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CASE NO.: Appeal (civil)  9143 of 1996

PETITIONER: Commercial Tax Officer  & Ors.  

RESPONDENT: Swastik Roadways & Anr.

DATE OF JUDGMENT: 13/02/2004

BENCH: P.VENKATARAMA REDDI & S.H. KAPADIA.

JUDGMENT: JUDGMENT

WITH

CIVIL APPEAL NO. 1783 OF 1997

State of Madhya Pradesh & Ors.          \005            Appellants                Versus

M/s United Transport Road Services      \005            Respondent       

KAPADIA, J.

1.              These two civil appeals raise an important question of  constitutional significance centering around Entry 54 of List II of the  Seventh Schedule to the Constitution of India as also the extent and purport  of the ancillary power vested in the State Legislature which has enacted the  Madhya Pradesh Commercial Tax Act, 1994 (hereinafter referred to as "the  Act").  The said Act levies tax on sale and purchase of goods. Purportedly,  under the ancillary 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 judgement, 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 & Anr.  reported in [(1993) 4 SCC 380].

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 1st April, 1995, the Madhya Pradesh Commercial Tax Act,  1994 came into force.  It received the assent of the President on 7th January,  1995.  In the present case as stated above sections 57, 58 and 59 have been  challenged.  As per the said three sections the petitioners were required to  furnish information including the statement of accounts to the Commissioner  as he may require in respect of transactions of any dealer with them (clearing  and forwarding agents) provided clearing and forwarding agents handled the

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documents of title to the goods or provided they transported the goods.  By  virtue of section 57(2), in case of failure to furnish information a penalty is  provided of an amount equal to three times the amount of tax payable in  respect of the goods involved in the transaction and which appear to have  been evaded by the owner of the goods.  Section 58 speaks of control on  clearing and forwarding agents to prevent or check evasion of tax. Further  the State Government is empowered to issue directions in that regard, in  order to ensure that such persons maintain registers concerning their  business and send intimation about such business in a proforma.   

4.              By the impugned judgment, the High Court took the view that  by virtue of these provisions, the carriers and clearing and forwarding agents  were sought to be treated as dealers though they have nothing to do with the  sale or purchase of goods, and for evasion of tax by their principal, they  were sought to be penalised to the extent of a sum equal to three times the  amount of tax payable in respect of the goods involved in the transaction.   Following the judgment of the Supreme Court in the case of Sant Lal  (supra), the High Court struck down the above three provisions as  unconstitutional and beyond the powers of the State Legislature under Entry  54 of List II of the Seventh Schedule to the Constitution of India.  Being  aggrieved, the Department has come by way of appeal to this Court.

5               Mr. P.C. Sen, learned counsel appearing on behalf of the  appellants submitted that there is a very narrow controversy in this case.  He  submitted that both sides agreed that the impugned Act is enacted to levy tax  on sale and purchase of goods.  That both sides agreed that the incidence of  tax is on the dealer.  However, the dispute is whether clearing and  forwarding agents have proximate connection with sale and purchase of  goods or with evasion of tax by the dealers.  Mr. Sen contended that in an  appropriate 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 power to the State Government to direct the  clearing and forwarding agents 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 cooperate in the  enquiry against the dealer for tax evasion.  He, therefore, submitted that  provisions of sections 57, 58 and 59 are intra vires Entry 54 of List II of the  Seventh Schedule to the Constitution of India.  In this connection Mr. Sen  has relied upon the judgment of the Apex Court in State of Rajasthan &  Anr. v. D.P. Metals reported in [(2002) 1 SCC 279].  He also relied upon the  judgment of this Court in the case of Tripura Goods Transport Association  & Anr. v. Commissioner of Taxes & Ors. reported in [(1999) 2 SCC 253].   Mr. Sen further contended that the judgment of the Supreme Court in the  case of Sant Lal  (supra) had no application to the facts of the present case  as in that case transporters, clearing and forwarding agents were required to  obtain a license from the competent authority for carrying business and  consequently it was held by the Apex Court that the State Legislature had no  power to enact the law of that nature under Entry 54 of List II of the Seventh  Schedule to the Constitution of India.

6         Per contra, Mr. Sanghi, learned counsel for the respondents submitted  that the impugned provisions seek to impose liabilities for tax evasion by the  dealers on clearing and forwarding agents who have no connection with the  transaction of sale and purchase of goods.  He contended that the Act  empowered the government to impose tax on sale and purchase of goods.  

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That the said Act empowered the government to levy tax on the dealers.   However under the impugned Act, clearing and forwarding agents who have  no connection with the transaction of sale or purchase of goods are made  liable to pay tax in the form of penalty.  In this connection reliance was  placed on section 57(2) under which clearing and forwarding agents are  penalised for not furnishing statement of accounts to the Commissioner  under section 57(1).  That under section 57(2) penalty is leviable at the rate  of three times the amount of tax payable in respect of the goods involved in  the transactions which tax is evaded by the owner.  It was, therefore,  contended on behalf of the respondents that in the guise of penalty the State   Government is not empowered to recover the tax from persons who have no  connection with the transaction of sale and purchase of goods.  Mr. Sanghi  contended that although machinery provision is a part of the taxing statute  and although 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 not 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 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 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 forwarding agent is  required to furnish particulars including statement of accounts in respect of  transactions of any dealer.  He submitted that clearing and forwarding agents  have no connection with sale and purchase of goods by the dealers and in the  circumstances the Commissioner cannot call upon clearing and forwarding  agents to furnish particulars of transactions of dealers.  Mr. Sanghi,  therefore, contended that in the guise of penalty and in the guise of  providing machinery to regulate tax evasion, persons who have no  connection with sale and purchase of goods are sought to be made liable  and, therefore, the impugned provisions of the Act and rule 75 of the Rules  are ultra vires Entry 54 of List II of the Seventh Schedule of the  Constitution.

7.              In view of the above arguments the point for determination is:  Whether the High Court was right in holding that the clearing and  forwarding agent had no proximate connection with the transaction of sale  and purchase of goods or with the evasion of tax by the dealer and  consequently the impugned provisions of sections 57, 58 and 59 were  beyond the legislative competence of the State legislature under Entry 54 of  List II of the Seventh Schedule of the Constitution of India?

8.              To appreciate the scope of the controversy involved in this case,  we quote some of the provisions of the said Act, as under:-

"Section 57: Furnishing of information by bank and  clearing and forwarding agents.- (1) Every bank including,  any branch of a bank and every clearing or forwarding agent  shall, if so required by the Commissioner, furnish such  particulars including statement of accounts and affairs verified  in the manner, specified by the Commissioner as he may  require in respect of transaction of any dealer with such bank or  with such clearing or forwarding agent which during the course  of its business handles documents of title to goods or transports  goods.

(2)     If any clearing or forwarding agent contravenes the  provisions of sub-section (1), the Commissioner may, after

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giving such agent a reasonable opportunity of being heard,  direct him to pay, by way of penalty, a sum equal to three times  the amount of tax payable in respect of the goods involved in  the transactions referred to in sub-section (1) and which appear  to have been evaded by the owner of such goods due to the  failure of such agent to furnish information pertaining thereto  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 send  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, direct him to pay, by way of penalty  a sum not exceeding five hundred rupees.

Section 59: Clearing and forwarding agents defined.- For the  purpose of Section 57 and 58 clearing and/or forwarding agent  includes a person engaged in collecting goods from any place  inside the State including railway premises and arranging for  the transport and/or delivery of such goods to the principal or  any other person or carrier of goods for and on behalf of the  principal and in the process of collection, transport or delivery  handles documents of title to such goods."

9.              Briefly it may be stated that ’sale price’ is defined under  Section 2(u) of the Act to mean the amount payable to a dealer as  consideration for sale of goods less discount but inclusive of any sum  charged for anything done by the dealer in respect of the goods at the time of  or before the delivery thereof other than the cost of freight or installation,  when such cost is separately charged.  Therefore, cost of freight or  installation at the time of or before the delivery, separately charged, is  excluded from the sale price.  Section 5 deals with incidence of tax on the  dealer whose turnover exceeds the prescribed limit.  Section 6 empowers the  Commissioner to determine the liability of the dealer.  Section 9 deals with  levy of tax payable by a dealer on the taxable turnover relating to goods  specified in Schedule II.  Section 27 deals with assessment of tax.  Section  28 deals with escapement of sale or purchase of goods, chargeable to tax,  from assessment on account of a wrong deduction claimed and granted.  It  deals with re-opening of such completed assessments after reasonable  opportunity to the concerned dealer.  It empowers the Commissioner to  impose penalty on such defaulting dealers.  Similarly, section 29 empowers  the Commissioner to make re-assessments in cases where the Department  has passed an order, which is prejudicial to the interest of the revenue.   Section 57 inter alia empowers the Commissioner to call upon clearing and  forwarding agents to furnish such particulars as he may require in respect of

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transaction between any dealer and such clearing and forwarding agent.   That in the event of contravention, a fixed penalty is leviable on the clearing  and forwarding agent equal to three times the amount of tax payable in  respect of the goods involved in the transaction and which tax is evaded by  the owner of such goods. Under section 58, the State Government is  empowered to direct the clearing and forwarding agents to maintain a  register and give 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 (supra) and on The Check Post Officer & Ors. v. K.P. Abdulla &  Bros. reported in [(1970) 3 SCC 355].

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 of evasion of tax and the power to levy penalty  are meant to check tax evasion and is intended to operate as a deterrent  against tax evaders and are therefore ancillary or incidental to the power to levy  tax on the sale of goods and thus fall within the ambit and scope of Entry 54 of  List II to the Seventh Schedule to the Constitution of India.  This position in law  is not disputed by the respondents.  What is disputed is that when tax is  sought to be recovered from the clearing and forwarding agents in the form  of penalty under section 57(2), the same falls outside the ancillary or  incidental powers of the State Legislature under Entry 54 of List II as the  levy under the Act is on sale and purchase of goods and as there is no nexus  between such sale or purchase of goods and the clearing and forwarding  agents, sections 57 and 58 and especially the penalty provisions falls outside  such ancillary powers.  As stated above, the said Act provides not only for  levy of tax on sale and purchase of goods but also provides for computation  of tax, incidence of tax, recovery of tax, assessment and re-assessment.  The  impugned provision of section 57(1) and section 58(1) operate in aid of  sections 27, 28 and 29 of the Act: To illustrate, the sale price is net of cost of  freight or installation.  The dealer in his return is entitled to show such  expense as deduction. The Commissioner is entitled to verify the claim for  deduction.  If the assessing authority has reason to believe in the course of  assessment under section 27 or re-assessment under section 28 that  deduction claimed is excessive, it can call for information from the clearing  and forwarding agent.  He can re-open the assessment in cases where fraud  is detected in the matter of deduction on account of excessive claims of  deduction being allowed and on that basis the assessing authority is  empowered to levy penalty on the dealer.  Such particulars will be called for  if the dealer-assessee has transported the goods through the clearing and  forwarding agent.  Where false claims for deduction are made on taxable  goods dispatched to other places by way of sale without accounting for the  same, it results in tax evasion.  To check such evasions, sections 57 and 58  are enacted.  The information sought under section 57(1) and the  maintenance of register under section 58 will therefore help the revenue to  identify the nature of the transaction 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

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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 has any authority to sell or purchase.  In our  view, the basis of penalty was three times the amount of tax evaded by the  dealer.  This basis was a measure or the yardstick.  It cannot convert a  penalty on the defaulting clearing and forwarding agent into a tax.  The  object of section 57(2) is to penalise any person who abets in or facilitates  the evasion of tax.  Therefore a heavy penalty is prescribed to check tax  evasion, subject to the satisfaction of conditions laid down in the sub- section.  The nexus between tax evasion by the owner of goods and the  failure of C & F agent to furnish information required by the Commission is  implicit in section 57 (2) and the concerned assessing authority has to  necessarily record a finding to this effect before levying penalty under  section 57(2).

13.             It is next contended on behalf of the respondents that the issue  of this case is similar to the issue in the case of Sant Lal (supra).  We do not  find any merit in this argument.  In Sant Lal’s case, provisions of section 38  of Haryana General Sales Tax 19 were challenged.  Under section 38(2)  every clearing and forwarding agent was required to obtain a license.  In  addition, every C & F agent had to give particulars and information in  respect of "the transactions of the goods" in a prescribed format. The Act  was under Entry 54 List II dealing with levy of tax on sale of goods.  If there  was a failure on the part of the clearing and forwarding agent to give  particulars or to obtain licence, a fixed penalty calculated at 20% of the  value of goods in respect of which no information was furnished as required  by section 38(1) was imposed.  These provisions were challenged.  It was  held by this Court that the power of the State Legislature was to levy tax on  sale of goods and that the powers ancillary to levy of tax on sale of goods  would not cover the clearing and forwarding agents who have no connection  with the transaction of sale and purchase of goods.  Hence the clearing and  forwarding agents could not be asked to obtain a license, nor can they be  penalized for not giving particulars as a licensee.  In that matter, section 38  applied to all clearing and forwarding agents and transporters irrespective of  the fact whether they handle documents of title to goods and whether they  handle the goods of dealers or not.  They were all required to obtain license,  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:\027  "\005 .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 licenced  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 transporting goods can be made liable to a

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penalty equivalent to 20 per cent of the value of the goods  in  respect of which no particulars and information have been  furnished.  Given the obligation to furnish particulars and  information, a penalty for evasion of tax, in addition to the tax  evaded, can reasonably and fairly be imposed which bears a  proportion to the quantum of tax that has escaped assessment  but it cannot reasonably and fairly bear a proportion to the  value of the goods the sale of which has occasioned the liability  to tax.  A penalty as high as that sought to be imposed could  well put a smaller clearing or forwarding agent or ’dalal’ or  person transporting goods out of business."              

       The approach of this Court on the question of legislative competence  is also discernible from paragraph 19 wherein it was held\027 "\005. As we have already stated, there has to be a reasonable and  proximate connection between the transaction of sale and the  clearing or forwarding agent, ’dalal’ or person transporting  goods before the State Legislature can, in exercise of the power  to levy sales tax, enact legislation concerning him.  We are not  satisfied that there is such close and direct connection between  the transaction of sale of goods by a dealer and the clearing or  forwarding agent, ’dalal’  who books or receives  such goods or  a person who transports such goods within  the meaning of the  said section 38."

       The provisions in the present case are different and the ratio in Sant  Lal’s case has no application. In the present matter, a bare reading of section  57(1)(2) shows that in cases where Commissioner is satisfied about tax  evasion by the dealer, he may call upon the clearing and forwarding agent to  give particulars of a transaction and if the clearing and forwarding agent  fails, penalty is levied at three times the tax evaded by the dealer.  The  reason is that by willful disobedience to comply with the directions of the  Commissioner, the clearing and forwarding agent facilitates the tax evasion  by the dealers.  Similarly, under section 58, the State is empowered to give  directions to the clearing and forwarding agent to maintain a register in  Form 61 under rule 75 which would give the details of consignor, consignee,  the quantity of goods carried on a particular date and time, its value, etc.  Such 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    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 is materially different.   "The reasonable and proximate connection" is not lacking in the present  case.

       The decision in Sant Lal’s case was distinguished in two subsequent  decisions, namely, Tripura Goods Transport Association v. Commissioner  of Taxes [(1999) 2 SCC 253] and State of Rajasthan v.  D. P. Metals  [(2002) 1 SCC 279].  In the first case, the relevant provisions of the Tripura  Sales Tax Act required the persons doing transport business to obtain a  certificate or registration and further required the transporter to give a  complete and correct account of the goods carried by him in a prescribed  form which could be scrutinized by the officer-in-charge of the check-post.  The driver or any other person in-charge of the goods vehicle could be  stopped and the records inspected and if it was found that the goods were  being carried in contravention of the provisions of the Act or the rules, the  officer conducting the search could seize the goods found in the vehicle.   Punishment was provided for non-compliance with the provisions of the Act  and the Rules.  The contention that the sales tax legislation could not extend  to them on the ground that they were not dealers doing the business of sale

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or purchase of goods was negatived.  The legislative competence was  upheld. It was observed therein:\027         "Every taxing statute has charging sections.  It lays down  the procedure to assess tax and penalties etc.  It also provides   provisions to cover  pilferage of such revenue by providing  such mechanism as it deems fit, in other words, to check  evasion of tax and in doing so, if any obligation is cast on any  person having connections with the consignor or consignee in  relation to such goods, may be other than a dealer, to perform  such obligation in aid, to check evasion and in case he is made  liable for any offence, for his dereliction of duty or deliberate  false act contrary to what he is obligated to do.  In our opinion,  it cannot be construed to be beyond the competence of the State  Legislature."

       The case of State of Rajasthan v. D.P. Metals which was decided by  a three Judge Bench referred to Tripura Goods Transport case with approval.  In the Rajasthan case, the three Judge Bench reversed the decision of the  High Court holding section 78 of the Rajasthan Sales Tax Act  unconstitutional on the ground of legislative incompetence. Section 78  provided for establishment of check-post and inspection of goods while in  movement. Sub-section (5) of section 78 empowered the officer-in-charge of  the check-post to impose on the person \026in-charge of the goods, a penalty  equal to 30% of the value of the goods for possession or movement of goods  if they are not covered by prescribed documents such as challans, bills of  sale, declaration forms etc., or for submission 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:\027 "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\005.

\005. 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\005."

Referring to Sant Lal’s  case, it was observed\027

"\005..Unlike the dalals and forwarding agents, as in Sant Lal’s   case, the persons referred to in Section 78(2) are persons  concerned with the movement of the goods which are sold or  likely to be sold\005.."

       The above observations cannot be pressed into service by the  respondent to contend that clearing and forwarding agents have no  connection with dispatch and transport of goods of dealers or that they  cannot be compelled to give any information to the Sales Tax Department in  regard to their transactions.  If section 78 of Rajasthan Act was meant to  check tax evasion, sections 57 and 58 of the present Act also serve the same  purpose. The expression "movement of goods" in the above passage was  used only to explain why the driver or other person in charge of goods  vehicle could be penalized under the Sales Tax Act.

As regards penalty, the Court observed in Rajasthan case; "\005\005 The legislature thought it fit to specify a fixed rate of  penalty and not give any discretion in lowering the rate of  penalty.  The penalty so fixed is meant to be a deterrent and we  do not see anything wrong in this.  The quantum of penalty

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under the circumstances enumerated in Section 78(5) cannot, in  our opinion, be regarded as illegal. The legislature in its  wisdom has thought it appropriate to fix it at 30% of the value  of goods and it had the competence to so fix\005"

Thus, though in Sant Lal’s case, the penalty related to value of the goods  was struck down, in the Rajasthan case, the three Judge Bench upheld the  same.  The penalty in the present case even stands on a better footing if  tested from the angle of legislative competence.  The penalty which is levied  by way of deterrent against the C & F agent is directly related to the evasion  of tax by the dealer resulting from the failure of the agent to furnish  information.  Thus, the impugned provisions are ancillary to the levy of tax  on the sale or purchase of goods by dealers falling within the ambit of Entry  54, List II.

14.             Learned counsel for the respondents however placed heavy  reliance on the judgment of this Court in the case of K.P. Abdulla & Bros.  (supra).  In that matter there was a challenge to section 42 of the Madras  General Sales Tax Act, 1959.  Under section 42, the check post officer was  empowered to stop any vehicle or boat, examine the contents of the vehicle  and seize and confiscate any goods which are under transport if not covered  by a bill of sale or delivery note, goods vehicle record etc. In lieu of  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 legislature on sales tax.  It was observed:\027 "\005\005.Sub-Section (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   in the power to legislate in respect of taxes on sale or purchase  of goods\005.

\005 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\005.."

        Referring to sub-section (3) it was pointed out that even a person  carrying his own goods was also exposed to the risk of the goods being  forfeited.  The ratio of this decision in our view has no application to the  facts of the present case.  Sections 57 & 58 do not deal with confiscation of  goods at all. As far as the penalty under section 57(2) is concerned we have  already noted that it is levied only on the satisfaction being reached by the  concerned officer that the failure of the C & F agent to furnish the  information required by the Commissioner facilitated the dealer to evade the  tax.  It presupposes that there was a taxable sale in respect of which the tax  evasion appears to have occurred. The penalty under section 57(2), unlike  section 42(3) of the M.G.S.T. Act, is not levied on a mere assumption that a  taxable sale or purchase took place.  The impugned sections of Madhya  Pradesh Act are meant to get timely information which will help the  department to detect tax evasion.  As observed earlier, in cases of  assessment or under assessment, Commissioner has a power to verify not  only the transactions of sales entered into by the dealer but he has also to  cross-check the figures with the clearing and forwarding agent in appropriate  cases and for that purpose he can call upon the agent to give particulars such  as value of goods, amount of freight, details of consignor and consignee,  date of consignment, etc.  Therefore, in such cases, the Commissioner, on

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the basis of information furnished or the particulars noted in the register of  the clearing and forwarding agent can verify the quantity of goods, the value  of the goods, the name of consignee, etc. in order to check the details of the  transaction under the assessment and even trace the dealer in appropriate  cases.  Hence, it cannot be said that the information to be furnished by  clearing and forwarding agent has no proximate connection with the sale and  purchase of goods or realization of tax in the context of the impugned  provisions.   

The width of legislative power in the context of tax evasion is  illustrated by the case of Union of India v. Bombay Tyre International Ltd.  reported in [AIR 1984 SC 420].  By Act 22 of 1973 (w.e.f. 1.10.75) a new  section 4 in respect of transactions effected by the assessee to or through "a  related person" was introduced in the Central Excise Act 1944.  The said  new section 4(1)(a) provided that "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 charged by his distributor is wholly incompatible with the  nature of excise. This argument was rejected by this Court in following  terms:\027         "It is open to the Parliament to incorporate provisions in  the section declaring that certain specified categories of  transactions fall within the tainted class, in which an irrebutable   presumption will arise that the transactions belonging to those  categories are transactions which cannot be dealt with under the  usual meaning of the expression "normal price" set forth in  section 4(1)(a)\005.."          In the said judgment it has been further held (vide para 45) that :- "Now, it is well known legislative practice to enact  provisions in certain limited cases where an assessee may be  taxed in respect of the income or property truly belonging to  another.  They are cases where the Legislature intervenes to  prevent the circumvention of the tax obligation by tax payers  seeking to avoid or reduce their tax liability through modes  resulting in the income or property arising to another\005".

       The above observations of this Court can be pertinently applied to this  case.   

Accordingly we hold that the impugned sections 57 and 58 of the  M.P. Commercial Tax Act, 1994 have been enacted by the State legislature  under the powers incidental to the power to levy tax on sale and purchase of  goods under Entry 54, List II of the Seventh Schedule of the Constitution of  India.           15.             We would like to conclude our judgment by quoting the  following passage from Broken Hill South Ltd. v. Commissioner of  Taxation, N.S.W. reported in [56 CLR 337 at page 379] which has been  approved by this Court in the case of The State of Madras  v.  M/s. Gannon  Dunkerley & Co. (Madras) Ltd. reported in [AIR 1958 SC 560]:\027

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"In any investigation of the constitutional powers of these great  Dominion legislatures, it is not proper that a Court should deny  to such a legislature the right of solving taxation problems  unfettered by ’a priori’ legal categories which often derive from  the exercise of legislative power in the same constitutional  writ."

16.             For the foregoing reasons, we uphold the validity of the  impugned provisions of sections 57, 58 and 59 of the Act as intra vires Entry  54 of List II of Seventh Schedule to the Constitution of India.  Consequently  we hold that the impugned judgment of the High Court dated 16th April,  1996 in Writ Petition No.3756 of 1995 is not correct.  Accordingly, both the  civil appeals are allowed with no order as to costs.