http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: STATE OF MADHYA PRADESH AND ORS.

       Vs.

RESPONDENT: BHARAT HEAVY ELECTRICALS

DATE OF JUDGMENT:       14/08/1997

BENCH: J. S. VERMA, B. N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                           W I T H C.A. NOS.  199, 1486,  200, 201, 202, 203, 204, 243, 3333 of 1996 and Civil Appeal No. 5096 of 1997                       J U D G M E N T Kirpal. J.      The common  question  of  law  which  arises  in  these appeals by  special leave relates of the validity of Section 7(5) of  the The  Madhya Pradesh  Sthaniya Kshetra Me Mal Ke Pravesh Par  Kar Adhiniyam,  1976 (hereinafter  referred to, for the  sake of  convenience ‘the  Entry Tax Act). The said provision  having   been  successfully   challenged  by  the respondents before  the Madhya Pradesh High Court, the State of Madhya Pradesh has filed the present appeals.      The facts, which are relevant for deciding the point in issue lie  within a  very narrow compass. The respondent are stated to  be  engaged  in  sale  and  purchase  of  various articles as raw material, some of which are brought into the local areas.  They manufacture  the finished goods which are sold in  local areas  in which  they are  manufactured  and, subsequently,  are   sold  outside   the  local   area.  The respondents  are  all  registered  dealers  both  under  the Central  and  the  State  Sales  Tax  Act  and  its  is  the provisions of  the act  which are applied for assessment and recovery of entry tax.      The Entry  Tax was  enacted with  the object of levying tax on the goods brought into the local area for consumption use of  sale therein.  Section 3 is the charging section and sub-section  (1)(a)  and  (b)  which  are  relevant  are  as follows:      "3.  Incidence  of   taxation  -[1]      There shall be levied an entry tax-      [a]  on the  entry in the course of      business  of   a  dealer  of  goods      specified in Schedule II, into each      local area  for consumption, use or      sale therein; and      [b]  on the  entry in the course of      business  of   a  dealer  of  goods      specified  in  Schedule  III,  into      each local area for consumption for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

    use of  such goods as (raw material      or incidental  goods) or as packing      material or  in  the  execution  of      work contracts  but  not  for  sale      therein;      and such tax shall be paid by every      dealer liable to tax under the Sale      Tax Act  who has  effected entry of      such goods:      [4]................................      [5]  Where  a   registered   dealer      referred to  in sub-section  (1) or      sub-section (2)  has, in the course      of his  business, sold  local goods      to other  registered dealer and has      failed  to   made   the   statement      referred  to   in  sub-section  (1)      [....], it  shall be  presumed that      he has  facilitated the  evasion of      entry tax  on the  local  goods  so      sold and  accordingly he  shall  be      liable to pay penalty equal to [ten      times]  the  amount  of  entry  tax      payable on  such goods  as if  they      were not goods of local origin.      [6].............................."      Prior to  this amendment  on 20th  October,  1982,  the penalty which  was provided  by sub-section [5] of Section 7 was only one and a half time the amount of entry tax payable on the  goods. With  the penalty having been increased, as a consequence of  amendment of  sub-section [5]  of Section 7, the respondents  filed writ  petitions in the Madhya Pradesh High Court challenging the validity of the said provision.      The main  ground on  which the  challenge was  base, on behalf of  the respondents  before the  High Court, was that the levy  of the  penalty of ten times the amount of tax was confiscatory in nature and was ultra vires of the provisions of the  Act and  was also violative of Articles 14 and 19 of the Constitution  of India.  It was  the contention  of  the respondents that  the presumption  contained in  sub-section [5] of Section 7, which was regarded as not being rebuttable was ultra  vires as  it did  not give  any direction  to the assessing authority  to reduce  or waive  the penalty on the ground of  absence of  mala fide or any trivial or technical defect.      The High  Court construed Section 7[5] of the Entry Tax Act to  mean that  the presumption contained therein was not rebuttable and  secondly the  penalty which could be imposed for non-compliance  was ten  times the  amount of  tax which could not  be reduced  and therefore, it was confiscatory in nature. Consequently,  the High Court came to the conclusion that the  provisions of  Section 7[5]  of the  Entry Tax Act were ultra vires.      On behalf of the appellants it is submitted by Mr. G.L. Sanghi learned  senior counsel, that the High Court erred in coming to  the conclusion that Section 7[5] was ultra vires. He drew  our attention  to an observation in the judgment of the High  Court which  seems to  suggest that  the  Advocate General, appearing  on behalf  of the appellants herein, had submitted that  Section 7[5]  should be  read down. The High Court had observed that this was not possible and the scheme of the Act did not confer jurisdiction on the authorities to reduce the penalty.      Mr. Sanghi  contended that  this approach  of the  High Court was  incorrect and  he submitted  that looking  at the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

scheme of  the Act as a whole and Section 7 in particular he would   concede that  the presumption  raised in sub-section [5] of  Section 7  was rebuttable  and, secondly,  the  said provision did not provide for a fixed rate of penalty.      We find  merit in this contention. According to Section 3 the goods imported from outside the State which enter into any local  area and  are sold  for consumption, use and sale therein are  liable to  pay entry  tax if they belong to the categories mentioned  in Schedule  II. Thus  goods which are manufactured in the local area become taxable only when they first enter  into a  local area other than the local area of its origin. It is in order to trace the goods manufacture in any local  area and  to ensure  that the goods do not escape tax on  their subsequent  entry into another local area that certain checks  and counter checks have been provided and in this connection  Section  7  contains  the  requirement  for registered dealer  who sells  the goods  to  make  statement referred   to in  this section.  The  main  purpose  of  the statement required  to be  furnished under  Section 7  is to isolate the  non-local goods from the local goods. There can be several  good reasons  why a  registered dealer  may have failed to make the statement required to be furnished by him by sub-section  [1] and sub-section [2] of Section 7/ In our opinion it  could not  be the  intention of  the legislature that  an   accidental  omission  or  non-furnishing  of  the statement of a good an valid reason must necessarily lead to the presumption that the registered dealer had the intention of facilitating the evasion of entry tax. Mr. Sanghi rightly drew our attention to a somewhat similar provision which was contained in  Section 28B  of the UP Sale Tax Act, 1948. The said section related to transit of goods by road through the State and  the issue  of transit  passes. The  said  section reads as follows:      "28B.  Transit  of  goods  by  road      through  the  State  and  issue  of      transit  pass   -  When  a  vehicle      coming from  any place  outside the      State and bound for any other place      outside the  State  passes  through      the  State,  the  driver  or  other      person in  charge of  such  vehicle      shall  obtain   in  the  prescribed      manner  a  transit  pass  from  the      officer  in  charge  of  the  first      check-post  or  barrier  after  his      entry into the State and deliver it      to the  officer in  charge  of  the      check-post or  barrier  before  his      exist from the State, falling which      it shall be presumed that the goods      carried thereby have been sold with      the State by the owner or person in      charge of the vehicle."      In order  to  determine  whether  the  aforesaid  words "shall be presumed" occurring in Section 28B were rebuttable or not  this Court in Sodhi Transport and Anr. Etc. Etc. Vs. State of  U.P. and Anr. Etc. Etc. [1986] 1 SCR 939) referred to Section 4 of the Indian Evidence Act and then observed at page 953 as follows:           "..These  words   i.e.  ‘shall      presume’ are  being used  in  India      Judicial lore for over a century to      convey   that    they   lay    down      rebuttable presumption  in  respect      of matter with reference which they

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

    are used  and we should expect that      the U.P.  legislature also has used      them in  the same  sense  in  which      Indian courts  have understood them      over  a  long  period  and  not  as      laying down a rue conclusive proof.      In fact  these presumptions are not      peculiar  to  the  Indian  Evidence      Act.  They   are   generally   used      whenever   facts    are    to    be      ascertained by a judicial process."      In our  opinion Mr.  Sanghi is right in submitting that Section  7   should  be  read  as  containing  a  rebuttable presumption. This  would mean  that it  will be  open to the registered dealer  to satisfy the authorities concerned that the non-submission  of the  statement under  sub-section [1] and [2] of Section 7 was not with the intention to faciliate the evasion  of the  entry tax.  In other words, sub-section [5]  of  Section  7  places  the  burden  of  proof  on  the registered dealer  to show  that the  non-submission of  the statement under  sub-sections [1]  and [2]  of Section 7 was not with  a view to faciliate the evasion of entry tax. If a registered dealer  is unable  to satisfy  the authorities in this  regard  then  in  the  absence  of  satisfaction,  the presumption  is   that  non-submission   of  statement   has facilitate the evasion of entry tax. Construing Section 7(5) to contain  a rebuttable presumption it does not suffer from any vice. It cannot then he held invalid as conducted by the High Court. It is the misconstruction of the provision which misted the High Court to the contrary conclusion.      It is  not necessary  for  us  to  decide  whether  the provision for  levy of penalty equal to ten times the amount of entry  tax would  be confiscatory  and  therefore,  ultra vires since  Mr. Sanghi,  in fairness,  submitted  that  the State treats is as the maximum limit and not fixed amount of penalty leaving  no  discretion  for  imposition  of  lesser penalty. This  stand of  the State  itself concedes that the assessing authorities  are not  bound to  levy fixed penalty equal to  ten times  the amount  of entry  tax whenever  the provision of  Section 7[5] are attracted. Depending upon the facts of  each case the assessing authority has to decide as to what  would be  the reasonable  amount of  penalty to  be imposed the  maximum being ten times the amount of the entry tax. So  construed sub-section  [5] of  Section 7  cannot be regard as  confiscatory. Consequently, this also cannot be a ground for holding Section 7[5] to be ultra vires.      From the  aforesaid it follows that Section 7[5] has to be construed  to mean that the presumption contained therein is rebuttable  and secondly  the penalty  of  ten  time  the amount of  entry tax  stipulated therein is only the maximum amount which could be levied and the assessing authority has the discretion  to levy  lesser amount,  depending upon  the facts and  circumstances of  each case.  Construing  Section 7[5] in  this manner  the decision  of the  High Court  that Section 7[5] is ultra vires cannot be sustained.      For the aforesaid reason these appeals are allowed. The judgment of  the High  Court and the assessment, if any made are set  aside, the  assessing authority shall now determine afresh the  amount of  penalty, if any which is to be levied under Section  7[5] of the Entry Tax Act. Such determination shall  take   piece  only   after  notice   and   reasonable opportunity of  being heard  is afforded  to the respondent. There will be no order as to costs.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5