COMMERCIAL TAX OFFICER AND ORS. versus SWASTIK ROADWAYS AND ANR.

Citation: [2004] 2 S.C.R. 373 · Decided: 13-02-2004 · Supreme Court of India · Bench: P. VENKATARAMA REDDI · Disposal: Appeal(s) allowed

Judgment (excerpt)

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COMMERCIAL TAX OFFICER AND ORS. 
A 
v. 
SWASTIK ROADWAYS AND ANR. 
FEBRUARY 13, 2004 
[P.VENKATARAMA REDDY AND S.H. KAPADIA, JJ.] 
B 
MP. Commercial Tax Act, 1994: Sections 57, 58 and 59. 
Furnishing of information-By Cleanng and Forwarding(C&F) agents-
C&F agents required to furnish particulars in respect of goods transported by C 
them-Jn case of contravention Act provides imposition of penalty on the 
C&F agents to three times the amount of tax evaded by the dealer-
Constitutionality of-Held: The power to levy tax includes all incidental powers 
to prevent evasion of such tax-C&F agents had proximate connection with 
sale and purchase of goods--The power to levy penalty is meant to check tax D 
evasion-Hence, provisions of Ss. 57, 58 and 59 are intra vires Entry 54 of 
List II of the Seventh Schedule to the Constitution-Constitution of India, 
1950, Entry 54 List /1. 
The respondents were Clearing and Forwarding (C&F) agents 
engaged in the business of transporting goods. As per Sections 57, 58 and E 
59 of the M.P. Commercial Tu Act, 1994, the respondents were required 
to furnish statement of accounts to the Commissioner in respect of goods 
transported by them. In case of failure to furnish the information penalty 
to the extent of three times the amount of tax payable in respect of· the 
goods transported were leviable on the respondents under Section 57(2) 
of the Act. The High Court struck down Sections 57, 58 and 59 of the Act F 
as unconstitutional and beyond the powers of the State Legislature under 
Ent.ry 54 of List II of the Seventh Schedule to the Constitution of India. 
Hence the appeal. 
On behalf of the appellants, it was contended that Sections 57, 58 G 
and 59 were incidental and ancillary provisions to check and prevent 
evasion of tax; that the respondents had a close and proximate connection 
with the sale and purchase of goods and, therefore, imposition of penalty 
on the respondents was justified if they did not cooperate in the enquiry 
against the dealer for evasion of tax; and, therefore, provisions of Sections 
373 
H 
374 
SUPREME COURT REPORTS 
(2004) 2 S.C.R. 
A 57, 58 and 59 were intra vires Entry 54 of List II of the Seventh Schedule 
to the constitution .. 
Allowing the appeals, the Court 
HELD: 1. The power to levy a tax includes all incidental powers to 
B 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 of the Seventh Schedule to the Constitution 
C of India. (381-F) 
2. Under various Sections of the M.P. Commercial Tax Act, 1994, 
tax-evaders are sought to be penalised and by contravening the provisions 
of Sections 57 and 58 the Clearing and Forwarding (C&F) agent also 
D becomes liable as he facilitates such tax evasion. In the circumstances, the 
High Cour.t erred in holding that there was no proximate connection 
·between the C&F agents and the tax evasion. (382-F) 
3.1. 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 
E a penalty on the defaulting C&F agent into a tax. The object of Section 
57(2) of the Act 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 
F 
failure of C&F agent to furnish information required by the Commissioner 
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). [382-G, H; 383-A-B) 
3.2. A bare reading of Section 57(1) and (2) shows that in cases where 
G the Commissioner is satisfied about the tax evasion by the dealer, he may 
call upon the C&F agent to give particulars of a transaction and if the 
C&F 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 C&F agent facilitates the tax evasion 
by the dealers. Hence, it cannot be said that the informati

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