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Confiscation of Goods Imported into States —
A Plea For Review of
Check Post Officer v. K.P. Abdulla

by Sunil Gupta*

Cite as : (2002) 7 SCC (Jour) 17

The recent three-Judge pronouncement of the Supreme Court in State of Rajasthan v. D.P. Metals1 is the latest in a series of decisions which have cast a serious doubt on the correctness of the five-Judge Constitution Bench judgment in Check Post Officer v. K.P. Abdulla and Bros.2 The other decisions in the series are: Sodhi Transport Co. v. State of U.P.3, Delite Carriers (Regd.) v. State of Haryana4 and Tripura Goods Transport Assn. v. Commr. of Taxes5 They have all laid down principles which militate against the law declared by the Constitution Bench in Abdulla2.

In all these cases, the question involved was the constitutionality of the provision made by the State Legislature in exercise of its taxing power in respect of "sale or purchase of goods ..." as provided under Entry 54 of the State List in the Seventh Schedule. The provision empowered the State's officer posted at the checkpost or barrier erected at the border or any other place in the State to check any goods being imported by a vehicle, boat etc. into the State so as to ensure that there was no evasion of sales tax and it also gave to him powers to seize the goods and levy penalty in case he came to the conclusion that there was, indeed, a case of evasion of tax. In Abdulla case2, the provision also conferred on the officer expressly the power to confiscate the goods when the importer is not getting the goods released by paying up the penalty.

The Constitution Bench in Abdulla2 struck down the provision in question, namely, Section 42(3) of the Madras General Sales Tax Act, 1959, as ultra vires and outside Entry 54 of the State List. It held that a provision conferring such wide powers on the officer was not covered even by the ancillary and incidental powers available to a State Legislature under Entry 54 of the State List for the purposes of preventing evasion of tax.

The Constitution Bench speaking through Shah, J. said: (SCC p. 358, para 3)

"Sub-sections (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 power to legislate in respect of taxes on sale or purchase of goods. By sub-section (3) the officer in charge of the checkpost or barrier has the power to seize and confiscate any goods which are being carried in any vehicle if they are not covered by the documents specified in the three sub-clauses. Sub-section (3) assumes that all goods carried in a vehicle near a checkpost are goods which have been sold with (sic within) the State of Madras and in respect of which liability to pay sales tax has arisen, and authorises the checkpost officer, unless the specified documents are produced at the checkpost or the barrier, to seize and confiscate the goods and to give an option to the person affected to pay penalty in lieu of confiscation. 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. A person carrying his own goods even as personal luggage from one State to another or for consumption, because he is unable to produce the documents specified in clauses (i), (ii) and (iii) of sub-section (3) of Section 42, stands in danger of having his goods forfeited. Power under sub-section (3) of Section 42 cannot be said to be ancillary or incidental to the power to legislate for levy of sales tax."6       (emphasis supplied)

The reasoning resorted to by the Constitution Bench for its verdict in Abdulla2 however, stands, as pointed out above, completely diluted by the reasoning in the subsequent decisions in Sodhi Transport3, Delite Carriers4, Tripura Goods5 and lately, D.P. Metals1. All these judgments on the same issue show that Abdulla2 is erroneous for two reasons. The two reasons are discussed below under the sub-headings "Presumption of sale" and "Confiscation of goods".

Presumption of sale

The error committed by the Constitution Bench in Abdulla2 was that it misread the rule enshrined in the Madras statute, namely, Section 42(3), to be a rule providing in the absence of documents accompanying the goods for an absolute presumption or conclusive proof of sale. In reality, this section specifically provided that even though goods are found to be unaccompanied by the prescribed documents, the officer at the checkpost should, before passing any order of confiscation, hold an enquiry giving opportunity of hearing to the person concerned i.e. the importer. In such enquiry and hearing, the importer could establish by evidence that the goods did not really involve any transaction of sale. However, in spite of such a provision for enquiry, hearing etc. existing in the statute itself, the Constitution Bench failed to appreciate the significance of the same and proceeded on the erroneous premise that the statute contains a rule of absolute assumption or presumption that all goods found being imported without documents are ipso facto involved in transaction of sale. On that basis, it held that the statute wrongly imposed the penalty of confiscation.

In sharp contrast to this, in Sodhi Transport3 even when there was an express provision for such an assumption or presumption in Section 28-B of the U.P. Sales Tax Act, 1948, the Supreme Court upheld the provision treating it to be just a "rebuttable presumption" which the importer of the goods could get dispelled by providing contrary explanation and material in the course of enquiry, hearing etc. (process of natural justice) to show that, notwithstanding the fact that the goods were unaccompanied by documents, they still did not involve any transaction of sale or evasion of tax. At the outset, the Bench rejected the argument that the provision contained a rule of absolute presumption and was ultra vires Entry 54 of the State List or outside even the ancillary and incidental powers of the State Legislature. Venkataramaiah, J. (as he then was) held:

"12. Having regard to the definition of the words 'may presume', it is open to a court where they are used in its discretion either to draw a presumption referred to in a law or may not. The words 'shall presume' require the court to draw a presumption accordingly, unless the fact is disproved. They contain a rule of rebuttable presumption.7

* * *

16. In our opinion a statutory provision which creates a rebuttable presumption as regards the proof of a set of circumstances which would make a transaction liable to tax with the object of preventing evasion of the tax cannot be considered as conferring on the authority concerned the power to levy a tax which the legislature cannot otherwise levy. A rebuttable presumption which is clearly a rule of evidence has the effect of shifting the burden of proof and it is hard to see how it is unconstitutional when the person concerned has the opportunity to displace the presumption by leading evidence."8       (emphasis supplied)

The Court further added:

"17. We are of the view that the words contained in Section 28-B of the Act only require the authorities concerned to raise a rebuttable presumption, that the goods must have been sold in the State if the transit pass is not handed over to the officer at the checkpost or the barrier near the place of exit from the State. The transporter concerned is not shut out from showing by producing reliable evidence that the goods have not been actually sold inside the State. It is still open to him to establish that the goods had been disposed of in a different way. He may establish that the goods have been delivered to some other person under a transaction which is not a sale, they have been consumed inside the State or have been redispatched outside the State without effecting a sale within the State etc. It is only where the presumption is not successfully rebutted the authorities concerned are required to rely upon the rule of presumption in Section 28-B of the Act. It is, therefore, not correct to say that a transaction which is proved to be not a sale is being subjected to sales tax. The authority concerned before levying sales tax arrives at the conclusion by a judicial process that the goods have been sold inside the State and in doing so relies upon the statutory rule of presumption contained in Section 28-B of the Act which may be rebutted by the person against whom action is taken under Section 28-B of the Act. When once a finding is recorded that a person has sold the goods which he had brought inside the State, then he would be a dealer even according to the definition of the word 'dealer' as it stood from the very commencement of the Act subject to the other conditions prescribed in this behalf being fulfilled. ... Tax becomes payable by him only after a finding is recorded that he has sold the goods inside the State though with the help of the presumption which is a rebuttable one."9       (emphasis supplied)

The Court concluded thus:

"19. The foregoing discussion disposes of the contentions regarding legislative competence or unreasonable character of the provisions contained in Section 28-B of the Act and Rule 87 of the Rules. They are introduced, as stated earlier, to check evasion and to provide a machinery for levying tax from persons who dispose of goods inside the State and avoid tax which they are otherwise liable to pay. The law provides enough protection to them and makes provision to enable them to show that they are in fact not liable to pay any tax. ... We uphold the validity of the said provisions."10

Similar reasoning was resorted to in Delite Carriers4 and Tripura Goods5, both by two-Judge Benches. In the latter case Misra, J. observed:

"17. ... 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, maybe 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 impugned provisions are not charging sections, no tax liability is placed on the transporters. We find neither Sections 29, 30, 32 and 36-A nor Rules 46-A, 63-A and 64-A lack any legislative competence. They are within the legislative competence of the State and would fall under List II of Entry 54 of the Seventh Schedule of the Constitution of India."11

      (emphasis supplied)

The recent judgment by Kirpal, J. (as he then was) in D.P. Metals1 on behalf of a three-Judge Bench has once again reiterated the same opinion while upholding the provisions of Section 78 of the Rajasthan Sales Tax Act, 1994. Indeed, the Bench has taken a diagonally opposite stand to that taken by the Constitution Bench in Abdulla2 as evident from its observation:

"31. Under Section 78(5) levy of penalty is only on the person in charge of the goods. It is he who should have all the requisite documents relating to the title or sale of the goods which are being transported. Penalty under Section 78(5) is leviable under two circumstances. Firstly, if there is non-compliance with Section 78(2)(a) i.e. not carrying the documents mentioned in that clause or, secondly, if false or forged documents or declaration is submitted. This sub-section cannot relate to personal belongings which are not meant for sale but would relate to those types of goods in respect of which documents referred to in Section 78(2)(a) exist or can exist.

32. Such submission of false or forged documents or declaration at the checkpost or even thereafter can safely be presumed to have been motivated by desire to mislead the authorities. Hiding the truth and tendering falsehood would per se show existence of mens rea, even if required. Similarly where, despite opportunity having been granted under Section 78(5) if the requisite documents referred to in clause (a) of sub-section (2) are not produced, even though the same should exist, would clearly prove the guilty intent. It is not possible to agree with the counsel for the respondents that breach referred to in Section 78(5) can be regarded as technical or venial. Once the ingredients of Section 78(5) are established, after giving a hearing and complying with the principles of natural justice, there is no discretion not to levy or levy lesser amount of penalty. If by mistake some of the documents are not readily available at the time of checking, principles of natural justice may require some opportunity being given to produce the same."12       (emphasis supplied)

Confiscation of goods

The second error committed by the Constitution Bench in Abdulla2 was that it misconstrued the Madras provision to be a provision for an outright confiscation of the goods. The Madras statute actually did not blindly provide for confiscation or forfeiture of the goods found by a checkpost officer. On the other hand, it required that the person affected shall be given an option to pay in lieu of confiscation of the goods a sum of money (as fine or penalty), namely, a sum of money not exceeding one thousand rupees, or double the amount of tax recoverable, whichever is greater. However, the Constitution Bench failed to notice the said optional aspect in the provision and, notwithstanding the same, declared the same as one providing for confiscation in the absolute sense. It failed to appreciate that the provision for confiscation was nothing but a provision for conditional confiscation i.e. confiscation arising from the circumstance of the person concerned not getting the goods released on payment of the imposed sum of money i.e. the penalty.

The meaning of "confiscation" in common legal understanding is well-summed-up in Black's Law Dictionary (6th Edn.) as follows:

"The seizure of private property by the Government without compensation to the owner, often as a consequence of conviction for crime, or because possession or use of the property was contrary to law."       (emphasis supplied)

Thus, a provision which provides for return of the goods if only a sum of money is paid as penalty for the commission of a default or an offence is not even a provision for "confiscation" in the legal sense of the term. In that view of the matter, the provision in the Madras Act was not really a provision for confiscation but only a provision for conditional confiscation arising from the circumstance of the person not getting the goods released by paying up the penalty.

In this regard, the position in a sales tax legislation may well be compared with the far more stringent provision for payment of a redemption fine in lieu of confiscation (over and above the penalty) under Section 125 of the Customs Act, 1962, a Central legislation. In fact, in the sales tax legislation brought by the different States, there is no provision for such redemption fine and the goods are liable to retention, sale etc. on the sole ground that the penalty is not paid by the defaulter.

Once again, in the aforementioned cases, the Supreme Court has treated the availability of an option to the person concerned to get his goods released on payment of penalty as a good ground for treating the provision as falling within the ancillary powers under Entry 54 of the State List. In Tripura Goods5 the Court held as follows:

"19. We have already referred to sub-rule (1-A) to Rule 63-A as to when the goods could be seized. Sub-rule (3) of Rule 63-A gives an option to the transporter in case goods carried by him are in contravention of any provisions of the Act and the Rules, if he so desires, to opt for composition of offence. A transporter can always intimate within the time specified under sub-rule (3) to a dealer or owner of the goods to come and pay the amount fixed under Section 32. In case not, it is open to a transporter not to opt for composition of offence. If no liability is fastened on him, then the authorities may proceed to take action under sub-rule (4). By following the procedure therein, the seized goods are auctioned to recover the liability of a dealer of tax, penalty etc. under the Act. It is significant that sub-section (1) of Section 38-A records that in case any balance amount is left after the said auction, the same is to be returned to the person from whom such goods are seized or to the owner of such goods. It is coherent with the scheme of the Act, to collect the tax and penalty by this mechanism, what otherwise would have escaped assessment."13       (emphasis supplied)

It is well settled after the seven-Judge decision in R.S. Joshi v. Ajit Mills Ltd.14 that the imposition of penalty for a default or an irregularity is well within the ancillary powers falling under taxing Entry 54 of the State List. The same principle was highlighted by the Court in D.P. Metals1 also when it observed as follows:

"This provision cannot be read as to imply that the penalty of 30% is the maximum and lesser penalty can be levied. The legislature thought it fit to specify a fixed rate of penalty and not given 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 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."15       (emphasis supplied)

In this view of the matter it is doubtful whether the dictum in Check Post Officer v. K.P. Abdulla2 remains good law.

The decisions in Sodhi Transport3, Delite Carriers4, Tripura Goods5 and D.P. Metals1 are all decisions by smaller Benches of two or three Judges. The decision in Abdulla2 is by five Judges. Besides, with the exception of D.P. Metals1 the other decisions do not even refer to Abdulla2. Even D.P. Metals1 merely distinguishes Abdulla2 on a peripheral point. The point is that with a Constitution Bench verdict laying down the law in a particular way, on the one hand, and a series of smaller Bench decisions pronouncing the law differently, on the other hand, there is truly a need for straightening the law by a larger Bench.

*     Senior Advocate, Supreme Court of India, New Delhi. Return to Text

  1. (2002) 1 SCC 279 Return to Text
  2. (1970) 3 SCC 355 Return to Text
  3. (1986) 2 SCC 486 Return to Text
  4. (1990) 77 STC 170 (SC) Return to Text
  5. (1999) 2 SCC 253 Return to Text
  6. Supra fn 2, at p. 358 Return to Text
  7. Supra fn 3, at p. 495 Return to Text
  8. Supra fn 3, at p. 497 Return to Text
  9. Supra fn 3, at pp. 497-98 Return to Text
  10. Supra fn 3, at p. 498 Return to Text
  11. Supra fn 5, at p. 267 Return to Text
  12. Supra fn 1, at pp. 299-300 Return to Text
  13. Supra fn 5, at pp. 268-69 Return to Text
  14. (1977) 4 SCC 98 Return to Text
  15. Supra fn 1, at p. 300, para 32 Return to Text
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