Transit detention for tax evasion upheld, but past default alone cannot justify goods detention under Kerala sales tax law.

Section 29A(2A) of the Kerala General Sales Tax Act and the first two contingencies in section 29A(2B) were treated as valid enforcement measures aimed at preventing tax evasion and recovering tax lawfully due, operating as incidental or ancillary powers within the sales tax scheme. The supporting circular was upheld insofar as it stayed within the statute and did not create a new tax. The classification between honest dealers and evaders was found to have a rational nexus with that object. However, the third contingency in section 29A(2B), which allowed detention of goods merely because a dealer had defaulted tax payment at any time, was held to exceed the anti-evasion purpose and was invalid to that extent under Articles 14, 19(1)(g) and 301.

---

---

Issues: The validity of section 29A(2A) and section 29A(2B) of the Kerala General Sales Tax Act and the supporting circular, particularly whether they violated Articles 14, 19(1)(g), 265 and 301 to 304 of the Constitution of India, and whether the power to detain goods and recover tax in transit could be used for cases of suspected evasion and past default.

Analysis: The statutory provisions were treated as measures intended to prevent evasion of tax lawfully due to the State and as incidental or ancillary to the scheme of assessment, recovery and enforcement under the sales tax law. The circular was upheld in substance because it was read as operating within the statutory framework and not as creating a new tax or overriding the Act. The classification between honest dealers and tax evaders was held to bear a rational relation to the object of preventing evasion, and mere misuse of the power was not a ground to invalidate the provision itself. However, the third contingency in section 29A(2B), which permitted detention and treatment of goods as if there were an attempt to evade tax merely because the dealer had at any time defaulted payment of tax for any period, was held to go beyond the object of checking evasion and to create an unwarranted impediment on movement of goods. To that limited extent, the provision was held vulnerable under Articles 14, 19(1)(g) and 301 of the Constitution of India.

Conclusion: Section 29A(2A) and the first two contingencies in section 29A(2B) were upheld, but the third contingency in section 29A(2B) was struck down.

Ratio Decidendi: Provisions enacted to prevent tax evasion and facilitate recovery of tax lawfully due to the State are valid as incidental or ancillary to the taxing power, but a transit detention measure that operates merely on proof of past default, without a sufficient nexus to suspected evasion in the transaction in question, is unconstitutional to that extent.

---