Check-post penalty law: value-linked sanctions for transport breaches were struck down as disproportionate and unconstitutional.

Section 78 of the Rajasthan Sales Tax Act was examined as a check-post machinery provision aimed at preventing tax evasion in goods movement. The transporter's obligations to carry documents, stop at the check-post, produce papers, disclose information and permit inspection were treated as ancillary to levy and collection of sales tax and therefore within legislative competence. The Court also noted that penalty cannot follow technical or bona fide breaches without notice and opportunity. However, the value-linked penalty under section 78(5), fixed at 30% of the goods' value rather than the tax evaded, was held excessive, disproportionate and violative of Articles 14 and 19(1)(g).

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Issues: Whether section 78(5) of the Rajasthan Sales Tax Act, 1994, imposing penalty equal to 30% of the value of goods for breach of check-post requirements, was within legislative competence and constitutionally valid; and whether the transporter could nevertheless be subjected to a reasonable penalty for breach of the obligations under section 78(2).

Analysis: The scheme of section 78 was examined as a machinery provision intended to prevent or check evasion and avoidance of tax in connection with goods in movement. The obligation cast on the transporter to carry documents, stop at the check-post, produce papers, disclose information in his possession, and permit inspection was held to be capable of falling within the State's ancillary and incidental power under entry 54 of List II, because such requirements have a reasonable and proximate nexus with the levy and collection of sales tax. The Court also held that the requirement of notice and opportunity before imposition of penalty is not an empty formality, and that bona fide or technical breaches do not automatically attract penalty. However, the Court found that the penal consequence under section 78(5), when linked to 30% of the value of the goods and not to the tax sought to be evaded, was excessive, disproportionate, and devoid of reasonable nexus with the object of the provision. That part of the provision was also found to offend Articles 14 and 19(1)(g) of the Constitution.

Conclusion: Section 78(5) was held unconstitutional and ultra vires to the extent that it imposed penalty equal to 30% of the value of goods. The transporter remained liable only to such reasonable penalty as may be imposed for breach of section 78(2) in accordance with law.

Final Conclusion: The challenge succeeded in part: the impugned value-linked penalty provision was struck down, while the remaining check-post and information-gathering machinery under section 78 was sustained subject to constitutional limitations and reasonableness.

Ratio Decidendi: In a taxing statute, measures to prevent evasion may be upheld as ancillary or incidental only if they bear a reasonable and proximate nexus with the taxable event and the penalty imposed is proportionate to the object sought to be achieved; a penalty linked to the value of goods, rather than to the tax evaded, is unconstitutional when it is excessive and arbitrary.

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