Taxing power and anti-evasion measures require a proximate nexus with the taxable transaction; overbroad compliance duties were struck down.

The SC held that a taxing legislature may enact machinery and anti-evasion measures only where there is a reasonable and proximate connection between the regulated person and the taxable transaction. Section 38 of the Haryana General Sales Tax Act, 1973, and the connected rules and forms were found to apply broadly to clearing and forwarding agents, dalals and transporters, including persons with no direct nexus to a sale and no necessary knowledge of the information demanded. Because the obligations and penalty regime extended beyond ancillary powers and were unreasonable and oppressive in that context, section 38 was held ultra vires and bad in law, and the connected rules and forms also fell.

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Issues: Whether section 38 of the Haryana General Sales Tax Act, 1973, and the connected rules and forms were within the legislative competence of the State Legislature as ancillary provisions to the levy and collection of sales tax.

Analysis: The provisions required clearing and forwarding agents, dalals, and persons transporting goods to furnish particulars, obtain licences, maintain records, and face a substantial penalty for non-compliance. The Court held that the power under the taxing entry extends to machinery and ancillary measures only where there is a reasonable and proximate connection with the taxable sale transaction. Section 38, however, applied broadly to persons who might have no handling of documents of title to goods and might have no connection with a sale at all. The obligation to furnish information could extend to matters not necessarily within the knowledge of such persons, and the penalty was tied to the value of the goods rather than to tax sought to be evaded. The Court concluded that, to the extent the provision applied to persons lacking a direct nexus with sales transactions, it went beyond ancillary powers and was unreasonable and oppressive.

Conclusion: Section 38 was ultra vires and bad in law. Consequently, the connected rules and forms relating to that provision were also bad in law, and the challenge by the appellants failed.

Ratio Decidendi: A taxing legislature may enact machinery and anti-evasion measures only where there is a reasonable and proximate connection between the regulated person and the taxable transaction; provisions that extend beyond that nexus are beyond legislative competence and ultra vires.

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