STATE OF MADHYA PRADESH AND ORS. versus BHARAT HEAVY ELECTRICALS

Citation: [1997] SUPP. 3 S.C.R. 435 · Decided: 14-08-1997 · Supreme Court of India · Bench: J.S. VERMA · Disposal: Appeal(s) allowed

Judgment (excerpt)

STATE OF MADHYA PRADESH AND ORS. 
A 
v. 
BHARAT HEAVY ELECTRICALS 
AUGUST 14, 1997 
[J.S. VERMA CJ. AND B.N. KIRPAL, J.] 
B 
ENTRYTAX: 
The Madhya Pradesh Sthaniya Kshetra Me Mal Ke Parvesh Par Kar 
Adhiniyam, 1976-Entry 'Tax Act-Sectior. 7(5)--Registered dealers of raw C 
materials-Selling finished goods in the local areas-Required to make dec-
laration as to no entry tax has been paid-Failure to make declaration as to 
non-payment of entry tax-Presumption of evasion of ent1y t~Whether 
presumption rebuttable, held yes-Penalty of ten times the entry tax---Levy 
of-Held, not confiscatory or ultra vires, since it is variable-Constitution of D 
India, Arts. 14, 19. 
The respondents who were registered dealers under the Sales Tax 
Acts, were engaged in sale and purchases of various articles as raw 
materials for manufacturing certain finished goods. The finished goods 
were sometimes sold in areas other than the local area in which it was E 
brought. 
As per the Entry Tax Act, 1976, Section 7 (1) & (2) the registered 
dealers while selling or buying certain scheduled items, were to specifically 
state that the goods were local goods in relation to the relevant local area 
and that no entry tax has been paid on such goods. Under Section 7(5) of F 
the Entry Tax Act, 1976 if a registered dealer fails to make such a 
statement as mentioned in Section 7(1) or 7(2) there is a presumption that 
he has facilitated the evasion of entry tax on the local goods so sold and 
the said dealer will be liable for a penalty which was one and a half times 
the amount of entry tax payable. By an amendment in Clause (5) dated 20 G 
October, 1982 the penalty was increased to "ten times" that of entry tax 
payable. 
The respondents challenged the aforesaid provisions viz. Section 
7(5) before the High Court of Madhya Pradesh on the ground that the levy 
of penalty ten times the amount of tax was confiscatory in nature and ultra H 
435 
436 
SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R. 
A vires of the provisions of the Act and violative of Articles 14 & 19 of the 
Constitution of India, and that the presumption contained in Section 7 (5) 
which was irrebuttable was ultra vires as it did not give any discretion to 
the assessing authority to reduce or waive the penalty on the ground of 
absence of malafide or any trivial or technical defect. 
B 
The High Court allowed the Writ Petition and held that the 
c 
D 
provisions of section 7 (5) of the Entry Tax was ultra vires and construed it 
to mean that the presumption was irrebuttable and that the penalty for 
non-compliance could not be reduced and therefore it was confiscatory in 
nature. 
In appeal to this Court it was contended that the approach of the 
High Court was incorrect, that looking at the scheme of the Act the 
presumption in Section 7(5) was rebuttable, and that the said provision 
did not provide for a fixed rate of penalty barring no discretion for 
imposition of lesser penalty. 
Allowing the appeals, this Court 
HELD : 1.1. Section 7(5) of the M.P. Entry Tax' Act should be 
construed to mean that the presumption contained therein is rebuttable. 
It places a burden of proof on the registered dealer to sh.ow that the 
E non-submission of the statement under sub- sections (1) and (2) of Section 
7 was not with a view to facilitate 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 
facilitated the evasion of entry tax. Construing Section 7 (5) to contain a 
F 
rebuttable presumption, it does not suffer from any vice. It cannot then be 
held invalid as concluded by the High Court. It is the misconstruction of 
the provision which misled the High Court to the contrary conclusion. 
[442-B-D] 
Sodhi Transport &Anr. Etc. •1, State of U.P. &Anr, Etc .. Etc., [1986] 1 
G SCR 939, relied on. 
1.2. The penalty of ten times the amount of entry tax stipuiated in 
Sec. 7(5) 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. Section 7(5) cannot be 
H regarded as confiscatory. The decision of the High Court that Section 7 (5) 
STATE v. BHARAT HEAVY ELECTRICALS [KIRP AL, J.) 
437 
is ultra vires cannot be sustained. [ 442-G-H] 
1.3. The judgment of the High Com1 and the assessments, if any, 
made, are set aside. The assessing aut

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