Anti-evasion sales tax measures upheld for detention, but mandatory penalty for missing documents was struck down as excessive.

Section 14-B(6)(ii) of the Punjab General Sales Tax Act was treated as a valid anti-evasion measure within the State's competence under Entry 54 of List II, because detention of goods for non-production of documents at a check-post or information centre operated as a safeguard against tax evasion and included procedural protections. Section 14-B(7)(iii), however, which imposed a compulsory penalty equal to fifty per cent of the value of the goods merely for failure to produce documents, was held unconstitutional to that extent because it was inflexible, unrelated to any proved attempt to evade tax, and excessive. The challenge based on lack of prior Presidential sanction under Article 304(b) failed.

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Issues: (i) Whether section 14-B(6)(ii) of the Punjab General Sales Tax Act, 1948, empowering detention of goods for non-production of documents at the check-post or information collection centre, is within the legislative competence of the State and valid; (ii) Whether section 14-B(7)(iii), which mandates penalty equal to fifty per cent of the value of the goods for failure to furnish the required documents, is constitutionally valid; (iii) Whether the impugned amendment required previous Presidential sanction under article 304(b) of the Constitution of India.

Issue (i): Whether section 14-B(6)(ii) of the Punjab General Sales Tax Act, 1948, empowering detention of goods for non-production of documents at the check-post or information collection centre, is within the legislative competence of the State and valid.

Analysis: The provision was examined in the context of the State's power under entry 54 of List II to enact ancillary and incidental measures for levy and collection of sales tax, including measures to prevent evasion. The detention mechanism was treated as a safeguard against evasion, supported by recording of reasons and opportunity of hearing. The Court distinguished provisions that presumed sale or imposed confiscatory consequences merely for absence of documents, and held that the clause operated within the permissible field of anti-evasion machinery.

Conclusion: Section 14-B(6)(ii) was held intra vires and valid.

Issue (ii): Whether section 14-B(7)(iii), which mandates penalty equal to fifty per cent of the value of the goods for failure to furnish the required documents, is constitutionally valid.

Analysis: The provision was found to differ materially from the earlier, constitutionally sustained anti-evasion scheme because it made the penalty compulsory and linked it not to any proved attempt to evade tax but merely to non-production of documents at the relevant checkpoint. The mandatory nature of the penalty, irrespective of whether the transaction was taxable or whether any evasion was actually attempted, was held to be excessive and unconscionable. This rendered the clause vulnerable under the guarantees of equality and freedom to carry on trade.

Conclusion: Section 14-B(7)(iii) was held unconstitutional to the extent that it mandated penalty at fifty per cent of the value of the goods.

Issue (iii): Whether the impugned amendment required previous Presidential sanction under article 304(b) of the Constitution of India.

Analysis: The Court held that the amendment did not introduce a new or additional restriction on trade, commerce or intercourse beyond the pre-existing scheme, but merely altered the degree of penalty within the same anti-evasion framework. Since the substance of the regulatory measure remained the same, the absence of prior Presidential sanction did not invalidate the amendment.

Conclusion: The challenge based on want of Presidential sanction was rejected.

Final Conclusion: The anti-evasion detention provision was upheld, the mandatory penalty provision was struck down only to the extent of its compulsory fifty-per-cent levy, and the challenge based on article 304(b) failed.

Ratio Decidendi: A State may enact incidental and ancillary anti-evasion measures to support sales tax administration, but a provision imposing an inflexible penalty unrelated to a proved attempt to evade tax is constitutionally impermissible.

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