# SHIV DUTT RAI FATEH CHAND ETC. ETC v. UNION OF INDIA & ANR. ETC

- **Citation:** [1983] 3 S.C.R. 198
- **Court:** Supreme Court of India
- **Decided:** 1983
- **Bench:** A.P. Sen, E.S. Venkataramiah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shiv-dutt-rai-fateh-chand-etc-etc-v-union-of-india-anr-etc-8475
- **Pages:** 39

## Headnote

Central Sales Tax Act, 1956-Sub-section (2-AJ of section 9 introd."Jced by
Ceritral Sales Tax (A1nendment) Act, 1976-Applicability of provisions relating to
penalties leviab/e under general sales tax laws of the States to the proceedings
under the Act-And seltion 9 of the Central Sales Tax (An1end111ent) Act, 1976RelroSpective opera/ion-Whether sub_-section (2'-A) of section 9 of the Act suffers
from vice of excessive delcgation-iVhether sub-section (2-A) and section 9 of tfie
Amending Act· violative of Article 19 (I) (f) and (g) and Article 20 (I) of the
ConStitution.
·
.... Haryana General Sales Tax Act, 1973-Section 48-Whether confers
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1111canalised, unguided and arbitrary power-Validity of~
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Constitution of lndia-Arifr!e 20 gives const(tutional prot~ctio11 lo pe,-sot1s
charged with crin1e before crin1in,al court.
Words and phrases-Penalty-Meaning of-A Word of wide sfgnificailce-·
Used in Article 20 (J) of the Constitution in a narrow sense.
Section 9 of the Central Sales Tax Act, 1956 as ariiended retrospe·::tively
by the Central Sales Tax (Amendment) Act, 1969 provided for levy aiid collection of tax.and penalties on sale of goods effected by a dealer in the course of
inter-State trade or commerce. It further provided tt~at the authorties for the
tin\c being empowered to assess, re-assess, collect and enforce payment of. any
tax under the gener8.I sales tax law of the· apprOpriate State shall, on behalf of
Govern1nent of India, assess, re-assess, collect and enforce payment of tax including any penalty, payable by a dealer under Lhis ACt as if the tax or penalty
payable by such a-dealer umil.cr this Act is a tax or penalty undef the general
sates tax Jaw of the State; and for this purpose they 1nay exercise all or any of
the powers they have under the general sales tax 13:W of the State. Consequent .
- upon the decision of this Court in Khe111ka & Co. v. State of Maharashtra;
[1975) 3 S.C.R. 753 l1olding by a majority that it was not open to the
authorities under the State law to levy and recover penalty for delay or default
in payment of tax under the Central Sales Tnx Act, 195_6, section 9, of the Act
came -to be amended by the Central sales Tax (Amendn1ent) Act, 1976 introducing sub-section (2-A) in it. Sub-section (2-A) of section 9 provided that all
the provisions relating to offences and penalties (with certain_ exceptions) of
the g,~TI.eral sales tax Jaw of each State shatt with necessa,ry modification, apply
in rela1ion to the assessment, re-assessment, colk ct ion and the enforcement or
'I.
payment of any ta~ required to be collected under thjs Act in such State as if
the tax under this Act were a tax ·under such sales tax law.
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SillV DUTT v. UNION
199
Section 9 of the Amending Act, 1976 declared that the provisions of
section 9 of the 1956 Act would have effect and should be deemed· always to
A
have had effect in relation to the period commencing from January 5, 1957
(the date of coming into force of 1956 Act) and ending with the date imrrtediately proceeding the date of com1nencement of the Amending Act.
The petitloners in these two batcl1es of petitions filed under Article 32 of
the Coflstitution are dealers under the Central Sales Tax. Act, 1956 (herein-after
referred to as 'the Act') having their places of business at..Maharashtra,
Haryana etc. They have questioned the const.itutional validity of sub-section
(2-A) of section 9 of the Act as introduced by the Central Sales Tax
(Amendment) Act, 1976 (herein-after referred to as 'the Amending Act' and
section 9 of the Amending Act validating _.the levy of penalties under thC
Act with retrospective effect on the following grounds :
•
(1) That th'e introductioO of sub-section (2-A) in secticin 9 of the Act
b)' the Arr.ending .Act, 1976 does. not have the effect of- making the provisiolls
relating to p.::nalties leviab!e under the general sales tax laws of the States
applicable to the assessees under the Act as The word 'penalties' is not found
al

## Text

_Characters 0–39,890 of 95,910. This is a partial read: ask again with offset=39890 for what follows._

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SHIV DUTT RAI FATEH CHAND ETC. ETC.
v.
UNION OF INDIA & ANR. ETC.
May 6,1983
(A.P. SEN AND E.S. VENKATARAMIAH, JJ.]
Central Sales Tax Act, 1956-Sub-section (2-AJ of section 9 introd."Jced by
Ceritral Sales Tax (A1nendment) Act, 1976-Applicability of provisions relating to
penalties leviab/e under general sales tax laws of the States to the proceedings
under the Act-And seltion 9 of the Central Sales Tax (An1end111ent) Act, 1976RelroSpective opera/ion-Whether sub_-section (2'-A) of section 9 of the Act suffers
from vice of excessive delcgation-iVhether sub-section (2-A) and section 9 of tfie
Amending Act· violative of Article 19 (I) (f) and (g) and Article 20 (I) of the
ConStitution.
·
.... Haryana General Sales Tax Act, 1973-Section 48-Whether confers
D.
1111canalised, unguided and arbitrary power-Validity of~
E
F
G
H.
Constitution of lndia-Arifr!e 20 gives const(tutional prot~ctio11 lo pe,-sot1s
charged with crin1e before crin1in,al court.
Words and phrases-Penalty-Meaning of-A Word of wide sfgnificailce-·
Used in Article 20 (J) of the Constitution in a narrow sense.
Section 9 of the Central Sales Tax Act, 1956 as ariiended retrospe·::tively
by the Central Sales Tax (Amendment) Act, 1969 provided for levy aiid collection of tax.and penalties on sale of goods effected by a dealer in the course of
inter-State trade or commerce. It further provided tt~at the authorties for the
tin\c being empowered to assess, re-assess, collect and enforce payment of. any
tax under the gener8.I sales tax law of the· apprOpriate State shall, on behalf of
Govern1nent of India, assess, re-assess, collect and enforce payment of tax including any penalty, payable by a dealer under Lhis ACt as if the tax or penalty
payable by such a-dealer umil.cr this Act is a tax or penalty undef the general
sates tax Jaw of the State; and for this purpose they 1nay exercise all or any of
the powers they have under the general sales tax 13:W of the State. Consequent .
- upon the decision of this Court in Khe111ka & Co. v. State of Maharashtra;
[1975) 3 S.C.R. 753 l1olding by a majority that it was not open to the
authorities under the State law to levy and recover penalty for delay or default
in payment of tax under the Central Sales Tnx Act, 195_6, section 9, of the Act
came -to be amended by the Central sales Tax (Amendn1ent) Act, 1976 introducing sub-section (2-A) in it. Sub-section (2-A) of section 9 provided that all
the provisions relating to offences and penalties (with certain_ exceptions) of
the g,~TI.eral sales tax Jaw of each State shatt with necessa,ry modification, apply
in rela1ion to the assessment, re-assessment, colk ct ion and the enforcement or
'I.
payment of any ta~ required to be collected under thjs Act in such State as if
the tax under this Act were a tax ·under such sales tax law.
, ..
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SillV DUTT v. UNION
199
Section 9 of the Amending Act, 1976 declared that the provisions of
section 9 of the 1956 Act would have effect and should be deemed· always to
A
have had effect in relation to the period commencing from January 5, 1957
(the date of coming into force of 1956 Act) and ending with the date imrrtediately proceeding the date of com1nencement of the Amending Act.
The petitloners in these two batcl1es of petitions filed under Article 32 of
the Coflstitution are dealers under the Central Sales Tax. Act, 1956 (herein-after
referred to as 'the Act') having their places of business at..Maharashtra,
Haryana etc. They have questioned the const.itutional validity of sub-section
(2-A) of section 9 of the Act as introduced by the Central Sales Tax
(Amendment) Act, 1976 (herein-after referred to as 'the Amending Act' and
section 9 of the Amending Act validating _.the levy of penalties under thC
Act with retrospective effect on the following grounds :
•
(1) That th'e introductioO of sub-section (2-A) in secticin 9 of the Act
b)' the Arr.ending .Act, 1976 does. not have the effect of- making the provisiolls
relating to p.::nalties leviab!e under the general sales tax laws of the States
applicable to the assessees under the Act as The word 'penalties' is not found
along with the words 'assessment, re-assessment, collection and the enforcem·ent of payment of any tax' in sub-section (2-A.); the lacuna in the Act, which
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was pointed out by this Court in Kehmka's case nainely.that there is no specific
proviSion lev·ying penalties in the Act remaias unfilled up even now and hence
no penalties can be recovered by utilising the provisions o( the ge_neral sales tax
laws of the respec!ive States.
(2) Sub-section (1-A) of section 9 suffers from the vice Of excessive
delegation of legislative power; the Parliament by ado"'ting the proyisions
relatiDg to offences· and penalti~s referred to in. the various general sales tax
laws of !he States has abdicated its essentjal legislative function.
'
(3) That sub-section (2-A) of section 9 of the Act and section. 9 of the
Amending Act are violative of Article 20 (I) of the Constitiution; that any act
or omission which is considered to be a default under the Act for which penalty
is leviable is an offence, that such act or omission was not .an ofrence, "'and no
penalty was payable under the law in force at the time when it was committed
and hence they cannot be punished by the levy o~ penalty under a law which is
given retrsopective effect.
(4) The levy and collection of penalties
with retrorpectiVe effect
itmo-Unts to an imposition of an unreasonable restriction on t}le funda~Cntal
right of the petitioners to own property: and to ·carry on business guamteed
under Article 19 (I) (f) and (g) of the Constitution.
( 5) That in the case of assessees of the State of itaryana, section 48 or
the Haryana General Sales Tax Act, 1973 which authorises the levy of penalty
of 'a sum of not less than twice arid mor~ than ten times t.he amount ·of tax'
on proof of the defaults mentioned therein is violative of Article 14 of th~
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sti~REME cbtil<T REPORTS
[J 98~j ~ s.c.ii..
Constitution as there is no guidance given to the authority levying the penalty
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about the quantum of penalty.
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Dis:_missing the petitions,
.
HELD J. Sub-section (2-A) of section 9 of the Act and section 9 or the
Amending' Act are adequately enough to assess and realise penalties w. e. f.
January .5, 1957 as contemplated therein. The principal , object of the Act is·
nOt i:he levying of the penalties. Its object is assessment,
re-assessrnent,
collection and the enforcement of payment of central sales tax. The assessees
incur the liability to pay penalties on account of certain acts or omis:iions
committed by them at the various stages specified above, namely, assessn1ent,
fe-asscssment, collection and the enforcement of payment of tax. The inclt1sion
of the word 'penalties' along with these four stages would have, therefore been
redundant apart from teing inappropriate. Sub-section (2-A) of section 9 of the
Act expressly makes all the provisions relating 'to offences and penalties which
are committed or incurred as the case may be, under the general sales tax
laws of.the respective States applica@.e to persons who comn1it corresponding
acts and on1issions at tl1:e above 111entioned stages under the Act. Tliere is no
lacuna in the language of .sub-section (2-A) of section 9 of thC Act which
1nakes the provisions relating to penalties under the general sales tax laws of
the respective States inapplicable even now to the proceedings under the · 1\.ct.
While sub:section (2-A) of section 9 of the Act makes the provisions realting
to both offenceS and pCnalties in the general sales tax laws 9f the States applicable to the proceedings under the Act prospectively, section 9 of the Amending
Act n1akes all the provisions relating to Penalties only in the ·general sales r.ax
laws of the States applicable to the proceeding under _the Act retrospectiv,ely
by adopting the same language appearing in suC-section (2-A) of section 9 of
the Act. This pattern of legislation had to be adopted perhaps because Parliament wished rightly .not to g"ive retrosp'ective effect to the provisions relating to
offences also which are referred to in sllb-section (2-A) of section 9. Having thus
given retrospective effect to section (2-A) of section 9 w. e. f. January 5, 19:57
in so far as penalties were concerned by enacting sub-section (I) of section 9
of the Amending Act, Parliament removed the
deficiency pointed out :'1n
Khemka's case. [217 E-F, 216 E-G, 217 AcD]
Khemka & Co. v. State of Maltarashtra, [1975] 3 S.C.R. 1973, referred
to.
• ·2. · The questirin whether there
has been
excessive delegation or
abdication of legislative power has to be decided on the meaning of the word.i
in the Statute and the policy behind. it, Legislation by incorporation of
provisions of another statute even though ·passed by a different legislature is
a well known method of legislalion which does not effect the validity of thf~
legislation particularly when the scheme of the other statute is sin1ilar and
such incorporation is relevant and nece~sary for the purpose of advancing
the objects and purposes· of the legislatjon. (217 F:-I, 218 A-B]
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SHIV oti'rt v. UNION
2oi
Jn the instant case sub-section (2-A) of section 9 of the Act does not
suffer from the vice of excessive delegation merely because the provisions relating to penalty in the general sales tax laws of the States are adopted for
purposes of the Act. The assessees under the Act who are spread over various
States are accustomed to the general pattern of sales tax law in their
reSpective States and the various duties and responsibilities of an -assessee
who is liable to pay sales tax. The officers who assess and collect the tax under
the Act are the officers who discharge similar functions under the State laws.
In this situation if Parliament has, with the knowledge of the various provisions
.relating to offences and penalties in the general sales tax laws of the various
States adopted theril. for pur~oses of assessment, re-assessment, collection and.
enforcement of the provisions of the Act it cannot be said that it has abdicated
its legislative functions. {222 B-C, 2~8 C-E]
The circuinstances leading to imposition of penalties and the rates of
penalties very from on State to the other but the power to make a legislative
·. Ifrovision on matters relating to penalties is circumscribed by various economic
factors and it cannot be said that Parliament had virtualJy surrendered its
legislative judgment to the State legislatures. There is a clear legislative policy
adopted by Parliament in the case of levy of p~nalties and that is that the penalties payble under the Act should ·be the same as the penalties payable under
the-generarsales tax law of each State. If the rates of penalties exceed reasonable
limits the States which are beneficiaries of the tax collected under the Act themselves suffer as such unreasonable levy is bound to lead to the killing of the
goose which lays the golden egg. The trade would immediately shift to areas
outside the State which resorts to high.er taxes arid penalties. The political and
economic factors which operate in this field are so powerful that the
provisions~
with regard to penalties to be made by the State Legislature cannot but be
reasonable as they would affect the levy of tax under the State Act also. The
- penai nature of the penalties itself is a sufficient guidance regarding maximum
limits upto which penalties can be levied. A penalty cannot be wholly disproportionate.to the extent of infringement of law. Moreover Parliament always bas
the power to amend its own law i. e the Act if it finds that the provisions re·
aJting to penalties in any.State law cros! the limits of public interest. [222 CG]
'
State of Modras v. N K. Nataraja Muda/iar, [1968] 3 S.C.R. 829; Gwalior
Rayon Silk Mfg. ( Wvg.) Co. Ltd. v. The Asst/. Commissioner of Sales Tax & Or&.,
[1974] 2. S.C,R. 879; M,K Papiah & Sons v. The. Excise Commissioner & Anr •
[1975] 3 S.C.R. 607, referred to.
3~. The marginal note of our Article 20 is 'protection in
respe~i of
conviction for offences'. The presence of words 'conviction' and''offence-s' in
the nla:r:ginal note 'convicted of an offence', 'the act charged as an offence' ~nd
'con1rnission of an offence', 'in clause (1) of Article 20, 'prosecuted and punished' in clause (2) of Article 20 aud 'acc~sed of an offence' and 'comwlled to be
a witness against hhnself' in clause (3) of Article 20 clearly suggests that Article
20 relates to the constitutional protection given to persons who are charged with
a crime before a· criminal Court. [226 A-BJ
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202
SUPREME COURT REPORTS
it9SJj 3 S.C.R.
The word 'penalty' is a word of a wide 5ignificance. Sometimes it me"ans
recovery of an amount as a penal nlcasure even in a civil proce:eding. An
exaction which is not of~ compensatory character is also termed as a p~nalty
even though it is not being recovered pursuant to an order finding the person
concerned guilty of a crime. In Article 20(1) the expression 'penalty' is used in - .
the narr_ow sense as m~aning a payment ·which has to be made or a deprivation
· of liberty which has to be suffered as a consequence of a finding that the person
accused of a crime is guilty of the charge. The word 'penatly' unsed in Article
20 (1) cannot be construed as including a 'penalty' levied u·nder the sales tax
Jaws by the departmental authorities for violation ~f statutory prO~lsions. A~
penalty imposed by sales tax authorities is only· a Civil liabilty, though penal in
character. It may be relevant to notice that sub-section (2-A) of section 9 of the
Act specifically refers 1 o certain acts and omissions which are offences for
which a critninal prosecu~ion would lie and the provisions relating to offences
have not been retrospective effect by section 9 ·of the Amending.Act.
'
.
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.[226 B-D, 230 C-D]
Constitutional law of India by H.M. S~ervai; 3rd Ed. vol. I.. p. 759;
Maqbool Hussain v. The State of Bon1bay, [1953] S.C.R. 730; Jawala Rani v. State
of Pepsu, [1962] 2 S.C.R. 503; State of West .Bengal v. S.K Ghosh: [1963]
2 S.C.R. 111; Mfs. Hati,Singh Mfg. Co. Ltd. & Anr. v. Union of India· & Ors., 1
[1960] 3 S.C.R. 528: Pai Bahad11r Hurdut Roy fl,faJi Lal Jute Mills v.- The State
of Bihar & Anr., [1956] 7 S. T.C. 609; The State of Bihar v. Rai iJahadur Hurdut
.Fay Moti Lall Jute Mills & Anr., A.LR .. 19(,0 S.C. 378; Shew Bhagwan (}oenka v.
Commercial Tax Officer. & Ors. [1973] 32 S.T.C. 368; Conimissloner o[ Wealth
Tax, Amritsar v. Suersh Seth, [1981] 3 S.C.R. 419; Raghunandan Prasad Mohan
Lal v. Income ·Tax Appellate Tribunal, Delhi Bench & Ors., [1970] 75 l.T .. R. 741;
Central India Motors Vo C.L. Sharma, Assistant Conimissioner of Sales Tax,
Indore Region, Indore & ,Anr.! [1980]"46 S.T.-:=. 379, referred to.
4. If in its essential features a taxing statute is within the con1petence of
the legislature, it would not cease to be so if retrospective effect is given' to
it. The provision for levying of interest and to levy penalties retrospectively
and to' validate earlier proceedings under laws which had been dleclarCd
unconstitutional after removing the element of unconstitutionality is included
within the scope of legisiative power.
[231 E~G]
Under the Constitution.the grounds on which infraction of the rights to
property is io be tested hav~ to, be considered on the precise criteria set out in
Article 19 (5). Mere retro~pectivity in the imposition of the tax cannot per s~
render the law unconstitutional on the ground of it infringing ~he'rights to hold
properly under Article J 9 (1) (f). The test of the length of ttine covered by the
retrospective operation cannot by itself be treated as a decisi\'e test.
·
[231 E, 233 DJ
·in the instant case, there is no djspute about the validity of the tax
payble under the Act during the period between January 1, 1957 and the date
of commencement of the An1ending Act. It has to be presumeq that all the tax
has been collected by the dealers from their customers. There is also no dispute
that the law required the dealers to pay the tax within the specified time~. Th~
SHIV PUTT v. UNION
dealers had also d1e knowledge of the provisions relating to penalties in the
general sales ta:x laws of. their respective States. It wa.s only owing to the
deficiency in the Act pointed out by. this Court in Khemaka's case the penalties
beCame not payable. Jn .thi$ situation where the dealers have untilised the money
which should have been paid to the Government and have committed default
in performing their duty, if Parli_ament calls upon them to pay P.enalties in
accordance with the law as amended with retrospective effect it cannot be said
that there has been any unreasonable restriction imposed on the rights
auaranteed under Article 19 (1) (f) and (g) of the Constitution, even thou&h the
period of retrospectiv:ty is nearly nineteen years. [233 H, ~34 A-C]
Chhotab!1ai Je1habhai Patel & Co, v. The Union· of In_fia & Anr., [1962]
Suppl. 2 S.C.R. 1; Rai Ra1nkrishna & Ors., v. The State of Bihar, [1964]
1 S.C.R. 897, referred to.
5. ·Section 48 of the Haryana General Sales tax Act, 1973 provides both
th~ nlinimurri and the maximum amount of renalties leviable and it·is correlated
to the amount of tax which would have been avoided if the turnover returned
by such dealer· had been accepted as correct. The degree of remissness involved
in the default .is a factor to be taken into account while levying penalty. The
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order levying venally is quasi~iucticial in character and involves exercise of
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judicial discretion. An order levying penalty under section 48 is also subject to
-the provision relating to appeal. Jn the circumstances, it is not possible to hold
that section 48 confers an uncanalised, unguidf'd and arbitrary power on the
authority levying pen<ilty. [235 ·E-G]
Hindustan Steel ~td. v. State ofOrissa, [1970] 1 S.C.R. 753, referred to.
ORIGINAL JuR1so1cno'I : Writ Petitions Nos. 9057 of 1982
.
. '
318-319 of 1980, 1406-07 of 1981, 782 of 1980, 1264 of 1979, 450, ,
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5798, 5799 of 1980, 2254-60, 4715-17, 7636, 8~90of1981, 2250, 3478,
5455, 3479, 5518, 7220of1982, 608, 609 of 1983, 55-57 of 1977, 362,
401. 670-71, 672-75, 1191-96, 1534-36, 1539 of 1977, 3768-69, 4196
of 1978, 280, 789-92, 1981-82, 1083-84. of 1979, 233-241, 2201 of
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1981, 3300, 3316, 3317. 3318, 3325, 3326, 3327 of 1982, 4389-90
and 4562-72 of 1978.
Under Article 32 of the Constitution ·of India.
M.N. Phadke, U.R. Lalit, S.B.
Bhasmi, Smt. Santosh Gupta,
H. G. Gupta, Sarwa Mitter, K.C. Dua, M.P. Jha, Dr. N.M. Ghatate,
S. V. Deshpande, S.B. Saharya, Vishnu B. Saharya, G. S. Jete/y and
Ram Lal for the Petitioners.
L N. Sihna, Attorney General, P.P. Singh, Miss A. Subhashini,
R.N. Poddar, Gopal Subramanium, D.P. Mohanti,
S.A.
Shroff,
D.D. Sharma, V.B. Joshi and M.N. Shroff for the Respondents.
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SUPREME couk T REPoRTS
!1983} 3 S.C.R,
The Judgment of the Court was delivered by
VENKATARAMIAH, J. · The petitioners in these two batches of
petitions filed under Article .32 of the Constitution have questioned
the Constitutional validity of sub-secticin (2-A) of section 9 ·of the
Central Sales Tax Act, 1956 (Act No. 74 of 1956) (hereinafter
referred to as 'the Act') as amended by the Central Sal.es Tax.
(Amendment) Act, 1976 (Act No. 103 of 1976) (hereinafter referred
to as 'the Amending Act') and section 9 of the Amending Act
Validating the levy of penalties under the Act with retrospective
effect.
The petitioners are dealers under the
Act
having their
places of business in the States of Maharashtra, Haryana, etc. ·
For the purpose of understanding the points of dispute raised
in the3e cases, it is necessary to deal with the history of the fogislation
relating to taxes on inter-State Sales and purchases of goods during
the post-Constitution period. Under Entry 54 of List II of the
Seventh Schedule to the Constitution, the power to levy tax on sale
or purchase of good other than newspapers was assigned to the State
Legislature. The power to levy taxes on the sale or purchase of .
newspapers and· on advertisements published therein was,· however,
assigned to Parliament under Entry 92 of List I of the Seventh
Schedule to the Constitution. Article 286 (as it was originally
enacted) of the Constitution which imposed certain restrictions on a
State in the matter of levy of tax on the sale or purchase of goods
read as follows:-
. "286. (l l No law of a State shall impose, or
authorise the imposition of, a tax on the sale or purchase
of goods where such sale or purchase takes place-
(a) outside the State; or
• (b) in the course of the import of the goods into,
or export of the goods out of, the territorY, of
·India.
Explanation.--:- For the purposes of sub-clause (a), a
sale or purchase shall be deemed to have taken place in
the State in which the goods have actually been delivered
SHIV DUTI v. UNION (Venkataramiah, J.)
205
as a direct result of such sale or purchase for the purpose
of consumption in that State, notwithstanding ihe fact
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that under the general law relating to sale of goods the
property in the goods has by reason of such sale or purchase passed in another State.
(2) Except i.n so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise
the imposition of, a tax on the sale or purchase of any
goods where such sale or purchase takes place in the
course of inter-State trade or commerce:
Provided that the President may by order direct that
any tax on the sale or purcha€e of goods which was
being lawfully levied by the Government of any State
immediately before the. commencement , of this Constitution shall, notwithstanding that the imposition of
such tax is contrary to the provisions of this clause,
continue to be levied until ·the thirty first day of March,
1951.
(3) No law made by the Legislature of a State
imposing, or authorising the imposition of, a tax on the
sale or purchase of any such goods as have been declare<)
by Parliament by law to be essential for the life of the
, community shall have effect unless it has been reserved
for the consideration of the President and has received
his assent."
The true effect of the above Article on inter-State sales and
purchases of goods was considered by this Court in the State of
Bombay & Anr. v. The United Motors (India) Ltd. & Ors('). In that
case this Court held that Article 286 (I) (a) of the Constitution read
with the Explanation thereto and construed in the light of Article 301
and Article 304 of the Constitution prohibited the taxation of sales
or purchases involving inter-State elements by all States except the
State in which the goods were ,delivered for the purpose of con- ·
sumption therein. In other words it was held that in the case of
inter-State sales, the importing State alone was competent to levy tax
on transactions of sale under its sales tax !aw on .persons who wer~
(I) [1953] S.C.IL 1069.
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[1983] 3 s.c.R.
resident outsaide its territory provided the goods were delivered in
the importing State for the purpose of consumption therein. The
result of this decision was that a dealer carrying on business in the
exporting State became amenable to the sales tax law of the importing State in which the goods were consumed. This question
was again reconsidered in The Bengal Immunity Company Ltd'. v. The
State of Bihar & Ors.(') In that case, this Court held that a reading
of clause (1) (a) read with the Explanation, clause (1) (b), clause (2)
and clause (3)"of Article 286 showed that those clauses were intended
to deal with different topics and one ~ould not be projected or read
into the other and, therefore, the Explanation to clause (I) co_uid
'not be legitimately extended ·to clause (2) either as an exception or
as proviso to it or read as curtailing o·r limiting clause (2).
Consequently it was held that the State of Bihar could not levy sales
tax under its law on goods which were subject matter of inter-State
sales even though they had been consumed in that State in the
absence of a law made by Parliament· as provided in clause (2) of
Article 286. 'This judgment was delivered on September 6, 1955 and
the view expressed in this case wa' further reiterated in M/s Ram
Narain Sons Ltd. v, Asst. Commissioner of Sales Tax & Ors.\2J·which
wits decided on September 20, 1955. The result was that no State
could levy sales tax on inter-State sales as there was no central.
legislation authorising it
This judgment caused a serious financial
disequilibrium on the budgets of the several Sta.tcs which. had
collected sales tax in. accordance with the decision in the case of
United Motors (supra) as they had to refund.all the taxes so co;Iected
from the non-resident traders. This situation was met by the President promulgating Ordinauce No.· III of 1956 which was· later on
replaced by the Sales Tax Laws Validation Act, 1956 (Act VII of
1956), whereby all collections of sales tax on inter-State sales by the
States upto September 6, 1955 were validated and proceedings in
respect of the levy on inter-~tate sale' · for assessment were also
protected. Later on in the light of the report of the Taxation
.Enqi,iiry Commission, the Constitution itself was amended by the
Constitution (Sixth Amendment) Act, 1956 by introducing Entry
92-A iu the Union List, substituting Entry 54 in the State List by a
new Entry and by amending Article 269 and- Article 286.
Entry
92-A in the Union Lis(reads :
·
(1)
(1955] 2 S.C.R. 603.
(2) (1955] 2 S.C.R. 483.
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SHIV DUTT v. UNION (Venkataramiah, J.)
"92-A. Taxes on the sale or purchase of goods other
than newspapers, where such sale or purchase takei place
in the course of inter-State trade or commerce".
Entery 54 in the State List now reads :
"54. Taxes on the sale !lr purchase of goods other
tl).an newspapers, subject to the provisions of Entry 92-A
of List I."
207
The taxes levied on the inter-State sales and purchases by the
Central Government under a law made pursuant_ to the new Entry
92-A came to be assigned to the States. in the manner provided in
clause (2) of Article 269 by the inclusion of sub-clause (g) in clause
(I) of Article 269 and under the new clause i.e. clause (3) added to
Article 269, Parliament was empowered to formulate principles for
determining when a sale or .purchase of goods ·took place in the
course of -inter-State trade or commerce. After amendment the
relevant part of Article 269 of the Constitution reads :
''269. (I) The following duties and taxes .shall be
levied and cciUected by the Government of India but
shall be assigned to the States in the manner provided in
clause (2), namely_ ...
(g) taxes on the sale or purchase of goods other
than newspapers, ·where such sale or purchase takes place
in the course of inter-State trade or commerce.
(3) Parliament may by law formulate principles for
d_etermining when a sale or purchase of goods takes place
in the course of inter-State trade or commerce."
In Article 286 of the Constitution, the Explanation to clause
(!)was omitted and clauses (2) and (3) were substituted by new
clauses (2) and (3). Article 286 now reads as follows :
"286. (I) No law of a State shall impose, or authorise the imposition of, a tax OI) the sale or purchase of
goods where such sale or purchase takes placeA
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[1983) 3 S.C.R •
(a) outside the State; or
(b) in the course of the import of the goods into,
or export of goods out of, the territory of. India.
(2) Parliament may by law formulate principles for
determining when a sale or purchase of goods take place
in any of the ways mentioned in clause (I):
(3) Any law of a State shall, in so far as it imposes,
or authorises the imposition of, a tax on the sale or
purchase of goods declared by Parliament by law to be
of special importance in inter-State trade or commerce be
subject to such restrictions and conditions in regard to
the system oflevy, rates and other incidents of the tax
as Parliament may by law specify."
Accordingly the Act was
passed m 1956. It has been
amended a number of times since then. The Preamble to the Act
states that the object of the Act is to formulate principles for determining when a sale or purchase of goods takes place in the course
of inter-State trade or commerce or outside a State or in the com·s~
of import into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of
inter-State trade or commerce and to declare certain goods to be of
special importance in inter-State trade. or commerce and specify the
restrictions and conditions to which State laws imposing taxes on
the sales or purchase.of such goods of special importance shall be
subject. The expression 'dealer' is defined in section 2(b) of the Act
and the expression 'sale' is defined in section 2(g) thereof. Section
· 3 of the Act lays down the principles with reference "to which the
question whether a sale or purchase of goods has taken place in the .
course of inter-State trade 9r commerce or not can be determined.
Section 4 of the Act provides ·for determining when a sale or purchase of goods is deemed to take place outside a State and section 5
of th<i Act lays down the principles governing the determination of
the question whether a sale or purchase has taken place in the course
of export or import. Section 6 of the Act is the charging section.
Sub-section (I) and (I-A) of section 6 of the Act which are material
for purposes of this case read as follows :
"6. Liability to tal< on inter-State sales,
..
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SHIV DUTT v. UNION '(Venkataramiah, J.)
(!) Subject to the other provisions contained in this
Act every dealer shall, with effect from such date as the
Central Government may, by notification in the Official
Gazette, appoint, not being earlier than thirty days from
the date of such notification, be liable to pay tax under
this Act on all sales of goods other than electrical energy
effected by him in the course of inter-State trade or com·
merce during any. year· on and from the date so notified.
Provided that a dealer shall not be liable to pay tax
under.this Act on any sale of goods which in accordance
with the provisions of sub··section (3) of section 5, is a
sale in the course of export of those gMds out of the
territory of India.
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(!·Al A dealer shμll be liable to pay tax under this
Act on a sale of any goods effected by him in the course
of inter-State trade or commerce notwithstanding that
no tax would have been leviable (whether on the seller or
the purchaser) under the sales tax law of the appropriate
State if that sale had taken place inside that· State."
209
·sub-section (2) of section 6 of the Act deals with the circum·
stances when certain inter-State sale.s or purchases will be exempt
from the liability imposed under sub-sections (I) and (I-A) of section·
6.
Section 6-A of the Act deals with the burden of proof in the
proceedings under the Act.
Section 7 of the Act provides for registration of dealers, section 8 specifies the rates of tax on iales in the
course of inter-State trade or commerce and section 8-A lays down
the rules relating to determination of turnover. Section 9 of the
· Act which has undergone a number of changes provides for aslessment, collection etc. of the levy made under the Act. By reason of
the retrospective amendme11t made by the Central Sales Tax Amendment Act 28 of 1969, section 9 (with effect .from the commencement
of the Act) read as follows :
"9.
Levy and collection of tax and penaltiesA
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trade or commerce, whether such sales fall within clause
(~)or clause (b) of section
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SUPREME COURT. REPORTS
[1983) 3 S.C.R.
Government of India and the tax so levied shall be
collected by that Government in accordance with the
provisions of sub-section (2), in the State from which the
movement of the goods commenced :
Provided that, in the case of a sale of goods during
their movement from one State to another, being a sale
subsequent to the first sale in respect of the same goods,
the tax shall, where such sale does not fall within subsection (2) of section 6, be levied and collected in the
State from which the registered dealer effecting the .
subsequent sale obtained or, as the case may be, could
have obtained the form prescribed for the purposes of
clause (a} of sub-section ( 4) of section· 8 in connection
with the purchase of such goods.
(2) Subject to the other provisions of this Act and
the rules made thereunder, the authorities for the time
being empowered to assess, re-assess, collect and enforce
payment of any tax under the general sales tax Jaw of
the appropriate State shall, on behalf of Government of
India, assess, re·assess, collect and enforce payment of
tax, including any penalty, payable by a dealer under
this Act as if ~he tax or peita/ty payable by such a dealer
under this Act is a tax or penalty
payable ·under the
general sales tax law of the State; and for this purpose they
may exercise all or any of the powers they have under the
general sales tax law of the State; and the provisions of
such law, including provisions relating to ret~rns, provisional assessment, .advance payment of tax, registration
; Of the transferee of any business, imposition of the tax
liability of a person carrying on business on the trans-.
feree of, or successor to, such business, tra·nsfer of liability of any firm or Hindu undivided family to pay tax in
the event of the dissolution of such firm or partition of
such family, recovery of tax from third parties, appeals,
reviews, revisions, references, refunds, penalties, compounding of offences and treatment of documents furnished· by a dealer as· confidential, shall apply accordingly :
Provided that if in any State or part thereof there
js no ~eneral sales tax law in· force1 the Central Govern-
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SHIV DUTT v. UNION ( Venkataramiah, J.)
'211
ment may by rules made in this behalf make necessary
provision for all or any of the matters· specified· in this·
A
sub-section.
(3) The proceeds in any financial year of any tax,
including any penalty, levied and collected under this Act
in any State (other' than a union territory) on behalf of
the Government of India shall be assigned to that State
and shall be retained by it and the proceeds attributable
to Union territories form part of the Consolidated Fund
oflndia."
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(Underlining by us)
It is seen from sub-section (2) of section 9 quoted above that
the authorities empowered to assess, reassess, collect· and enforce
payment of any tax under the general sales tax law of the appropriate
State are authorised to assess, reassess and enforce payment of tax
including any penalty payable· by a dealer under the Act. The
authorities under the general sales tax law of the State have thus
been made the agents of the Union Government in discharging the
duties of assessment etc. referred to in section 9(2) of the Act, and
empowered to exercise all or any of the powers they have under the
general sales tax law<of the State for the aforesaid purposes. Section
9(2) further provides that the provisions of the general sales tax law
of the State concerned including provisions relating to returns,
provisional assessment, advance payment of tax, registration of the
transferee of any business, imposition of the tax liability of a person
carrying on business on_ the transferee of, or successor to, such
business, transfer of liability of any 'firm or Hindu undivided family
to pay tax in the event of dissolution of any firm or partition of such
family, recovery of tax from third patties, appeals, reviews, revisions.
references, refunds, penalties; compounding of offences and treatment
of documents ·fornis hed by a dealer as confidential shall apply
accordingly to the proceedings under the Act. The proviso to subsection (2) of section 9 of the Act provides that. if in any State or
part thereof there is no general sales tax law in force, the Central
Government may by rules made in this behalf make necessary
provision·for all or any of the matters specified. in that sub-seciion.
Sub-section (3) of section. 9 of the Act virtually carries out the
intention of Article 269 of the Constitution by providing that the
proceedings in any financial year of any tax, including any penalty
levied and collected under the Act in any State (other than a Union
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[1983] 3 s.c.R.
Territory) on behalf of the Government of India shall be retained
by it. It may be mentioned here that there was no express provision
in .the Act itself authorising the levy of any penalty for delay or
default in payment of the tax due under the Act or for other breaches
of the general sales tax laws of the States in so far as they were
adopted by section 9(2) of the Act as part of the machinery under
the Act. · But it was understood by all the sales tax authorities in
the States who were authorised to exercise power under section 9(2)
th~t penalty could also be collected by them in accordance with the
provisions of the general sales tax of the appropriate State in order
to enforce the provisions· of the Act including collection of tax
thereunder. In Khemka & Co. v. Stall' of Maharashtra(') which was
a case heard by a Bench of five learned Judges of this Comt, an
assessee under the Act who was a resident of the State of Maharashtra
contended that the levy of penalty under section 16(4) of the Bombay
Sales tax Act for delay or defalt in payment of tax due under the
Act was not warranted by the provisions of section 9(2) of the Act.
There were· three opinions expressed in that case. A. N. Ray, CJ.
with whom Khanna, J. agreed held that a penalty not being merely
a sanction. or an adjunct to or consequential to an assessment and
not being just a machinery to enforce payment of a tax but in r"ality
was a statutory liability in the absence of any express provision of
levy of penalty for delay or default in payment of the tax under the
Act, it was not open to the authorities· under the State law to levy
and recover penalty for delay or default in payment of tax under the
Act.
Mathew, J. with whom Chandrachud, J . . (as he then was)
· agreed took a contrary view holding that if for enforcing payment
of tax due under the general sales tax law of the appropriate State
the authorities thereunder bad power to impose penalty, they had
the same power of imposing penalty for enforcing payment of tax
payable under the Act in accordance with the general sales tn law
of the State. While the existence of specific provision for le\•y of
penalty under section 10 read with section 10-A of the Act was relied
on by A. N. Ray, C.J. in support of his view, the said provisiom ·
were explained by Mathew, J. by observing that the penalties pro·
vided for in section '10 read with section 10-A of the Act were not
for the purpose of or in connection with assessment, reassessment,
collection and enforcement of payment of tax payable by a dealer
under the Act. Beg, J. (as he then was) by his separate judgment
concurred with the view of A. N. Ray,.C.J.. The result was that
•
SiiI'v DUTT v. UNION (Venkataramiah, J.)
2i3
the penalty levied against the appellant was held to be unsustainable
in accordance with the .opinion of the. majority. Consequently
section 9 came to be amended by the Amending Act which was
published. in the Gazette of India on September 9, 1976 introducing
sub-section (2-A) in it.
We are 'not concerned with. the other amendments made by the Amending Act in this case. Sub•section 2-A of
section 9 which was introduced by the Amending Act reads : ·
"(2-A).