax.2. Legislative Competence:The Court held that the Uttar Pradesh Sales Tax Act is traceable to Entry 54 of List II of the Seventh Schedule to the Constitution, which pertains to 'Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.' The Court emphasized that the legislature has ancillary and incidental powers to make laws effective, including provisions to prevent tax evasion. The Court cited precedents to support the view that when a legislature has the power to make a law on a subject, it also has the power to enact ancillary provisions to prevent evasion of the tax.3. Infringement of Freedom of Trade (Article 301):The Court rejected the contention that Section 28-B and Rule 87 infringe upon the freedom of trade, commerce, and intercourse guaranteed under Article 301 of the Constitution. The Court reasoned that these provisions do not unduly hamper trade but are imposed in the public interest to prevent tax evasion. The restrictions are considered reasonable and necessary for the effective collection of sales tax.4. Unreasonable Restrictions on Trade (Article 19(1)(g)):The Court also dismissed the argument that Section 28-B and Rule 87 impose unreasonable restrictions on the freedom of trade under Article 19(1)(g) of the Constitution. The Court held that the provisions are reasonable and do not unduly interfere with the right to carry on trade. They are designed to ensure that goods transported through Uttar Pradesh are not sold within the state without paying the required sales tax.5. Interpretation of Presumption under Section 28-B:The Court clarified that the presumption under Section 28-B of the Act is a rebuttable presumption and not a conclusive one. If a transporter fails to deliver the transit pass at the exit check post, it shall be presumed that the goods have been sold within the state. However, the transporter can rebut this presumption by providing reliable evidence that the goods were not sold within the state. The Court emphasized that this presumption is a rule of evidence and shifts the burden of proof to the transporter to show that the goods were not sold within Uttar Pradesh.Additional Considerations:The Court acknowledged that some assessing authorities had misinterpreted Section 28-B as creating a conclusive presumption, leading to unjust assessments. The Court approved a proposal by the Commissioner of Sales Tax to re-examine all assessments for the period prior to June 1, 1979, and to withdraw ex parte assessment orders. Fresh notices would be issued, and assessments would be finalized in accordance with the law, considering the rebuttable nature of the presumption under Section 28-B.Conclusion:The Supreme Court upheld the validity of Section 28-B of the Uttar Pradesh Sales Tax Act and Rule 87 of the Uttar Pradesh Sales Tax Rules. The Court clarified that the presumption under Section 28-B is rebuttable and provided guidelines for re-examining past assessments to ensure that genuine transporters are not unjustly taxed. The appeals and writ petitions were disposed of accordingly, with no order as to costs.