JUDGMENT
P.C. Banerji, Technical Member
1. An application for extension of an interim order issued by the High Court in Matter No. 67 of 1989 was made in this Tribunal and was registered as RN-133(T) of 1989. Since the interim order had already taken effect, there was really nothing to extend the operation of that order. The interim application was thus disposed of. As per Section 15 of the West Bengal Taxation Tribunal Act, 1987, the original record was received by the Tribunal on April 17, 1989, from the High Court on transfer and the said case under Article 226 of the Constitution of India was treated as an application under Section 8 of the West Bengal Taxation Tribunal Act and numbered RN-38(T) of 1989.
2. The case of the applicant may be briefly stated as follows : Sarada Plywood Industries Ltd., a registered dealer under the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as “the Act”) carries on business of manufacturing plywood at its factory situated in Naharkatia, Assam, and for that purpose it imports woodlogs from Malaysia and other places outside India. Plywood is manufactured at Assam and thereafter either sold in Assam or sent to its various offices in different States including West Bengal for sale. Sometimes woodlogs are also sold from Calcutta. The applicant mainly sells plywood from Calcutta on receipt of the same from its factory in Assam by way of stock transfer. The woodlogs are imported by ship at Calcutta port and after clearance of the said goods from the port the company transports by road such of the goods which are not for sale in Calcutta to Assam for the purpose of manufacturing plywood. As woodlogs are notified goods under Section 4A of the Act, the applicant is required to obtain permits in form XXX under Rule 89 of the Bengal Sales Tax Rules, 1941 (hereinafter referred to as “the Rules”) for clearance of goods from the port. Such permits were issued to the applicant by the Commercial Tax Officer, Colootola Charge, respondent No. 1 till August, 1987. But in the month of September, 1987, at the time of importation of certain woodlogs from outside India the applicant had to furnish a bank guarantee of Rs. 35,000 for obtaining a permit. Thereafter on a number of occasions the applicant was compelled to give security by way of bank guarantee for obtaining such permits. In December, 1988, the applicant asked for a permit for clearance of the goods, which had arrived at Calcutta port. The sales tax authorities again demanded security in the shape of bank guarantee covering an equivalent amount of tax on the value of the goods imported, before such permits could be issued. The applicant thereafter filed the writ petition in the High Court and obtained an interim order for the issue of the permit on furnishing a bond that the goods imported would be transported to Assam and would not be used or sold in West Bengal.
3. The applicant’s contention is that it is a registered dealer paying taxes on sale of goods in this State and that the goods, which are being transported to Assam after being imported from abroad does not involve intra-State sale and hence no security could be demanded from it for such transactions, as it is beyond the legislative competence of the State to do so. According to the applicant, Section 7(4a)(iii) of the Act does not apply to it as a registered dealer and that the demand of security is discriminatory, unjust, unreasonable and arbitrary. This also imposes unreasonable restriction on its right to carry on business and is violative of Article 19 of the Constitution. Moreover, it also impedes the movement of goods and imposes unreasonable restrictions on trade, commerce and intercourse guaranteed by Article 401 of the Constitution.
4. The respondents have opposed the application by stating that on a number of occasions in the past the applicant had obtained necessary permits on the categorical undertaking being given that the notified goods would be transported to Assam but was found to have sold a part of the consignment within West Bengal. In view of this position the Commercial Tax Officer was perfectly justified in demanding security by way of bank guarantee from the applicant as provided for in Section 7(4a)(iii) of the Act. According to the respondents no restrictions were imposed on the applicant, which could cause hindrance directly and immediately to intra-State or inter-State transaction or movement. Whatever action has been taken by the Revenue authorities has been taken with a view to ensuring that there is no evasion of tax imposed by the Act and falls legitimately within the ancillary and incidental provisions of a relevant item in the State List and such action was neither violative of the fundamental rights nor of Article 401 of the Constitution.
5. Shri A.K. Chakraborty, learned counsel for the applicant, tried to make out a case that Sub-section (4a) of Section 7 of the Act demanding security from it has no manner of application to its case. Sub-clause (i) of the said sub-section provides for demand of security from a registered dealer or a person, who has applied for registration, for the proper payment of tax by him. The applicant is a registered dealer and claimed that since it has been submitting its returns and paying its taxes properly and regularly, the question of demanding security from it does not arise. Admittedly Sub-clause (ii) had no application to its case. As regards Sub-clause (iii), the learned counsel interpreted it to mean that it provided for demand of security from an unregistered dealer and as the applicant was a registered dealer it did not apply to its case.
6. The relevant portions of the sub-sections are reproduced below :
(4a) The Commissioner may, for good or sufficient reasons to be recorded in writing–
(i) demand from any registered dealer or any person who has applied for registration under this Act, after giving such dealer or person an opportunity of being heard, reasonable security for the proper payment of tax payable by him under this Act ;
(ii) …………
(iii) demand from any person who imports into West Bengal any notified goods, after giving such person an opportunity of being heard, a reasonable security.
7. Shri Chakraborty referred to the use of “any person” in Sub-clause (i) and also that of “no person” in Section 4B of the Act and sought to establish by a fairly involved and contorted reasoning that the expression “any person” in Sub-clause (iii) meant a dealer other than a registered dealer. We are unable to accept this interpretation, which is not based on sound logic. In our view “any person” in Sub-clause (iii) covers a class of persons, who import notified goods into West Bengal and who may be registered dealer, or unregistered dealer or even non-dealer.
8. It was further argued on behalf of the applicant that as it is a registered dealer, who submits regular returns and pays tax regularly, all the details of its transactions are available with the Commercial Tax Directorate to whom it is well-known. Hence the question of security from it should not arise. It could be understood if such security was demanded from an unregistered dealer or a non-dealer over whom the Directorate does not exercise such control. It does not appear that any such distinction has been made by the relevant provision on this account. The statute says that for good and sufficient reasons security can be demanded from “any person” which includes a registered dealer also, importing notified goods into West Bengal.
9. The applicant has averred that it furnished all the necessary documents required under Rule 89 of the Rules and as such was entitled to a permit and that there is no provision in the Act for demand of security as a condition to the issue of the permit. Rule 89 provides that on production of certain specified documents and particulars along with a written declaration in form XXX by a registered or certified dealer, the appropriate Commercial Tax Officer or Inspector shall countersign it and this will serve as a permit. A registered dealer, therefore, is normally entitled to a permit if he complies with certain requirements. But the respondents have alleged that the applicant was in the habit of giving false declaration to the effect that the goods would be transported to its factory in Assam for manufacture of plywood but actually sold a part of it in West Bengal. It has been alleged that two permits were issued to the applicant on two different dates in September, 1987, on the categorical undertaking that the entire material, on clearance, would be despatched to its factory in Assam but on examination of relevant papers and evidence it was found that a substantial part of the consignment was sold in West Bengal violating the undertaking. In respect of eight permits issued between the period March 30, 1988 to May 17, 1989, the applicant has not yet filed any documents and/or evidence to substantiate that all these consignments have been actually despatched to Assam and no part of any such consignments has been sold out in West Bengal.
10. In the writ petition the applicant has admitted that sometimes woodlogs are also sold from Calcutta. In the affidavit-in-reply the applicant in order to explain away the allegation, has stated that “sometimes after clearance of the goods, namely, woodlogs from the Calcutta port, it is found that a few quantity of the said materials are not fit for manufacture of plywood and as such the said defective goods, namely, woodlogs after clearance are sold in West Bengal and the applicant maintains proper account for sale of the said materials in West Bengal”. The explanation is hardly satisfactory as there is a clear undertaking given by the applicant in form XXX that the entire quantity would be transported to Assam, and it acted in violation of such an undertaking.
11. In consideration of these circumstances and reasons, we do not think that the demand for security would be unjustified and arbitrary and violative of Article 14 of the Constitution of India. Nor can it be considered as an unreasonable restriction on the right to carry on trade or business guaranteed under Article 19(1)(g) of the Constitution.
12. The applicant has urged that as the goods imported by it are meant for onward transmission to its factory in Assam and are not for manufacture or sale in West Bengal, the provision of demand of security from it in respect of such transaction could not be resorted to in exercise of powers under the State sales tax laws. The security in the form of bank guarantee to the extent of equivalent sales tax leviable in case of sale amounts to a levy on presumed sale, which could not be supported in law, the applicant alleged. This brings in the question of legislative competence of the State in this regard. The learned counsel drew support from the decision of the Supreme Court in K.P. Abdulla’s case [1971] 27 STC 1 and in Hansraj Bagrecha’s case [1971] 27 STC 4.
13. In K.P. Abdulla’s case [1971] 27 STC 1 (SC) Section 42(3) of the Madras General Sales Tax Act, 1959, which empowers the check post officer to confiscate goods and levy penalty in lieu of confiscation, when in respect of the goods found in the vehicle the driver of the vehicle is not carrying with him the documents specified in the section, is not a provision which is ancillary and incidental to the power to tax goods under entry 54 of List II of Schedule VII of the Constitution of India, and hence was declared invalid. The said section assumes that all goods carried in a vehicle near a check post are goods, which have been sold within the State of Madras and in respect of which liability to pay tax has arisen. A provision so enacted on the assumption that goods carried in vehicle from one State to another must be presumed to be transported after sale within the State is unwarranted. Power conferred by Section 42(3) to seize and confiscate and levy penalty was held to be not incidental and ancillary to the power to levy sales tax and, therefore, was outside the legislative competence of the State.
14. The relevant observation of the Supreme Court is reproduced below :
“Entry 54 of List II of the Seventh Schedule to the Constitution authorises the State Legislature to legislate in respect of taxes on the sale or purchase of goods. A legislative entry does not merely enunciate powers : it specifies a field of legislation and the widest import and significance should be attached to it. Power to legislate on a specified topic includes power to legislate in respect of matters which may fairly and reasonably be said to be comprehended therein………… A taxing entry, therefore, confers power upon the Legislature to legislate for matters ancillary or incidental including provisions for preventing evasion of tax.”
15. A well-settled principle of law has been laid down by the Supreme Court in Hansraj Bagrecha’s case [1971] 27 STC 4, which is relevant to the present case. The Supreme Court has observed :
“The power of the State Legislature is restricted to legislate in respect of intra-State transactions of sale and purchase and to matters ancillary or incidental thereto : it has no power to legislate for levy of tax on sales and purchases in the course of inter-State transactions.”
It is the case of the applicant that it imports goods from abroad in Calcutta port and transports the same to Assam for conversion into plywood and, therefore, in such an inter-State transaction provision for security, which may be incidental and ancillary to the provision for levy and collection of sales tax as per State sales tax laws, would not be applicable to its case ; as such a provision in inter-State trade is beyond the legislative competence of the State. This position can be accepted if the applicant was exclusively transporting the entire consignments to Assam as per its declarations. But the situation is different. It sells a substantial portion of the goods in West Bengal under the guise of inter-State transaction and thereby submits to the discipline of the State sales tax laws. In such a circumstance the demand for security, which is a machinery provision in the nature of incidental and ancillary matter relating to the State List, is certainly within the legislative competence of the State. This view gets added support from the ratio of Harihar Prasad Debuka’s case [1989] 73 STC 353 (SC), cited by the learned State representative.
16. The learned counsel for the applicant contended that the demand for security had put unreasonable restrictions on the movement of trade declared by Article 401 to be free. He referred in this connection to the decision in Hansraj Bagrecha’s case [1971] 27 STC 4 (SC) quoted earlier. In this case it has been observed :
“This article (Article 401) is couched in terms of the widest amplitude : trade, commerce and intercourse are thereby declared free and unhampered throughout the territory of India. The freedom of trade so declared is against the imposition of barriers or obstructions within the State as well as inter-State : all restrictions which directly and immediately affect the movement of trade are declared by Article 401 to be ineffective.”
A similar criterion had earlier been laid down in Atiabari case AIR 1961 SC 232 to judge if free flow or movement of trade is hampered. This is distinct from creating some indirect or inconsequential impediment, which may be regarded as remote. In this case the demand for security could at best fall in the latter category, which does not count.
17. The question whether security should or should not be demanded depends upon various factors including the past conduct of the dealer. It is difficult to accept the contention that security can never be demanded from a registered dealer importing notified goods into West Bengal. For the reasons aforesaid such a broad proposition does not appear to be supported by the law as it is. In the ultimate analysis therefore, it follows that in appropriate cases, though such cases may be rare, reasonable security may be demanded from dealers who do not have a clean record or from persons against whom there are sufficient reasons to believe that the goods may be dealt with otherwise than in the manner declared.
18. In view of the reasons given above, we do not find any illegality in the action,of the commercial tax authorities demanding security.
19. The main prayer of the applicant is that a direction be issued commanding the respondents to withdraw, cancel and/or rescind the purported action for demand of security by way of bank guarantee as a condition to issue of permit for clearance of goods at the check-post and all purported proceedings thereto. By an interim order of the High Court a permit was issued to the applicant on his furnishing a bond. The prayer of the applicant has, therefore, become infructuous.
20. The application is thus disposed of without costs.
B.C. Chakrabarti, Chairman
21. I agree.
L.N. Ray, Judicial Member
22. I agree.