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PETITIONER: KANTI LAL BABULAL

       Vs.

RESPONDENT: h. C. PATEL

DATE OF JUDGMENT: 29/09/1967

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. WANCHOO, K.N. (CJ) BACHAWAT, R.S. RAMASWAMI, V. MITTER, G.K.

CITATION:  1968 AIR  445            1968 SCR  (1) 735  CITATOR INFO :  E          1970 SC 898  (20)  RF         1975 SC 813  (14)  F          1977 SC2279  (31)  F          1990 SC 772  (8)

ACT: Bombay Sales Tax Act (Bom. 5 of 1946) S. 12A(4)-If infringes Art. 19(1)(f), Constitution.

HEADNOTE: In view of Art. 286 (1) (a) of the Constitution, as it stood at   the  relevant  time,  the  sales  by  the   appellants- (registered  dealers) outside the State of Bombay  were  not exigible  to  tax.  The appellants.were directed  to  refund amounts  collected by them from their purchasers in  respect of  these  sales by way of tax, failing  which  the  amounts would  be forfeited under s. 12A(4) of the Bombay Sales  Tax Act.  The appellants filed a writ petition in the High Court to restrain the respondents from taking action against  them under s. 12A(4), The High Court dismissed the petition.   In appeal, this Court, Held:     S.  12A(4)  of the Bombay Sales Tax Act  was  void being violative of Art. 19(1)(f) of the Constitution. Prima  facie the appellants were entitled to get the  amount ordered. to be refunded to them.  It was for the respondents to establish that the same was liable to be forfeited.  Even according to the respondents that amount could be  forfeited only  as a measure of penalty.  Under our  jurisprudence  no one can be penalised without a proper enquiry. [740 E-F]. The  impugned  provision which provided  forfeiture  of  the amount  in  the hands of the dealers, did not lay  down  any procedure  for  ascertaining  whether  in  fact  the  dealer concerned  hid collected any amount by way of tax  from  his purchasers outside the State and if so what that amount was. Neither  S.  12A(4)  nor  any  rule  framed  under  the  Act contemplated any enquiry,, much less a reasonable enquiry in which  the  person complained of could plead and  prove  his case  or  satisfy authorities that  their  assumptions  were either  wholly  or  wholly  wrong.   This  section  did  not

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contemplate adjudication nor provide for making any  order. Hence,  it  was doubtful whether any appeal could  be  filed against a demand made under that section under S. 21 (740 G- H; 741-E]. Abdul Quadar and Co. v. Sales Tax Officer, Hyderabad  [1964] S.C.R  867,  Dr.  N.  B. Khare v. State  of  ’Delhi.  [1950] S.C.R.  519.  State of Madras v. V.  G. Rao,  (19521  S.C.R. 597 followed. Ram Gopal v. Sales Tax Officer, Surat and another, 16 S.T.C. 1005 disapproved,

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 126 of 1966. Appeal  from the judgment and order dated November  29,  and December 2, 1963 of the Gujarat High Court in Special  Civil Application No. 641 of 1962. 736 K.   R. Chaudhuri, for the appellant. R.   M.  Hazarnavis,  K. L. Hathi and S. P. Nayar,  for  the respondents. S. T. Desai and I. N. Shroff, for the intervener. The Judgment of the Court was delivered by Hegde,   J.--The   main  controversy  in  this   appeal   by certificate  is  as  to the constitutional  validity  of  S. 12A(4)  of  the  Bombay Sales Tax 1946,  to  be  hereinafter referred  to as the Act.  As in our judgment that  provision is  void, the same being violative of Art. 19(1)(f)  of  the Constitution,  we have not thought it necessary  to  examine the other contentions raised’ in the appeal. The facts material for the purpose of deciding the  question formulated  above,  are these: The  appellants  are  dealers registered tinder the Act carrying on business in art  silk, cotton  and hand loom cloth.  During the period January  26, 1950  to  March 31, 1950, the  appellants  effected  various sales  outside  the State of Bombay.  As  those  sales  were protected  by Art. 286(1)(a) of the Constitution, they  were outside the reach of the Act.  But yet the sales tax officer assessed  the  turnover relating to those  sales.   The  tax levied  in respect of that turnover was Rs.  4,494/3/9.   In appeal,  the order of the sales tax officer was affirmed  by the  Assistant Collector of sales,tax.  But  the  Additional Collector of sales tax in revision revised the levy to  some extent and, ordered a refund of Rs. 2,238/0/6.  That  amount was  paid  to the assessees.  Not being satisfied  with  the order  of  the  Additional  Collector  of  sales  tax,   the appellants  took up the matter in revision to the Sales  Tax Appellate Tribunal.  But even before they moved the Tribunal in  revision, the Additional Collector of sales tax  by  his letter  dated  May 17, 1958, informed  the  appellants  that unless  they  furnished to the sales tax  officer  proof  of their  having refunded the amount paid to them in  pursuance of  his  order to the purchasers within a  period  of  three months  from  the  date of that notice, the  same  would  be liable  to be forfeited under s. 12A(4) The Tribunal by  its ’order  dated  November 26, 1958, allowed the claim  of  the appellants  in  full and directed’ the refund  of  an  addi- tional sum of Rs. 2,256/2/6. During the period April 1, 1950 to March 31, 1951 the appel- lants  effected various sales outside the State  of  Bombay. The  turn, over relating to those sales was also brought  to tax by the sales tax officer and in that connection a tax of Rs. 23,806/3/6 was levied on the appellants.  In appeal, the Assistant  Collector  of sale tax  allowed  the  appellants’

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claim in part and ordered a refund or.  Rs. 12,154/15/-  but at the same time he informed them that that amount would  be forfeited  to  the State Government if not refunded  to  the purchasers from whom the same had been collected.  No  being satisfied  with the relief obtained, the appellants went  up in revision to the Additional Collector of sales tax.   That officer by                             737 his  order dated November 1, 1958 granted further relief  by ordering refund of an additional sum of Rs. 3,588/1/9.   But the sales tax officer did not give effect to that order.  As the  Additional  Collector did not  accept  the  appellants’ claim  in  full, they went up in revision to  the  Tribunal. The Tribunal allowed their claim in full.  The Revenue  took up  the  matter  in reference to the  High  Court  but  that reference was rejected.  From the foregoing it is seen  that in  respect of the period April 1, 1950 to March  31,  1951- the appellants  are  entitled  to  get  a  refund  of  Rs. 23,806/3/6.   Despite the aforementioned orders,  the  sales tax officer did not pay the amounts ordered to be  refunded. On  the other hand, he threatened to take steps  to  forfeit the same by having recourse to s. 12A(4). On  June  27, 1962, the sales tax officer  called  upon  the assessees to remain present in their office on July 2,  1962 with  particulars of the amount collected by them by way  of sales  tax from the purchasers in ’other States  during  the period  January 26, 1950 to March 31, 1951.  At that  stage, the  appellants  approached  the High Court  of  Gujarat  by special civil application No. 641 of 1962 under Art. 226  of the  Constitution.   In that application,  they  prayed  for several  reliefs, the most important of which was to  direct the  respondents to comply with the orders of refund and  to refrain from taking any action against them under s. 12A(4). The  High  Court dismissed that  application.   Hence.  this appeal. The Act provides for the levy of tax on the sale of goods in the  then State of Bombay.  It came into force on  March  8, 1946.   Any  person who carries on business  of  selling  or supplying   goods  in  the  State  of  Bombay  whether   for commission,  remuneration  or  otherwise, is  defined  as  a dealer in s. 2(c).  Section 8 and s. 8(a) of the Act provide for  the registration of dealers.  As mentioned earlier  the appellants  are registered’ dealers.  Under s. 2(k)  of  the Act,  the assessment year is the financial year.  Section  5 prescribes the incidence of taxation.  Section 10 prescribes the  returns to be made by the dealers.  The  assessment  is made  under s. 11.  Section 11 (a) provides for  taxing  the turnover  escaping assessment.  Section 12 provides for  the payment  and recovery of tax.  Section 12A is the  one  with which we are concerned in this appeal.  It reads:               "(1) No person shall collect any amount by way               of  tax under this Act in respect of sales  or               supplies of any goods which are declared, from               time  to  time, under section 7  as  sales  or               supplies on which the tax is not payable.                (2) No person selling or supplying any  goods               shall collect from the purchaser any amount by               way  of  sales tax unless he is  a  registered               dealer and is liable to pay tax under this Act               in respect of such sale or supply:               Provided that this sub-section shall not apply               in cases where a person is required to collect               such  amount  of tax separately  in  order  to               comply with the conditions               738

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             and  restrictions  imposed on  him  under  the               provisions  of any law for the time  being  in               force.               (3)   Every  registered  dealer  whose   gross               turnover exceeds Rs. 60,000 a year shall issue               a bill or cash memorandum signed and dated  by               him  or his servant, manager or agent  to  the               purchaser  in  respect of the  goods  sold  or               supplied by him showing the particulars of the               goods  and  the price at which the  goods  are               sold or supplied shall keep the counterfoil or               duplicate of such bill or cash memorandum duly               signed and dated and preserve it for a  period               of not less than two years from such date.               (4)   If any person collects any amount by way               of  tax in contravention of the provisions  of               sub-section  (1) or (2) or if  any  registered               dealer  collects any amount by way of  tax  in               excess of the amount payable by him under this               Act,  the amounts so collected shall,  without               prejudice  to  any  prosecution  that  may  be               instituted  against such person or dealer  for               an offence under this Act be forfeited to  the               State Government and such person or dealer, as               the  case may be, shall within the  prescribed               period,  pay  such amount  into  a  Government               treasury  and in default of such payment,  the               amount shall be recovered as an arrear of land               revenue." In view of Art. 286(1)(a) of the Constitution as it stood at the  relevant time, the appellants’ sales outside the  State of  Bombay  were  not exigible to  tax.   Therefore  if  the appellants had collected any amount from their purchasers in respect  of those sales by way of tax they  had  undoubtedly contravened sub-s. 2 of s. 12A.  Sub-s. 4 of s. 12A provides for the forfeiture to State government any amount  collected by a dealer by way of tax in excess of the amount payable by him under the Act.  For the purpose of deciding the point in issue  it  is  not necessary to find out the  scope  of  the expression "collects any amount by way of tax" in s. 12A(4). We  shall assume, without deciding, the collection  made  by the appellants, if any, was by way of tax. It  was not contended nor could it have been contended  that the impugned provision is a taxation measure bringing to tax directly or indirectly the sales effected outside the  State of  Bombay.  In Abdul Quadar and Co. v. Sales  Tax  Officer, Hyderabad,(1)  interpreting  s.  11(2)  of,  the   Hyderabad General Sales Tax Act 1952, a provision somewhat similar to, the impugned provision, this Court observed that legislation under  Entry 54 of List II of the Constitution  (similar  to Entry  48 of List 11 of the Government of India  Act,  1935, the entry with which we are concerned in this case) proceeds on  ’the  basis  that  the amount concerned  is  not  a  tax exigible under the law made under that entry, but  (1) [1964] 6 S.C.R. 867.                             739 even  so lays down that though it is not exigible under  the law, it shall be paid over to the government merely  because some  dealers by mistake or otherwise have collected  it  as tax; hence, it is difficult to see how such a provision  can be  ancillary  or  incidental  to  the  collection  of   tax legitimately due under a law made under the relevant  taxing entry.  Therein it was held that it cannot be said that  the State   legislature   was  directly  legislating   for   the imposition  of sales or purchase tax under Entry 54 of  List

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11  when  it made the provisions of s. 11 (2),  for  on  the basis of the provision the amount that was collected by  way of tax was not exigible as tax under the law. According to the Revenue s. 12A(4) is a penal provision; and it   provides  for  the imposition of penalty on  those  who contravene s.  12A(1)  and (2).  It was said on  its  behalf that  power to enact such a provision is incidental  to  the power to tax sales.  In support of that contention  reliance was placed on the decision of the Gujarat High Court in  Ram Gopal  v.  Sales Tax Officer, Surat  and  Another(1).   That decision upheld the validity of s. 12A(4).  If that decision lays down the law correctly, then the appellants are out  of court.   But  we  think that the  said  decision  cannot  be sustained. We shall not go into the question whether from the  language of the impugned provision it is possible to hold that it  is a penal provision.  For our present purpose we shall  assume it to be so.  We shall also assume that the legislature  had legislative  competence  to enact that provision.   But  the question  is whether it is violative of Art. 19(1)(f)  which guarantees  the  freedom to hold property. Prima  facie  the appellants  are  entitled to get the amount  ordered  to  be refunded  to them.  It is for the respondents  to  establish that the same is liable to be forfeited.  Even according  to the  respondents  that  amount can be forfeited  only  as  a measure  of penalty for the contravention of s.  12A(1)  and (2).   Under  our  jurisprudence no  one  can  be  penalised without  a proper enquiry.  Penalising a person  without  an enquiry  is  abhorrent  to our sense of justice.   It  is  a violation  of  the principles of natural justice,  which  we value so much. The impugned provision which provides for the forfeiture  of the  amount in the hands of the dealers, does not  lay  down any  procedure for ascertaining whether in fact  the  dealer concerned  bad collected any amount by way of tax  from  his purchasers outside the State and if so what that amount  is. Neither  s.  12A(4)  nor  any  rule  framed  under  the  Act contemplates  any enquiry much less a reasonable enquiry  in which the person complained of can plead and prove his  case or satisfy the authorities that their assumptions are either wholly or partly wrong. The  Act is silent as to the machinery and procedure  to  be followed in determining the question as to whether there has been  a contravention of ss. 12A(1) and (2), and if  so,  to what extent. (1) 16 S.T.C. 1005. L/P(N)7SCI-8 740 Hence  it would be open to the department to evolve all  the requisite machinery and procedure which means that the whole thing, from the beginning to end, is treated as of a  purely administrative  character,  completely  ignoring  the  legal position.   The  imposition of a penalty on a person  is  at least of a quasi-judicial character. The impugned provision does not concern itself only with the amount admittedly collected by a person in contravention  of sub  ss.  1 and 2 of s. 12A.  Even if there is  any  dispute either  as to the facturn of collection or as to the  amount collected,  such  a case also comes within the scope  of  s. 12A(4).   Yet that section does not provide for any  enquiry on  disputed  questions  of facts or  law.   The  forfeiture provided  for  in  S.  12A(4)  prima  facie  infringes  Art. 19(1)(f).   Therefore it is for the respondents  to  satisfy the  Court  that  the impugned  provision  is  a  reasonable restriction imposed in the interest of the general public.

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Section 12A(4) does not contemplate the making of any order. As  mentioned earlier, that section prescribes that  if  any registered  dealer  collects  any amount by way  of  tax  in excess  of  the  amount payable by him under  the  Act,  the amount   so  collected  shall,  without  prejudice  to   any prosecution  that  may  be instituted  against  him  for  an offence under the Act, be forfeited to the State  government and  he shall within the prescribed period pay  such  amount into  a government treasury and in default of  such  payment the  amount shall be recovered as arrears of  land  revenue. This  section does not contemplate adjudication.   Nor  does it,  provide  for making any order.  Hence, it  is  doubtful whether any appeal can be filed against a demand made  under that section under s. 21. The question whether appellants in the instant case had been afforded a reasonable opportunity to establish their case or riot is besides the point.  The constitutional validity of a provision has to be determined on construing it  reasonably. If it passes the test of reasonableness, the possibility  of powers  conferred  being improperly used, is no  ground  for pronouncing  it  as  invalid, and  conversely  if  the  same properly  interpreted  and  tested  in  the  light  of   the requirements  set out in Part III of the Constitution,  does not  pass  the test, it cannot be  pronounced  valid  merely because  it is being administered in the manner which  might not  conflict  with the constitutional requirements.   On  a reasonable interpretation of the impugned provision, we have no  doubt  that  the  power conferred  under  S.  12A(4)  is unguided, uncanalised and uncontrolled.  It is an  arbitrary power.  As held by this Court in Dr. N.B. Khare v. State  of Delhi(1), whether the restrictions imposed by a. legislative enactment upon a fundamental right guaranteed by Art.  19(1) are reasonable within the meaning of Art. 19(5) would depend as  much  on  the  procedural portion  of  the  law  as  the substantive part of it. (1)  [1950] S.C.R. 519.                             741 Rao(1)  wherein  it  was observed that  in  considering  the reasonable  That view was reiterated by this Court in  State of  Madras  v. V. G. ness of laws imposing  restrictions  on fundamental  rights  both  the  substantive  and  procedural aspects  of  the impugned law should be  examined  from  the point of view of reasonableness.  This Court has taken  that view  consistently.  A provision like the one with which  we are  concerned  in  this  case  can  hardly  be   considered reasonable. For  the  reasons mentioned above, this appeal  is  allowed. The  order  of  the High Court is set aside and  a  writ  of mandamus  will be issued to the respondents to  comply  with the  refund order set out in the petition filed  before  the High  Court  and  to refrain  from  proceeding  against  the appellants under s. 12A(4).  The appellants are entitled  to their costs both in this Court and in the High Court. Y.P.                              Appeal allowed. (1) [1952] S.C.R. 597. P(N)7SCI-8(a) 742