Sales tax powers cannot extend to transporters and clearing agents lacking a proximate connection with the taxable transaction.

Sections 57 to 59 of the Madhya Pradesh Vanijyik Kar Adhiniyam, 1994 and rule 75 of the M.P. Vanijyik Kar Niyam, 1995 were held to exceed the State's legislative competence under entry 54 of List II because they sought to impose information, record-keeping and penal obligations on transporters and clearing and forwarding agents. The court applied the principle that a sales tax power extends only to persons and measures having a reasonable and proximate connection with the taxable sale or purchase of goods. A transporter or carrier, acting only as a conduit for carriage, is not thereby a dealer or seller, and cannot be treated as liable for the principal's tax default. The provisions were therefore ultra vires.

---

---

Issues: Whether sections 57, 58 and 59 of the Madhya Pradesh Vanijyik Kar Adhiniyam, 1994 and rule 75 of the M.P. Vanijyik Kar Niyam, 1995 were within the legislative competence of the State under entry 54 of List II of the Seventh Schedule to the Constitution of India, so as to apply to transporters and clearing and forwarding agents.

Analysis: The Act sought to require clearing and forwarding agents and transporters to furnish information, maintain registers, and suffer penalties for non-compliance or for alleged tax evasion by principals. The Court held that the constitutional power under entry 54 extends only to taxes on the sale or purchase of goods and to measures having a reasonable and proximate connection with that taxable activity. A transporter or carrier is not, by that reason alone, a dealer or seller, and the statutory definitions of commerce and dealer could not be stretched to include a person whose function is only carriage of goods. The Court applied the principle that ancillary or machinery provisions are valid only when they remain connected with the tax on sale or purchase and do not impose liability on persons unconnected with that taxable event. Relying on the governing Supreme Court approach, the Court found no proximate nexus between the transporter's activities and the taxable transaction.

Conclusion: The impugned provisions and rule were held to be beyond the competence of the State Legislature and ultra vires entry 54 of List II of the Seventh Schedule to the Constitution of India.

Ratio Decidendi: A State law imposing sales tax can validly regulate only those persons whose activities bear a reasonable and proximate connection with the sale or purchase of goods; transporters or clearing and forwarding agents who merely carry goods, without authority to sell or participate in the taxable transaction, cannot be subjected to such liability as dealers or penalised for the principal's tax default.

---