TaxTMI 
TaxTMI 
2004 (2) TMI 341
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....powers/powers incidental to the levy of tax on sale and purchase of goods sections 57, 58 and 59 are enacted. Under section 57 the Commissioner is empowered to call for information from clearing and forwarding agents to give certain particulars in respect of transaction with any dealer. By the impugned judgment Reported in [1996] 103 STC 106., the Madhya Pradesh High Court has struck down the provisions of sections 57, 58 and 59 of the said Act on the ground of lack of legislative competence, relying on, the following the judgment of this Court in the case of State of Haryana v. Sant Lal reported in (1993) 4 SCC 380 See [1993] 91 STC 321. 2.. The original petitioners, Swastik Roadways, were carrying on business of clearing and forwarding agents. They used to receive goods for being consigned to places outside the area of their operation. They also used to receive goods from place to place outside their principal place of business for delivery to consignees. In short, they were clearing and forwarding agents engaged in the business of transporting goods. 3.. On April 1, 1995, the Madhya Pradesh Commercial Tax Act, 1994 came into force. It received the assent of the President o....
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....e case of tax evasion by the dealer, the Commissioner has to make a necessary enquiry and therefore under section 57(1) of the Act, the Commissioner is empowered to call upon clearing or forwarding agent or the transporter to furnish requisite details in order to control tax evasion. That similarly section 58 gives powers to the State Government to direct the clearing and forwarding agent to maintain a register in order to check or prevent tax evasion. Mr. Sen contended that sections 57 and 58 are a part of machinery sections which help the assessing officer to compute the tax and which helps the department to check and prevent tax evasion. Mr. Sen contended that under entry 54 of List II, the State is empowered to make a law imposing tax on sale and purchase of goods. He contended that the impugned provisions are incidental or ancillary to the power of the State to impose tax on sale or purchase of goods. He contended that clearing and forwarding agents have a close and proximatic connection with sale and purchase of goods. He, therefore, submitted that imposition of penalty on clearing and forwarding agents was leviable if they did not co-operate in the enquiry against ....
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....the State is empowered to make regulatory measures, it cannot make a person liable if tax cannot be imposed on such a person. Mr. Sanghi, learned counsel for the respondents, contended that the State cannot penalise any and every person for evasion of tax if such person is remotely connected to the taxable transaction. He contended that clearing and forwarding agents do not have any proximate connection with the sale and purchase of goods. He contended that there is no proximate nexus between clearing and forwarding agent on the one hand and evasion of tax on the other hand. He contended that it is the dealer, who is responsible for evasion of tax, if any, for which a clearing and forwarding agent cannot be held responsible. Mr. Sanghi submitted that the judgment of the Supreme Court in Sant Lal's case (1993) 4 SCC 380 See [1993] 91 STC 321. was clearly applicable to this case and, therefore, the High Court was right in striking down sections 57, 58 and 59 of the said Act and rule 75 of the Rules as ultra vires entry 54 of List II of the Seventh Schedule to the Constitution of India. Mr. Sanghi further contended that under section 57(1) and under section 58(1) every clearing and....
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.... required of him by the Commissioner under sub-section (1). Section 58: Control on clearing and forwarding agents to prevent or check evasion of tax.-(1) The State Government may, if it is satisfied that it is necessary so to do with a view to prevent or check evasion of tax under this Act in any place or places in the State, direct that- (i) every clearing and forwarding agent who during the course of his business handles documents of title to goods or transports goods or despatches or takes delivery of goods and who has his place of business at such places as may be notified by the State Government, shall sent an intimation about his business in the prescribed form to the prescribed authority and in the prescribed manner before the prescribed date; and (ii) every such clearing and forwarding agent shall maintain a register in such form and containing such particulars of his business as may be prescribed which shall be open to inspection by the Commissioner. (2) If any clearing or forwarding agent on being directed to do so under sub-section (1) contravenes the provisions thereof, the Commissioner may, after giving such agent a reasonable opportunity of being heard, d....
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....of such goods. Under section 58, the State Government is empowered to direct the clearing and forwarding agents to maintain a register and give an intimation about his business in the prescribed format. By rule 75, form 60 is prescribed for intimation of particulars of business of clearing and forwarding agent and form 61 is the prescribed register. 10.. According to the respondents, section 57(2) is bad in law as it seeks to levy and recover the tax on sale of goods in the form of penalty from clearing and forwarding agents who have no proximate connection with the sale or purchase of goods or payment of tax. This argument of the respondents has been accepted by the High Court in the impugned judgment. In this connection reliance is placed on the judgments of this Court in Sant Lal's case (1993) 4 SCC 380 See [1993] 91 STC 321. and on Check Post Officer v. K.P. Abdulla and Bros. reported in (1970) 3 SCC 355 See [1971] 27 STC 1.. 11.. We do not find any merit in the arguments advanced on behalf of the respondents. The power to levy a tax includes all incidental powers to prevent the evasion of such tax. The powers such as the power to seize and confiscate goods in the event o....
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....ansaction to verify the claims of the dealer and to trace the taxable transactions so that a person or a transaction liable to sales tax under the State Act does not escape payment of such tax. When the Commissioner acts under section 57(1) he acts in cases where he detects such evasions. This is clear from provisions of sections 57(1) and 58(1). Under various sections of the Act, tax-evaders are sought to be penalised and by contravening the provisions of sections 57 and 58 the clearing and forwarding agent also becomes liable as he facilitates such tax evasion. In the circumstances, the High Court erred in holding that there was no proximate connection between the clearing and forwarding agents and the tax evasion. 12.. We also do not find merit in the contention of the respondents that since the basis of penalty was three times the tax evaded by the owner/dealer, section 57(2) falls beyond the ancillary powers to levy tax on the sale and purchase of goods. In support of it, it was argued that such penalty was indeed a tax on sale of goods. That such penalty could not have been levied on the clearing and forwarding agent, as there was no sale or purchase in his hands nor he ha....
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....they handle the goods of dealers or not. They were all required to obtain licence, failing which they were not allowed to operate as clearing and forwarding agents and that is the main reason why section 38 was struck down. In fact section 38(2) and 38(1) were connected to each other and penalty was imposed for contravention of both the sub-sections. The court observed at paragraph 15 See page 330 of 91 STC.: ".........A clearing or forwarding agent or 'dalal' or person transporting goods does not necessarily handle the booking or receipt of goods which have been sold; they could very well be handling goods which a consignor may consign to himself from one town or village to another in the State. The said Act does not take account of this and requires all forwarding and clearing agents, 'dalals' and persons transporting goods to be licensed under the said Act. To this extent the said section 38 goes beyond the ancillary and subsidiary powers of the State Legislature in enacting a law imposing sales tax." As regards sub-section (3) of section 38 which provides for levy of penalty, it was held: "It is difficult to hold that a clearing or forwarding agent, 'dalal' or person tran....
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....uch particulars are expected to be maintained by a clearing and forwarding agent including a transporter in the ordinary course of business even without a provision like section 58. We reiterate that in the present case, the provisions of sections 57 and 58 are to prevent/check tax evasion. The penalty provision contained in section 57(2) unlike in the case of Sant Lal (1993) 4 SCC 380 has intimate nexus with evasion of tax by the dealer whose goods or documents are handled by the clearing and forwarding agent (as defined by section 59) and whose failure to furnish information would have led to the tax evasion. The penalty provision in Sant Lal's case (1993) 4 SCC 380 is materially different. "The reasonable and proximate connection" is not lacking in the present case. The decision in Sant Lal's case (1993) 4 SCC 380 See [1993] 91 STC 321 (SC)., was distinguished in two subsequent decisions, namely, Tripura Goods Transport Association v. Commissioner of Taxes (1999) 2 SCC 253 See [1999] 112 STC 609 (SC). and State of Rajasthan v. D.P. Metals (2002) 1 SCC 279 See [2001] 124 STC 611 (SC).. In the first case, the relevant provisions of the Tripura Sales Tax Act required the pers....
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....llans, bills of sale, declaration forms, etc., or for submission of forms, etc., or for submission of false or forged documents. The challenge to legislative competence was negatived in this case also. It was however clarified that the impugned sub-section cannot relate to personal belongings which are not meant for sale. This Court observed: "It is thus settled law that provisions to check evasion of tax are within the legislative competence of the States under entry 54 of List II. This being so, the provisions to make the imposition of tax efficacious or to prevent evasion of tax are within the legislative competence..........If there was legislative competence to enact section 78(2) then the same power contained in entry 54 of List II could enable the State Legislature to provide for consequence of non- compliance by incorporating sub-section (5) therein........" Referring to Sant Lal's case (1993) 4 SCC 380 See [1993] 91 STC 321 (SC). it was observed: "Unlike the dalals and forwarding agents, as in Sant Lal's case (1993) 4 SCC 380 See [1993] 91 STC 321 (SC). the persons referred to in section 78(2) are persons concerned with the movement of the goods which are sold ....
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....confiscation, the person affected had the option to pay in addition to the tax recoverable on the goods, a sum of money at double the amount of tax recoverable in case they are taxable goods. The Constitution Bench affirming the judgment of the High Court, declared sub-section (3) of section 42 unconstitutional for the reason that it is not ancillary or incidental to the power to legislate on sales tax. It was observed: "........Sub-sections (1) and (2) of section 42 are intended to set up machinery for preventing evasion of sales tax. But, in our judgment, the power to confiscate goods carried in a vehicle cannot be said to be fairly and reasonably comprehended in the power to legislate in respect of taxes on sale or purchase of goods......A provision so enacted on the assumption that goods carried in a vehicle from one State to another must be presumed to be transported after sale within the State is unwarranted. In any event, power conferred by sub-section (3) to seize and confiscate and to levy penalty in respect of all goods which are carried in a vehicle whether the goods are sold or not is not incidental or ancillary to the power to levy sales tax." Referring to sub-se....
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....new section 4(1)(a) provided the "value" shall be deemed to be the normal price and the normal price was defined as the price at which the goods were ordinarily sold by the assessee in the course of wholesale trade where the buyer was not a "related person" and the price was the sole consideration for the sale. However there were three provisos to section 4(1)(a) which indicated circumstances under which normal price could vary. The third proviso to section 4(1)(a) provided that where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons). On behalf of the assessee it was urged that the provisions, aforestated, were whimsical and arbitrary and cannot be said to be reasonably calculated to deal with the issue of evasion or avoidance of excise. It was said that the assessment on the manufacturer by reference to the sale price ch....