TaxTMI 
TaxTMI 
1983 (1) TMI 226
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....in exercise of powers under section 28-A(6) of the Act detain the goods of the petitioners. Before these petitions could be taken for hearing, the Governor of Uttar Pradesh, presumably with a view to set at rest the controversy with regard to validity of the new section 28-A as also that of the action of the respondents in detaining the goods belong to the petitioners, promulgated an Ordinance entitled as "the U.P. Sales Tax (Amendment and Validation) Ordinance, 1982 (U.P. Ordinance No. 35 of 1982) on 6th October, 1982, making certain amendments in the new section 28-A and providing that reference in the U.P. Sales Tax Rules, 1948, to section 28-A of the Act would be deemed to be reference to section 28-A as substituted by the 1979 Act and that notification dated 29th March, 1974, as amended by notification dated 19th November, 1974 (specifying the quantity, measure and value of goods for purposes of section 28-A(1) of the Act as it then stood) shall continue to be in force and deemed to have remained in force as if the same had been issued under sub-section (1) of section 28-A of the Act as substituted by U.P. Act 33 of 1979. The learned counsel for the petitioners then q....
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....ds within the State as were to be imported therein from outside. Subsection (1) of section 28-A of the Act ran thus: "28-A. import or receipt of goods by road from outside the State against declaration.-(1)(a). Any person who seeks to import by road into the State from any place outside the State such goods, which exceed such quantity, measure or value as the State Government may, by notification in the Gazette, specify or to whom such goods are sought to be sent by road into the State from any place outside the State, shall furnish to the exporting dealer or the sender of the goods, as the case may be (hereinafter in this section referred to as the consignor), a declaration in the prescribed form in two copies, duly filled in and signed by him. (b) The forms of declaration may be obtained by any person on payment of the prescribed fee from the assessing authority having jurisdiction over the area where his principal place of business is situated or, in case no business is carried on by him, where he ordinarily resides." Sub-section (2) thereof then placed an obligation upon the driver or other person in-charge of any vehicle carrying such goods to obtain from the c....
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....urnish security in the amount of penalty liable to be imposed. The penalty extended to three times of the amount of tax sought to be evaded. The court opined that the decision of the Supreme Court in the case of Check Post Officer v. K.P. Abdulla [1971] 27 STC 1 (SC) was decisive in this respect and held that on a parity of reasoning the provision contained in section 28-A and section 28-C authorising seizure and detention and imposition of penalty, on the underlying assumption that the goods had been sold and liability to tax had arisen, could not be legislated in respect of the matters ancillary or incidental to the prevention of evasion of tax. Since these provisions were clearly outside the purview of entry 54 of List II of the Seventh Schedule to the Constitution they were ultra vires. The court also distinguished a Full Bench decision of the Punjab and Haryana High Court in the case of Mool Chand Chuni Lal v. Assistant Excise and Taxation Officer [1977] 40 STC 238 (FB) wherein the provisions of the Punjab General Sales Tax Act, 1948, in respect of similar subject-matter had been held to be valid. It observed that after its re-enactment in the year 1974 the provision....
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....y him and the driver or any other person in-charge of any vehicle carrying any such goods shall carry with him the copies of such declaration duly verified by the consignor in the prescribed manner together with such other documents as may be prescribed, and shall before crossing any check post or barrier established under section 28, deliver one copy of such declaration to the officer-in-charge of such check post or barrier and the other copy of the declaration and the remaining documents along with the goods to the importer or his agent; (b) the officer-in-charge of the check post or barrier shall grant a receipt for the copy of declaration delivered to him and it shall not be necessary for the driver or the person in-charge of the vehicle to deliver any copy of the declaration at any other check post or barrier that he may cross, if he shows such receipt to the officer-in-charge of such other check post or barrier; (c) where such goods are brought into the State from without by a road on which no check post or barrier is established or, where for any other reason a copy of the declaration could not be delivered at a check post or barrier as aforesaid, the consignee shall a....
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....ed to in the preceding sub-sections and if for reasons to be recorded he is satisfied after giving such person an opportunity of being heard that such goods were being so transported in an attempt to evade assessment or payment of tax due or likely to be due under this Act, he may order detention of such goods. (7) The provisions of sub-sections (2), (6) and (8) of section 13-A shall mutatis mutandis apply to such detention as they apply to seizure under that section. (8) Nothing contained in this section shall be construed to impose any obligation on any railway administration or railway servant or the post office or any officer of the post office or to empower any search, detention or seizure of any goods while on a railway as defined in the Indian Railways Act, 1890, or in a post office as defined in the Indian Post Office Act, 1898.", and omitted sections 28-C and 28-D from the statute book. The petitioners then filed the present writ petitions contending inter alia that the new section 28-A continues to suffer from the same vice with which the section as it stood prior to its substitution by the new section as pointed out in Synthetic and Chemicals' case 1978 UPTC 624 su....
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....ods liable to tax under the Act, in such quantity or measure or value as exceeds the quantity, measure or value notified by the State Government in that behalf, in connection with his business, he is required to obtain the prescribed form of declaration on payment of the prescribed fee from the concerned assessing authority and to, where such goods are consigned by road, furnish to the consignor the declaration in the prescribed form signed by him. The driver or any other person in-charge of the vehicle carrying such goods has to carry the declaration and to deliver one copy thereof to the officer-in-charge of the check post or the barrier. The section contemplates that even where a person brings the specified goods in excess of the quantity, measure or value notified by the State Government as his personal luggage, he has to carry with him the declaration in the prescribed from duly filled and signed by the importer. The officer at the check post has been empowered to seize and detain the goods where they are not accompanied by copy of the declaration mentioned above and other prescribed documents. The matter is then reported to the assessing authority under section 13-A of the Ac....
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.... subject-matter of taxes on sale or purchase of goods. According to him the substituted section 28-A differs on material particulars from the one as it stood prior to its substitution and its scope has been considerably narrowed down and the provision as it now stands falls squarely within the field in which entry 54 of List II of the Seventh Schedule to the Constitution operates. It is now well-settled that a legislative entry not merely enunciates the power but it specifies the field of legislation and that the widest import and significance should be attached to it. Power to legislate on a specified topic includes powers to legislate in respect of matters which may fairly and reasonably be said to be comprehended therein. According to him the provisions contained in section 28-A do not directly deal with the subject-matter of taxes on sale and purchase of goods. If at all, they can be justified only if they concern matters which may fairly and reasonably be said to be ancillary or incidental to the subject-matter of taxes on sale and purchase of goods. In order to resolve the aforementioned controversy, it is, in our opinion, necessary to appreciate the scope and ambit of ....
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....ds such turnover becomes liable to be taxed under the Act. In our opinion, it is only such goods which can, as contemplated by new section 28-A(1), be said to be liable to tax as are intended to be sold or purchased inside the State by a person in whose hands the turnover thereof is liable to be taxed. In a case where goods are not intended to be sold by a person inside the State, no question of its turnover becoming liable to tax can possibly arise. It will not be possible to consider them as goods liable to tax even though the turnover of similar goods in the hands of some other person may be so liable. It thus appears that one of the necessary conditions for applicability of section 28-A(1) and for obliging the persons importing goods to obtain requisite declaration is that such person should be importing into or otherwise receiving in the State goods which are intended to be sold inside the State in such circumstances that the turnover thereof can be taxed in accordance with the provisions of the Act. This conclusion is strengthened by the provision made in the section to the effect that for its applicability the concerned goods should not only be liable to tax under the Act bu....
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.... due or likely to be due under the Act. The section does not authorise the officer making the search to detain the goods merely because such goods are not covered by proper and genuine documents. He is enabled to detain the goods only if apart from their not being covered by proper and genuine documents there is material on which he can feel satisfied that such goods were being so transported in an attempt to evade assessment or payment of tax due or likely to be due under the Act. The question of making any attempt to evade assessment or payment of tax due or likely to be due under the Act can arise only if the goods that are being imported in the State are intended to be sold by the dealer importing the same and not otherwise. The learned counsel for the petitioners submitted that according to sub-section (4) of the new section 28-A, even when goods are brought into the State as a personal luggage the person bringing them has to carry with him a declaration in the prescribed form duly filled in and signed by the importer. It shows that section 28-A was intended to cover within its sweep all cases where the goods are imported in the State irrespective of whether they are imp....
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....eir business and the power of the officer making search or inspection at the check post to detain the goods and forward the same to the assessing authority for adjudication of penalty can be exercised only where such officer is, for reasons to be recorded in writing, satisfied that such goods were being imported with a view to evade assessment or payment of tax due or likely to be due under the Act. The section does not require any person carrying the goods not liable to tax or goods which are not intended to be sold, to make any declaration. It also does not authorise the officer at the check post to seize such goods merely because they are not accompanied by the declaration form or other prescribed documents. The provisions contained in section 28-A have thus been made with a view to check any attempt on the part of the dealers to evade payment of tax due or likely to be due under the Act. In our opinion, a provision which is directly aimed at preventing evasion of payment of tax on sales or purchases to be made inside the State is a provision which is ancillary or incidental to the subject-matter of taxes on sales or purchases of goods as contemplated by item No. 54 of List II o....
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.... unable to produce the documents specified in clauses (i), (ii) and (iii) of sub-section (3) of section 42 stands in danger of having his goods forfeited. Power under subsection (3) of section 42 cannot be said to be ancillary or incidental to the power to legislate for levy of sales tax.", and held that on a parity of reasoning, the impugned provisions of the U.P. Sales Tax Act authorising seizure and detention and imposition of penalty, on the underlying assumption that the goods have been sold and liability to tax has arisen, cannot be said to be legislation in respect of matters ancillary or incidental including prevention of evasion of tax. These provisions are clearly outside the purview of entry 54 of List II of the Seventh Schedule to the Constitution and are ultra vires. The provision contained in section 28-A as it stands after enactment of U.P. Act No. 33 of 1979 are materially different. It cannot be said that there is any assumption underlying therein that the goods to which the provision of section 28-A applies have actually been sold inside the State and the section does not authorise the sales tax authorities either to seize the said goods or to penalise the impo....
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....icer to seize any goods not covered by the specified documents. This provision was struck down as ultra vires in Dunlop India Ltd. [1972] 30 STC 597 noticed above. Thereafter these provisions were repealed and re-enacted. After re-enactment the power to seize the goods was coupled with a condition precedent. The condition precedent was that the authorised officer should record a finding that there has been an attempt to evade the tax due under the Act. The goods which could be detained were such as were meant for trade and were not covered by proper documents. The Full Bench ruled that a scheme or device to evade tax may start operating long before the actual liability to pay the tax arises. As soon as the scheme or device is set in motion, there is an attempt to evade the tax due under the Act and it will not be necessary to wait till the liability to pay the tax actually arises. If an attempt to evade tax is discovered earlier, the liability to be subjected to penalty is straightaway attracted. The affected dealer was to be heard before the goods were seized or detained. The detaining officer had to record a finding that there was an attempt to evade the tax payable under the Act....
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....obtaining delivery of the goods, submit to the assessing authority one copy of the declaration by the next working day. Likewise sub-section (4) of section 28-A which concerns carriage of goods as personal luggage provides that the duly filled in and signed declaration form can be delivered to the concerned officer by the next working day. These provisions make it absolutely clear that the power to seize and detain the goods under sub-section (6) of section 28-A cannot be exercised merely because the goods, when they reach the check post, were not accompanied by the declaration form contemplated by section 28-A(1). The real occasion to detain the goods under subsection (6) arises only if the goods are not accompanied by the requisite documents and there is material before the Check Post Officer on which he can reasonably record a satisfaction that the person importing the goods was attempting to evade assessment or payment of sales tax due or likely to be due under the Act. Obviously, if the authorities have been acting in the manner as alleged by the learned counsel for the petitioners, they have not been acting in consonance with the provisions of section 28-A of the Act. Howe....
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....to detain the goods in sub-section (6) is, as explained by us, to be exercised if there is material before the checking officer on the basis of which he can record a satisfaction that the goods are being transported in an attempt to evade assessment or payment of tax due or likely to be due under the Act. He contends that at the stage at which the goods are checked and are detained, there can possibly be no question of anybody attempting to evade payment of tax due under the Act as till that stage no sale inside the State actually takes place and no question of any tax in respect of sale of such goods becoming due can possibly arise. Moreover, the expression "attempts to evade assessment or payment of tax due or likely to be due under the Act" is extremely vague and confers an arbitrary power on the checking officer to, at his sweet will, say, whenever he so likes, that any goods which have been checked by him and which are not covered by the requisite declaration or other prescribed documents, are being imported into the State with a view to evade assessment or payment of tax likely to be due. Such an arbitrary conferment of power, according to him, renders the provisions containe....
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....such the facts of the instant case are clearly distinguishable from that of Harakchand's case AIR 1970 SC 1453. So far as the reasonableness of the provision is concerned, the Supreme Court in paragraph 16 of Harakchand's case AIR 1970 SC 1453 has observed thus: "It is necessary to emphasise that the principle which underlies the structure of the rights guaranteed under article 19 of the Constitution is the principle of balancing of the need for individual liberty with the need for social control in order that the freedoms guaranteed to the individual subserves the larger public interest. It would follow that the reasonableness of the restrictions imposed under the impugned Act would have to be judged by the magnitude of the evil which it is the purpose of the restraints to curb or eliminate." Considering the extent of evasion of sales tax that is taking place, the right given to the sales tax authorities to detain the goods and to levy penalty in case there is material on which a satisfaction can be arrived at that the importer is attempting to evade payment of tax or other dues under the Act cannot be said to be unreasonable in the light of the principle of balancing of the....
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....ed documents, there is material before him on which he can feel satisfied that an attempt was being made to evade payment of tax or other sum due or likely to be due under the Act. Requisite satisfaction has to be arrived at on objective consideration and for reasons to be recorded by the Check Post Officer. Moreover, the provisions of section 28-A read along with the provisions of section 13-A(2), (6) and (8) go to show that the power to detain the goods is exercised with a view to make the same available for realisation of penalty that may eventually be imposed under section 15-A of the Act. For this purpose the detaining authority has been, under section 13-A(6), empowered to release the said goods after obtaining from the concerned person deposit of an amount sufficient to cover the penalty likely to be imposed. The proviso added to subsection (6) of section 13-A, however, empowers the Commissioner of Sales Tax or any officer authorised by him in his behalf to, for sufficient reasons to be recorded, direct that the goods be released without any deposit. The Commissioner of Sales Tax can exercise the said power either suo motu or at the instance of the person whose goods have....
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....make a search with due care and caution. We cannot also forget that in a case of this kind the Government cannot find sufficient number of officers of what may be called high status to make searches, for dealers who may be covered by the Act may be legion throughout the State, and if such searches could only be made by high officers there would not be enough officers available to do so. The fact that the Act gives power to Government to empower any officer is therefore no reason to strike it down for, as we have said, the Government will see that officers of proper status are empowered. Nor do we think that an Assistant Commercial Tax Officer or an Inspector of the Revenue Department or a Sub-Inspector of the Police Department is not an officer of proper status to make searches under this provision." The learned counsel for the petitioners has not been able to place any material before us to show that the officers who have been empowered by the State Government to make search and detain the goods are not officers of proper status as envisaged by the Supreme Court in Board of Revenue, Madras v. R.S. Jhaver's case [1967] 20 STC 453 (SC). It is true that under sub-section (6) of....
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.... the public interest. Article 304, however, authorises the State Legislature to, notwithstanding anything contained in article 301, impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within the State as may be required in the public interest. The restrictions imposed by the State Legislature to detain the goods and to penalise an attempt to evade assessment or payment of tax due or likely to be due under the U.P. Sales Tax Act is certainly a provision which can be said to have been made in public interest and as such if the said provision imposes some restrictions on the freedom of inter-State trade and commerce that would be amply justified by the provisions contained in article 304(b) of the Constitution. In support of his submission, the learned counsel for the petitioners placed reliance on the case of Hansraj Bagrecha v. State of Bihar [1971] 27 STC 4 (SC); (1971) 1 SCC 59. In that case sections 3A and 5A were introduced in the Bihar Sales Tax Act by the Bihar Finance Act, 1966, with effect from 1st April, 1967, imposing purchase tax. By a notification jute was made liable to purchase tax. In its rule-making power the State Governme....
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....y station, steamer station, airport, post office or any other place any consignment of such goods exceeding the quantity specified with a view to ensuring that there is no evasion of tax payble under the Act. But the power under section 42 can only be exercised in respect of levy, collection and recovery of intra-State sales or purchase tax. It cannot be utilised for the purpose of ensuring the effective levy of inter-State sales or purchase tax.", and held the said rule to be ultra vires. The ratio of the aforesaid decision seems to be that although it is open to the State Legislature to authorise framing of rules concerning evasion of payment of sales tax in respect of intra-State sales, but then it is not competent to legislate or frame rules in respect of evasion of tax on inter-State transactions and as the rule covered within its ambit both inter-State and intra-State transactions it was invalid. Section 28-A, however, does not require giving of any declaration in respect of goods imported in the course of inter-State sale. It, as explained above, merely requires the person importing goods liable to be taxed (in the sense already explained) under the U.P. Sales Tax Act which ....
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.... suggested that the setting up of these check posts is a restriction on the freedom of trade, commerce and inter-course guaranteed under article 301 of the Constitution, or is such as directly and immediately restricts or impedes the free flow or movement of goods. It is also not suggested that these regulatory measures in setting up the check posts on the State's borders are such as impede freedom of trade, commerce and intercourse. just as inter-State trade and commerce must pay its way and be subject to taxation, persons engaged in such inter-State trade or commerce are equally subject to all regulatory measures. There is no reason why the check posts or barriers set up by the State Government under section 28 of the U.P. Sales Tax Act, 1948, cannot be utilised as a machinery for due observance of the laws, e.g., for verification and control of movement of wheat by traders on private account from the State of Uttar Pradesh to various other States.", and contended that there has been a declaration of law by the Supreme Court to the effect that the provisions contained in sections 28-A to 28-C of the U.P. Sales Tax Act do not lack of competence in the State Legislature to enact....
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.... Act. A bare perusal of section 28-A shows that the provisions contained in various sub-sections of section 28-A, including those of sub-section (6), apply only in respect of such goods as exceed such quantity, measure or value notified by the State Government in that behalf. Existence of such notification is, therefore, a condition precedent for the exercise of any power to detain the goods under section 28-A(6) of the Act. Indeed the learned Solicitor-General appearing for the respondents did not dispute this position. Accordingly the only thing that remains to be considered is whether in fact any valid notification as contemplated by section 28-A(1) of the Act specifying the quantity, measure or value of specified goods for the purposes of section 28-A existed at the time when the power to seize the goods belonging to the petitioners was exercised by the respondents. As already explained, section 28-A was introduced in the Act for the first time in the year 1973 and sub-section (1)(a) thereof provided that any person, who seeks to import by road into the State from any place outside the State such goods which exceed such quantity, measure or value as the State Government m....
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.... in force as if the same had been issued under sub-section (1) of section 28-A of the principal Act as substituted by the Uttar Pradesh Sales Tax (Amendment) Act, 1979 (U.P. Act No. 33 of 1979)." According to the petitioners despite the Ordinance promulgated by the Governor the action taken by the respondents in seizing the petitioners' goods continued to be unconstitutional and without authority of law. In the instant case it is admitted that no notification under the new section 28-A specifying quantity, measure or value of the goods had been issued by the State Government. Notification No. ST-II-3983/X-900(112)-72 dated 29th March, 1974, as amended by the notification dated 19th November, 1974, relied upon by the respondents had been issued under the old section 28-A(1) of the U.P. Sales Tax Act. That section was declared to be unconstitutional and void by this Court in the case of Synthetics and Chemicals Ltd., Bareilly v. State of U.P. 1978 UPTC 624. Necessary consequence of such a declaration was that all actions taken under the authority of that section including the notifications issued thereunder also became invalid and ceased to exist in the eyes of law. The legi....
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.... be in force on 29th March, 1974, when the notification in question had actually been issued. It may be that had the U.P. Legislature while enacting U.P. Act No. 33 of 1979 or the Governor of Uttar Pradesh while promulgating Ordinance No. 35 of 1982, created a fiction that section 28-A as substituted by that Act would be deemed to have been in force on 29th March, 1974, and a further fiction that the power exercised by the State Government in issuing the notification dated 29th March, 1974, would be deemed to have been exercised under the substituted section, it could have been possible to sustain the effectiveness of the said notification. But then we fail to see as to how in the absence of creating a fiction with regard to the competency of the State Government to issue the notification on the date on which it was issued, can any life be infused into it merely by creating a fiction that it would be deemed to have been issued under a provision which was, at the relevant time, not available for sustaining the same. As already stated, neither U.P. Act No. 33 of 1979 nor U.P. Ordinance No. 35 of 1982 purport to create any fiction with regard to competency of the State Government to i....
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....pective effect and creating a fiction that all actions deemed to have been taken under the invalid Act should be deemed to have been taken under the new legislation which does not suffer from any constitutional defect. Such a course has not been adopted in the instant case. The learned Solicitor-General did not bring to our notice any decision of the Supreme Court or of any other High Court, where an action taken in the absence of legal provision to sustain it, has been validated by subsequent legislation without first creating the authority under which the said action could have been taken on the date on which it was taken and thereafter creating a fiction that it would be deemed to have been taken under that authority. There is yet another way in which this matter can be looked into. New section 28-A(1) as substituted in the principal Act, by U.P. Act No. 33 of 1979, merely empowered the State Government to issue a notification specifying the quantity, measure or value of certain goods. Such a notification could be issued by the State Government at any time after 27th September, 1979. Sub-section (2) of section 3 of U.P. Ordinance No. 35 of 1982 merely purports to create a ....
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....accordance with section 28-A of the U.P. Sales Tax Act as it then stood, it had statutory force and became a part of the U.P. Sales Tax Act itself. In Synthetics and Chemicals Ltd., Bareilly's case 1978 UPTC 624, only section 28-A had been declared to be invalid and that there is no declaration by the court in respect of part of the enactment covered by the notification dated 29th March, 1974. Accordingly, the notification dated 29th March, 1974, always continued to be in force and its validity can be sustained with the aid of U.P. Act No. 33 of 1979 and U.P. Ordinance No. 35 of 1982. We are unable to accept this submission made by the learned SolicitorGeneral. In accordance with the observations of the Supreme Court quoted above the notification dated 29th March, 1974, could be considered to be a part of the U.P. Sales Tax Act only if the same had been issued in accordance with some valid power conferred by a statute. In the instant case the notification was issued in the purported exercise of the powers under sub-section (1) of section 28-A of the Act as it then stood. The source of the authority to issue the said notification had been declared to be unconstitutional by this C....