Tax scrutiny proviso upheld as reasonable, and retrospective operation sustained because the clause was substantive in nature.

The third proviso to section 27(1)(a)(ii) of the Haryana General Sales Tax Act was upheld as a reasonable regulatory measure because it only authorised scrutiny of the genuineness of claimed sales deductions, including the purchaser's financial capacity, business profile and disposal of goods, to detect sham transactions. The court treated this as a codification of an already recognised power of tax scrutiny, not an arbitrary restraint on trade. The retrospective operation of the proviso was also sustained because the clause was construed as substantive in nature despite its form as a proviso, and the corresponding Haryana and Punjab provisions were in pari materia. Both constitutional and retrospectivity challenges therefore failed.

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Issues: (i) whether the third proviso to section 27(1)(a)(ii) of the Haryana General Sales Tax Act, 1973, was constitutionally invalid as an unreasonable restriction on the right to carry on trade and business; (ii) whether the retrospective operation given to the third proviso by section 1(3) of the Act was invalid.

Issue (i): whether the third proviso to section 27(1)(a)(ii) of the Haryana General Sales Tax Act, 1973, was constitutionally invalid as an unreasonable restriction on the right to carry on trade and business.

Analysis: The impugned proviso empowered the assessing authority to examine the genuineness of sales claimed for deduction and to test such claims by reference to the financial position of the purchaser, its capacity to purchase, the nature and extent of business, and the subsequent disposal of goods. The power recognised under the earlier sales tax law had already been upheld in prior decisions as one that permitted scrutiny of bona fide transactions and rejection of sham sales on evidence. The proviso was treated as merely making explicit what had already been implicit in the settled law and as providing reasonable guidelines rather than conferring arbitrary power.

Conclusion: The proviso did not impose an unreasonable restriction and was constitutionally valid.

Issue (ii): whether the retrospective operation given to the third proviso by section 1(3) of the Act was invalid.

Analysis: A proviso may, in substance, be a substantive provision if it lays down an independent rule of action. On its true construction, the third proviso was held to be a substantive clause though couched as a proviso, and therefore capable of operating retrospectively. It was also held that the corresponding provisions of the Haryana Act and the Punjab General Sales Tax Act were in pari materia, so the retrospective provision could validly attach to the predecessor regime as well.

Conclusion: The retrospective operation was valid.

Final Conclusion: The constitutional challenge and the challenge to retrospectivity both failed, and the writ petitions were dismissed.

Ratio Decidendi: A proviso may itself be a substantive provision and, if it merely codifies an existing and reasonable power of tax scrutiny, it can validly operate retrospectively where the corresponding statutory provisions are in pari materia.

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