JUDGMENT
A.K. Ganguly, C.J.
1. This writ petition has been filed by several petitioners of which petitioner No. 1 claims to be a citizen of India and is carrying on business under the name and style of Assam Transport Service as its own proprietor. The case of petitioner No. 1 is that, it executes orders for inter-State carriage of goods. Petitioner No. 2 is a company incorporated under the Companies Act, 1956 and is engaged, inter alia, in the business of buying and selling of Purified Terephthalic Acid (PTA). Petitioner No. 3 is also a company incorporated under the Companies Act, and is a manufacturer of PTA in its unit at Haldia in West Bengal, and petitioner No. 4 is the company secretary and vice president of petitioner No. 3 and a citizen of India. This writ petition has been filed by the petitioners jointly as, according to them, there is a common cause of action and a common impugned order in this case.
2. The case of the petitioners is that petitioner No. 3, which is a manufacturer of PTA at its Haldia Plant has various customers to whom the PTA is sold and in this case there was a sale agreement between petitioner No. 2 and petitioner No. 3, under which petitioner No. 2 intended to purchase PTA from petitioner No. 3 for supplying/selling to polyester producers in various parts of India. By the said sale agreement dated December 8, 2005, petitioner No. 3 agreed to sell and petitioner No. 2 agreed to purchase PTA from the Haldia Plant of petitioner No. 3 in West Bengal and it is provided in the said agreement that the sale of PTA will take place at the factory gate of petitioner No. 3 at Haldia. In the said agreement it is also provided that petitioner No. 3 is to make necessary arrangement for transportation of PTA with insurance during transit from Haldia to the destination specified by petitioner No. 2 and that from the time of dispatch of PTA from the plant of petitioner No. 3 at Haldia till the delivery of the goods as specified by petitioner No. 2 all risk of loss, damage or deterioration to the goods is solely lying with and to be borne by petitioner No. 2 only. It was also provided that such transportation and insurance arrangement, if any, shall be made by petitioner No. 3 at the request of petitioner No. 2 and petitioner No. 2 shall bear and pay the transportation and insurance charges as invoiced by petitioner No. 3. A copy of the said agreement has been disclosed as annexure 1.
3. The further case of the petitioners is that the sale of PTA by petitioner No. 3 to petitioner No. 2 took place at Haldia and thus the sale was completed in West Bengal. Thereafter, the goods are carried by transporters arranged by petitioner No. 3 pursuant to request of petitioner No. 2 for onward delivery to destination points in Maharashtra outside West Bengal. It is also the case of the petitioners that the sale is governed by the provisions of the Central Sales Tax Act, 1956. But since petitioner No. 3 is covered under Section 8(5) of the Central Sales Tax Act, no tax is actually payable on such sale. It is the further case of the petitioners that since such sale is governed under the provisions of the Central Sales Tax Act, the question of levy of value added tax (VAT) on the goods in question by any State cannot arise. It is also submitted that in the instant case, petitioner No. 3 sold 6,499.50 metric tons of PTA to petitioner No. 2 in terms of a purchase order dated January 2, 2006.
4. After such sale at the request of petitioner No. 2, petitioner No. 3 hired the services of petitioner No. 1 for transportation of the goods from the factory of petitioner No. 3 at Haldia to the destination point, i.e., Indorama Synthetics (I) Limited at Nagpur in Maharashtra. The goods so sold were covered by eight invoices in which petitioner No. 3 was described as the consignor, petitioner No. 2 as the purchaser and Indorama Synthetics (I) Limited as the consignee. The goods were transported by petitioner No. 1 in four different trucks/lorries being Vehicle Nos. MH-06AC 0282, MH-06AC 0272, MH-06AC 0676 and MH-06AC 0609. It is stated that each of the consignments carried in a particular truck was covered by a lorry receipt and thus there were eight lorry receipts in respect of four trucks.
5. The said trucks reached the unified check gate at Jamsolaghat on or about January 12, 2006 and drivers of the said four vehicles produced invoices and lorry receipts initially before the motor vehicles authority at the check gate. The petitioners’ case is, initially gate passes were issued but on subsequent verification by the sales tax and entry tax authority at the check gate, it was alleged by the said authority that about 84 bags of PTA were not covered by any of the invoices disclosed by the drivers and thereupon, notices under Section 74(8) of the Orissa Value Added Tax Act, 2004 (OVAT Act) were issued on each of the trucks. By the said notices, petitioner No. 1 was called upon to appear before the Sales Tax Officer to pay taxes and penalty under the OVAT Act towards alleged excess bags of PTA which were carried in those vehicles but were not covered by valid documents.
6. It is admitted by the petitioner that entire consignment was not covered by documents produced by the drivers of the trucks. Their case is that lapse in the matter of production of documents was due to the carelessness and fatigue of the drivers of the vehicles, as some of the invoices which were in the drivers possession had not been produced before the authority although the entire quantity which has been carried was supported by invoices. According to the petitioners, the said invoices would show that the sale of the goods was completed in West Bengal and the same was meant for transportation to Maharashtra and there is no question of any sale of any of the said goods in the State of Orissa. The further case of the petitioners is that on February 21, 2006 the transporter’s agent, in particular, the drivers, filed replies to the notices in unified check gate, Jamsolaghat, explaining the circumstances in which some of the invoices covering a part of goods were not produced although the same were in possession of the drivers.
7. Ultimately, the Sales Tax Officer, unified check gate, Jamsolaghat passed an order dated January 22, 2006, inter alia, holding that the said authority had reason to believe that excess 84 bags of PTA carried in the vehicles would have been sold inside Orissa to evade payment of tax and as such the dealer/consignor violated the provisions under Section 74(2)(c) of the OVAT Act. On the basis of the said finding, the Sales Tax Officer completed the assessment by determining the sale value of 84 bags of PTA at Rs. 45,65,422 and tax calculated at 12.5 per cent comes to Rs. 5,70,680. It was also held that the dealer is required to pay five times the penalty of the tax which comes Rs. 28,53,400 and the tax and penalty which together comes to Rs. 34,24,080. Another order was passed on January 22, 2006 under the provision of the Entry Tax Act and tax and penalty was imposed thereon which comes to Rs. 1,36,963.
8. Against those orders, the petitioners filed revision applications and applications for stay before the Commissioner of Sales Tax, Orissa, Cuttack. However, by an order dated February 4, 2006 the Special Additional Commissioner of Sales Tax, Central Zone, Cuttack, rejected the revision applications confirming thereby the action of the Sales Tax Officer. Those orders, namely, the orders dated January 22, 2006 (annexures 7 and 8) and order dated February 4, 2006 (annexure 9) are impugned in this writ petition.
9. In this matter a counter-affidavit has been filed by the revenue authority. In the said counter, it has been stated that the OVAT Act has come into force with effect from April 1, 2005 and in the instant case petitioner No. 3 is the consignor and petitioner No. 1 is transporter and by the impugned revisional order, tax and penalty has been levied in respect of 84 bags of PTA which was unaccounted. Since those 84 bags are not covered by any documents, the sale of those bags cannot be covered by the provisions of the CST Act. Each of those 84 bags of unaccounted PTA comprising 1,050 kgs., were loaded in four vehicles not supported by any documents and accordingly notices were issued under Section 74(8) of the OVAT Act. It has also been highlighted that at the time of checking of vehicles on January 13, 2006 and January 14, 2006 the drivers stated that they do not have any documents relating to excess PTA loaded in the vehicles. In the absence of such documents, the finding of the taxing authority cannot be said to be erroneous. It is also stated that the consignments, which were supported by valid documents being in course of inter-State trade, cannot wipe out the liability of the petitioners under OVAT Act in respect of the consignments, which have been carried surreptitiously and without having any documents. It is stated that the explanation which is submitted relating to non-submission of documents at the time of detection militates against the concept of equity and fair play and is not acceptable. It was also submitted that the documents were subsequently introduced through the lawyer on January 21, 2006 and the documents by which the irregularities were sought to be rectified were rightly rejected as an outcome of after thought. Therefore, the question of violation of principles of natural justice is not tenable.
10. These are the basic facts of the case.
11. On those facts, learned Counsel for the petitioners submitted that there has been no sale of goods in the State of Orissa in course of the entire transaction in view of the definition of “sale” under Section 2(45) and the definition of “taxable turnover” under Section 2(56) of the OVAT Act. Learned Counsel further submitted that none of the charging sections, i.e., Sections 9,10 and 11 of the OVAT Act are attracted in the facts of the case. It was argued that merely on the basis of a possibility of sale in the State of Orissa, no tax can be levied under the OVAT Act. It was also urged that the sale in question was in the course of inter-State trade and commerce and is subject to the Central Sales Tax Act and the same is excluded from the definition of “sale” under the OVAT Act by virtue of Section 2(45) of the OVAT Act. In view of the aforesaid proposition, it was further urged that since there cannot be any imposition of tax, imposition of penalty is wholly without jurisdiction. Therefore, for an alleged breach of the provisions of Section 74(2)(c) of the OVAT Act no penalty can be imposed in purported exercise of powers under Section 74(8) read with Section 74(5) of the Act. It was also urged that levy of penalty in respect of the said goods is unauthorised and contrary to the provisions of Section 74(14) of the OVAT Act. For better appreciation of the aforesaid contentions, the provisions of Section 74 of the OVAT Act are set out.
74. Establishment of check-posts and inspection of goods while in transit.-(1) The Government may, with a view to preventing or checking avoidance or evasion of tax, by notification, direct the establishment of a check-post or barrier or both at such places as may be specified in the notification and specify any of the officers appointed under Sub-section (2) of Section 3 to be in-charge of every such check-post or barrier.
(2) The driver or person-in-charge of every vehicle or carrier of goods in transit shall,:
(a) carry with him the records of the goods including ‘challan’ and ‘bilties’, bills of sale or dispatch memos and prescribed declaration form or way bill duly filled in and signed by the consignor of goods carried ;
(b) stop the vehicle or carrier at every check-post or barrier set up under Sub-section (1) or at any other place when so required by an officer authorised by the Commissioner in this behalf;
(c) produce all the documents, including the prescribed way bill relating to the goods, before the officer-in-charge of the check-post or barrier or the authorised officer ;
(d) give all the information in his possession relating to the goods;
(e) allow the inspection of the goods or search of the vehicle by the officer-in-charge of the check-post or barrier or the authorised officer.
(3) Where any goods are in transit within the territory of the State, an officer authorised by the Commissioner in this behalf may stop the vehicle or the carrier or the person carrying such goods, for inspection, at any place within his jurisdiction and the provisions of Sub-section (2) shall apply mutatis mutandis for such inspection.
(4) Where any goods in transit are without documents, or are not supported by documents as referred to in Sub-section (2), or documents produced appear to be false or forged, the officer-in-charge of the check-post or barrier, as the case may be, or the officer authorised under Sub-section (3), may,:
(a) direct the driver or the person-in-charge of the goods or carrier of the goods not to part with the goods in any manner including transportation or re-booking the same till a verification of, or an enquiry into such goods is made, which shall be completed within a period of seven days ; and
(b) seize the goods for reasons to be recorded in writing giving receipt for the goods so seized to the person from whose possession or control the goods are seized.
(5) The officer-in-charge of the check-post or barrier or the officer authorised under Sub-section (3), after giving the driver or person-in-charge of the goods a reasonable opportunity of being heard and holding such enquiry as he may deem fit, may impose, for possession or movement of goods (in transit), whether seized or not, in violation of the provisions of Clause (a) of Sub-section (2) or for submission of false or forged documents or way bill either covering the entire goods or a part of the goods carried, a penalty equal to five times of the tax leviable on such goods, or twenty per centum of the value of goods, whichever is higher, in such manner as may be prescribed.
(6) During the pendency of the proceeding under Sub-section (5), if any one prays for being impleaded as a party to the case on the ground of involvement of his interest therein, the officer-in-charge or the authorised officer referred to in that sub-section may, if satisfied, permit him to be so impleaded, and, thereafter, all the provisions of this section shall mutatis mutandis apply to him.
(7) Subject to such rules as may be prescribed, the officer-in-charge of the check-post or barrier or the officer authorised under Sub-section (3) may release the goods to the owner of the goods or to any person duly authorised by such owner, on payment of the penalty imposed under Sub-section (5) in addition to tax payable thereon.
(8) Where the driver or person-in-charge of the vehicle or the carrier is found guilty of violation of the provisions of Clause (b), (c), (d) or (e) of Sub-section (2), subject to the provisions of Clause (a) of Sub-section (4), the officer-in-charge of the check-post or barrier or the officer authorised under Sub-section (3) may detain such vehicle or carrier and after affording an opportunity of being heard to such driver or person-in-charge of the goods or the carrier, may impose a penalty on him as provided under Sub-section (5).
(9) Where a transporter, while transporting goods, is found to be in collusion or is likely to be in collusion with a dealer to avoid or evade tax, the officer-in-charge of the check-post or barrier or the officer authorised under Sub-section (3) shall detain the vehicle or carrier of such transporter and, after affording him an opportunity of being heard and with the approval in writing of the Commissioner, may seize and confiscate such vehicle or carrier.
(10) When a vehicle or boat carrying goods, coming from any place outside the State and bound for any other place outside the State, passes through the State, the driver or other person-in-charge of such vehicle or boat shall,:
(a) declare, in such form and manner before the officer-in-charge of the first check-post or barrier, as the case may be, after his entry into the State, that the goods under transport shall not be unloaded, delivered or sold inside the State ;
(b) obtain, in the prescribed manner, a transit pass in such form containing such particulars as may be prescribed, from the said officer, and
(c) deliver the transit pass so obtained to the officer-in-charge of the last check-post or barrier before his exit from the State, failing which, it shall be presumed that the goods carried thereby have been sold within the State by the owner or person-in-charge of the vehicle or boat:
Provided that where the goods carried by such vehicle or boat are, after their entry into the State, transported outside the State by any other vehicle, boat or conveyance, the onus of proving that the goods have actually been moved out of the State shall be on the owner or person-in-charge of the vehicle or boat.
Explanation.-Where a vehicle or boat owned by a person is hired for transportation of goods by any other person, the hirer of that vehicle or boat shall, for the purposes of this section, be deemed to be the owner of the vehicle or boat, as the case may be.
(11) The officer-in-charge of any check-post or barrier or any other officer, duly authorised by the Commissioner, may detain any vehicle or boat and keep it stationary as long as may reasonably be necessary for examination of the contents therein and the records relating to the goods under transport by such vehicle or boat, and seize the same if:
(a) it is presumed under Clause (c) of Sub-section (10) that the goods carried by the vehicle or boat,’ as the case may be, has been sold inside the State ; or
(b) the driver or the other person-in-charge of the vehicle or boat, as the case may be, fails, without reasonable cause, to produce or deliver the transit pass required under Sub-section (10) ; or
(c) he has reason to believe that the goods carried by the vehicle or boat, as the case may be, has been unloaded, delivered or sold inside the State in contravention of the declaration furnished under Sub-section (10), and, thereafter, he may direct the driver or the other person-in-charge of the vehicle or boat, as the case may be, to pay within a specified period, by way of penalty, a sum equivalent to twenty per centum of the value of the goods under transport by such vehicle or boat, as the case may be, or rupees twenty thousand, whichever is higher, in addition to tax as otherwise payable under this Act, failing which, the said officer may seize and confiscate the goods under transport or seize the vehicle or boat carrying such goods in the prescribed manner to recover such tax an penalty:
Provided that,:
(i) before taking any action for confiscation of the goods, the officer shall give the driver or the person-in-charge of the vehicle or boat, as the case may be, an opportunity of being heard and, if necessary, may make an enquiry in the manner prescribed ; and
(ii) Where the goods under transport are not available at the time of seizure of the vehicle or boat, as the case may be, the officer may detain the vehicle or boat until such penalty and tax are paid and shall take or cause to be taken any steps he may consider proper for the temporary safe custody of the vehicle or boat, and the registered owner or the person having possession or control of such vehicle or boat and the driver or boatman, as the case may be, thereof shall be bound to comply with orders and directions as the said officer may, in respect of the movement of such vehicle or boat, issue for giving effect to such seizure.
(12) Where the goods seized are of a perishable nature they shall be sold in the prescribed manner.
(13) Where any goods seized under this section are sold, the sale proceeds thereof, after deduction of the tax including penalty payable under this section and the expenses incurred for such sale, be paid to the person from whom the goods are seized.
(14) No order of penalty shall be made under this section in respect of goods which are not liable to payment of tax under this Act.
12. It was also urged that VAT which has replaced sales tax, is a levy of tax on sale and purchase of goods referable to entry 54 of List II of the Seventh Schedule to the Constitution. Therefore, unless there is sale or purchase within the State, under the law which is framed under entry 54 of List II of the said Act, no tax can be imposed on the goods in question which is subject to the provision of the Central Sales Tax Act. It was also submitted that any other construction would render the levy unconstitutional. Since the tax cannot be levied on the goods, the penalty on the same is wholly unsustainable.
13. The learned Counsel for the Revenue on the other hand submits that in the instant case the violation of the relevant provision of the OVAT Act is established from the stand taken by the petitioner in reply to the show cause notice. Inasmuch as, it is not the case of the petitioner that the documents were with the drivers at the time the goods entered the territory of the State of Orissa. Since it was not with the drivers, the same were not produced. Therefore, there was a clear breach of Section 74(2)(c) of the OVAT Act. It was further submitted that the subsequent production of documents does not rectify the breach of statute under Section 74(2) (c). The opportunity of hearing was given to them and the explanation which was offered by the petitioner also does not show that the documents were available at the time of entry. Therefore, there is a violation of provision under Clause (c) of Sub-section (2) of Section 74 of the OVAT Act and therefore, the imposition of tax and penalty, is automatic.
14. It is also urged that the interpretation, which is given to Section 74(14) of the OVAT Act by the petitioner is not correct. If the goods are not liable to payment of taxation under the OVAT Act, it is only then penalty cannot be imposed on those goods under Section 74(14) of the OVAT Act. The learned Counsel for the Revenue submitted that it is nobody’s case that the goods in question are tax-free goods or are exempted from tax under the OVAT Act.
15. The learned Counsel for the petitioner has relied on a few judgments in support of his contention, which are to be considered now. The learned Counsel relied on a decision of the Supreme Court in the case of State of Madhya Pradesh v. Chhotabhai fethabhai Patel and Co. and referred to rules of interpretation of statute formulated in Chhotabhai and expressed in paragraph 10 of the Report as follows:
It is settled law that where two constructions of a legislative provision are possible one consistent with the constitutionality of the measure impugned and the other offending the same, the court will lean towards the first if it be compatible with the object and purpose of the impugned Act, the mischief which it sought to prevent ascertaining from relevant factors its true scope and meaning.
16. Relying on the aforesaid proposition, the learned Counsel urged that in the instant case if the construction which is advanced by the petitioner is not followed, namely, that no tax is leviable on the transaction in question under the OVAT Act, the provision of the OVAT Act will have to be declared ultra vires the Constitution. Instead of doing that the court should accept the petitioner’s contention and hold that the transaction in question are outside the purview of the OVAT Act and the entire proceeding for imposition of tax and penalty is bad in law.
17. The learned Counsel also relied on another judgment of the Supreme Court in the case of Commissioner of Income-tax, Madras v. Kasturi and Sons Ltd. of the Report. In the said paragraph, learned Judges held that a taxing statute should be strictly construed and quoted with approval from G. P. Singh’s Interpretation of Statute, 6th Edition.
18. On a perusal of the aforesaid principles, referred to in Kasturi and Sons it appears that the principles of construing statute is that if a person, sought to be taxed, comes within the letter of the law he must be taxed, however great the hardship may appear to the court. If, on the other hand, the subject cannot be brought within the letter of the law, the subject is free; however it may appear to be within the sprit of law. This principle has been further clarified by saying that in taxing statute there is no scope for equitable construction.
19. The learned Counsel also relied on another judgment of the Supreme Court in the case of Orissa State Warehousing Corporation v. Commissioner of Income-tax . In the said judgment, the learned Judges of the honourable Supreme Court were construing the provision of Section 10(29) of the Income-tax Act, 1961. In paragraph 36, at page 1397 (page 604 of ITR) of the Report the learned judges of the Supreme Court quoted with approval the observation of Justice Rowlatt in the case of Cape Brandy Syndicate v. Inland Revenue Commissioners reported in [1921] 1 KB 64. The principles laid down in the said judgment also make it clear that there is no equity about a tax and there is no intendment or presumption. In the interpretation of taxing statute nothing is to be read in nothing is to be implied, one can only look fairly on the language used.
20. This Court is in respectful agreement with the aforesaid principles.
21. The learned Counsel also referred to a Constitution Bench judgment of the Supreme Court in the case of Tolaram Relumal v. State of Bombay . In that judgment the learned judges were considering the distinction between a lease and an agreement to grant lease. In that context Section 18(1) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947 came up for consideration. While considering the said section, the learned Judges found that the provisions of Section 18(1) are penal in nature. Thereupon the learned Judges held that in a penal statute it is a well-settled rule of construction that where two possible and reasonable constructions are available, the court must lean towards the one which exempts the subject from penalty rather than the one which imposes it. But while doing so, the Court must not stretch the meaning of an expression used by the Legislature in order to carry out the intention of the Legislature. In formulating the aforesaid principles, learned Judges of the Supreme Court referred to the formulation by Lord Mac-millan in L. & N.E. Rly. Co. v. Berriman reported in [1946] AC 278, where the learned Law Lord has laid down the principles which such a degree of precision as it deserves to be quoted and which I do:
Where penalties for infringement are imposed it is not legitimate to stretch the language of a rule, however beneficent its intention, beyond the fair and ordinary meaning of its language.
22. The learned Counsel for the Revenue on the other hand relied on a decision of the Allahabad High Court in the case of Gopal Agency v. State of Uttar Pradesh reported in [1987] 65 STC 323 and said that in a similar situation, a Division Bench of the Allahabad High Court held that in respect of trucks loaded with goods from other States entering and leaving the State of Uttar Pradesh for another State must comply with the requirement of Section 14(1)(e) and 15A(l)(r) and rule 87 of the U. P. Sales Tax Rules, 1948. It was also contended that on the similar circumstances, imposition of tax on the goods by the U. P. Taxing Authority was not interfered with.
23. Reliance was also placed by the learned Counsel in another judgment of the Allahabad High Court in the case of Godawari Steels v. Commissioner of Trade Tax, U.P., Lucknow reported in [2000] 117 STC 276. In that case also, it appears that the goods were loaded in the truck and the drivers could not produce the papers in respect of the goods and explanation was called for by the taxing authority. Thereupon, an explanation was given, which was not accepted by the taxing authority and order for seizure was passed and subsequently levy of penalty was passed. However, the High Court interfered with the levy of penalty.
24. Reliance was placed by counsel for both the parties on the decision of the Supreme Court in the case of State of Rajasthan v. D.P. Metals and also on a recent decision of the Supreme Court in the case of Guljag Industries v. Commercial Taxes Officer reported in [2007] 9 VST 1.
25. This Court finds that all the issues argued in this case can be answered on a proper interpretation of the ratio of the honourable Supreme Court in the aforesaid two judgments, namely, in the case of D. P. Metals and Guljag Industries [2007] 9 VST 1.
26. In D.P. Metals, it has been held that the provisions to check evasion of tax are within the legislative competence of the States under entry 54 of List II. It cannot be disputed that provisions of Section 74 of the OVAT Act have been framed by the State Legislature in order to prevent and check avoidance or evasion of tax and for the said purpose the State Government may, by notification, direct the establishment of a check-post. This is clear from Section 74(1) of the said Act. The argument advanced by the learned Counsel for the petitioner that tax cannot be imposed for violation of the provisions of Section 74 and sub-sections thereof as the same is beyond the competence of State Legislature cannot be accepted in view of the clear law laid down in D. P. Metals [2001] 124 STC 611 (SC); [2002] 1 SCC 279, see para 30 at page 299 of the Report (para 29 at page 634 of STC).
27. Interpreting Section 78(5) of the Rajasthan Sales Tax Act in D. P. Metals [2001] 124 STC 611 (SC); [2002] 1 SCC 279 the learned three-judge Bench of the honourable Supreme Court held that penalty under Section 78(5) is leviable under two circumstances.
(a) where there is non-compliance with Section 78(2)(a), namely, where documents mentioned in that clause are not carried.
(b) where false or forged documents or declaration was submitted.
28. In the instant case, Section 74(5) is almost similarly worded. But there is one vital variation which will be pointed out later. Here, there is an infraction of both Section 74(1)(a) and 74(1)(c) inasmuch as admittedly all the documents were not produced at the time when the goods were verified at the check-post but the documents were produced when the petitioners were asked to show cause and it is however, nobody’s case that any false or forged documents were subsequently submitted.
29. In paragraph 32 at page 299 of the Report (para 31 at page 635 of STC) the honourable Supreme Court in D. P. Metals [2001] 124 STC 611; [2002] 1 SCC 279 has differently dealt with the two situations. Firstly, in a case where false or forged documents or declaration are given at the check-post. In such a situation there is existence of mens rea, even if means rea is not a requirement under Section 78(5). Secondly, the court held that where despite opportunity having been granted under Section 78(5), if the requisite documents are not produced, that would clearly prove the guilty mind. After saying so, learned judges held in para 32 at page 300 (para 31 at page 635 of STC) of the Report that “… 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. …”
30. In the instant case, opportunity of hearing was given to the petitioners and they produced the documents before the authority and there is no finding that those documents are either forged or fake or not relevant. Those documents were not taken into account inter alia on the ground that they are produced by way of after thought. In fact, the genuineness of those documents has not been questioned even in the course of argument before us.
31. That being the position, the question is whether in the facts of this case any discretion is left with the authorities in the matter of imposition of penalty.
32. To decide this issue, a comparison between Section 74(5) of the OVAT Act and Section 78(5) of the Rajasthan Act should be made. Section 74(5) of the OVAT Act has already been quoted hereinabove. Section 78(5) of the Rajasthan Act which was considered both in D. P. Metals [2001] 124 STC 611 (SC) ; [2002] 1 SCC 279 and Guljag Industries [2007] 9 VST 1 (SC) runs as follows:
78(5). The in-charge of the check-post or the officer empowered under Sub-section (3), after having given the person-in-charge of the goods a reasonable opportunity of being heard and after having held such enquiry as he may deem fit, shall impose on him for possession or movement of goods, whether seized or not, in violation of the provisions of Clause (a) of Sub-section (2) or for submission of false or forged documents or declaration, a penalty equal to thirty per cent of the value of such goods.
33. On a close comparison of the aforesaid provisions, it would show that apart from broad similarity on the structure of the said sub-section, there is a vital difference which is relevant at the time of imposition of penalty. In the Rajasthan Act, the statutory language used is that the authority “shall impose on him for possession or movement of goods whether seized or not” . . . “penalty equal to thirty per cent of the value of such goods”. But in Section 74(5) of the OVAT Act, the language used is that the officer-in-charge of the check-post “may impose for possession or movement of goods (in transit) whether seized or not, . . . penalty equal to five times of the tax leviable on such goods or twenty per centum of the value of goods, whichever is higher”. Therefore, in the OVAT Act, discretion is left with the authority in the matter of imposition of penalty. Therefore, it is wrong to say that penalty is automatic and must be imposed in all situations under Sub-section (5) of Section 74 of the OVAT Act.
34. In the instant case, requisite documents have been produced at the time when opportunity of hearing was given and as noted above, the correctness of document has not been questioned. Therefore, even in D. P. Metals [2001] 124 STC 611 (SC); [2002] 1 SCC 279, the honourable Supreme Court has not held where by mistake some documents are not produced but subsequently produced even in such case, imposition of penalty is not automatic, even though the language used in Section 78(5) of the Rajasthan Act is “shall impose”.
35. The learned Counsel for the Revenue has urged that in Guljag Industries [2007] 9 VST 1 subsequent Bench of the Supreme Court has held that in case of breach of Section 78(2)(a), imposition of penalty is automatic. But, those conclusions were reached on totally different facts. From a perusal of the judgment in Guljag Industries [2007] 9 VST 1 (SC), it appears that judges have considered a group of cases and of that group the case of Guljag Industries was described by the honourable Supreme Court as the lead case. (See para 21, page 28 of the Report).
36. The facts in the Guljag case [2007] 9 VST 1 were that the goods in movement were carried with blank declaration form and the same were not filled up. The honourable Supreme Court held that such unfilled declaration form cannot be an accidental error but was done deliberately to avoid payment of tax. Therefore, the facts in this case are totally different from Guljag Industries case [2007] 9 VST 1 (SC). In Guljag Industries case [2007] 9 VST 1 (SC) another group of cases was also discussed, namely, Civil Appeal No. 5240 of 2005. In Civil Appeal No. 5240 of 2005, the facts were that on verification of the vehicle, it was found that the goods were more than the quantity shown in the bill and according to the assessee, this was the mistake of the driver of the vehicle in not producing the documents which were with him at the time of checking and therefore, the assessee was not liable to be penalised. However, the said explanation was not accepted by the Revenue. (See: para 7, page 5 of the Report). The facts in Civil Appeal No. 5240 of 2005 have therefore some similarity with the facts of this case.
37. The decision of the Supreme Court in the Guljag Industries case [2007] 9 VST 1 was made applicable only to those cases where blank/incomplete form 18A/18C had accompanied the goods in movement. This appears clearly from paragraph 27 at page 34 of the Report. In fact, the honourable Supreme Court made it very clear by making the following observation at page 34 of the Report and which I quote:
… We make it clear that our judgment is basically confined to cases where blank/incomplete form 18A/18C had accompanied the goods in movement. Whatever we have stated above is in the context of the incomplete form 18A/18C travelling along with the goods in movement . . . .
38. About the other civil appeal, namely, Civil Appeal No. 5240 of 2005 with which there is some factual similarity with the present case, the honourable Supreme Court said that the “said appeals stand on a different footing” (para 27, page 34 of the report) and the said “appeals” shall be decided in the light of the judgment of this Court in D. P. Metals [2001] 124 STC 611 (SC); [2002] 1 SCC 279. Therefore, the decision in Guljag Industries [2007] 9 VST 1 (SC) cannot be applied to the facts of this case in view of the distinction made in the judgment by the honourable Supreme Court itself. The present case is governed by D. P. Metals [2001] 124 STC 611 (SC) ; [2002] 1 SCC 279 where it has been held that in a case where by mistake some documents were not readily available at the time of checking, principle of natural justice may require that some opportunity must be given to produce the same.
39. In the instant case, opportunity being given to produce the documents, the same were produced by the petitioner and as noted above, and those documents were not found to be incorrect, fake or not relevant. They were discarded only on the ground that they were produced by way of after thought and five times penalty was imposed. This was done despite the fact that Section 74(5) of the Act gives a discretion to the authority in the matter of imposition of penalty.
40. It is well-settled when discretion has been conferred on the authority in the matter of imposition of penalty, that discretion must be reasonably exercised.
41. In this connection, the decision in Tolaram which has been cited gives the necessary guidance. The honourable Supreme Court explained the principle as follows:
… if two possible and reasonable constructions can be put upon a penal provision, the court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty. It is not competent to the court to stretch the meaning of an expression used by the Legislature in order to carry out the intention of the Legislature . . . (See : Tolaram Relumal v. State of Bombay ).
42. Similar principle has been laid down by Lord Esher, Master of Rolls in formulating the rule of construction of penal sections and observed as follows:
If there is a reasonable interpretation which will avoid the penalty in any particular case we must adopt that construction. If there are two reasonable constructions we must give the more lenient one. (see Tuck and Sons v. Priester reported in [1887] 19 QBD 629 at 638)
43. These principles have been followed by the House of Lords in L. & N.E. Rly. Co. v. Berriman [1946] 1 All ER 255 at page 270 of the Report).
44. In the context of taxation law also, the honourable Supreme Court has accepted the same principle. In the case of Hindustan Steels Ltd. v. State of Orissa [1970] 25 STC 211 at page 214, the honourable Supreme Court held:
… Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
45. Following the aforesaid principles, this Court holds that imposition of penalty in the facts and circumstances of the case is not a proper exercise of the discretion by the authority concerned. Therefore, the imposition of penalty is quashed. But this Court holds that in an appropriate case, penalty can be imposed and this Court accepts the Revenue’s interpretation of Section 74(14) of the OVAT Act that 74(14) applies only to tax-free goods under the OVAT Act. Any other interpretation will defeat the purpose of the Act in enacting Section 74 of the OVAT Act.
46. The next issue that remains to be considered relates to the demand of value added tax (VAT). It would be pertinent to mention herein that in the impugned order dated January 22, 2006 passed by the Sales Tax Officer under annexure 7 as well as the order dated February 3, 2006 passed by the Commissioner of Commercial Taxes, under annexure 9, the Revenue has relied upon the following presumptions:
(i) I have a reason to believe that the excess bags of PTA carried in the vehicles would have been sold inside the State of Orissa to evade payment of tax.
(ii) The dealers-consignors violated the provisions laid down in Clause (c) of Sub-section (2) of Section 74 of the OVAT Act, 2004 by not submitting all the documents at the time of checking.
47. Based on the aforesaid premises, the Revenue rejected the plea of the petitioners and raised a demand of tax to a tune of Rs. 5,70,680 as tax under the OVAT Act and a demand on entry tax apart from demanding penalty which has already been dealt with hereinabove.
48. In the face of the aforesaid findings in the impugned orders, the source/ power and/or the authority to levy and raise the demand of OVAT tax needs to be ascertained. The OVAT Act, 2004 stipulates levy of OVAT Act in accordance with the provisions of Section 9 of the OVAT Act, 2004. Value added tax (VAT) is leviable only on the sale or purchase of goods by a dealer. This provision is clear and unambiguous. Value added tax is leviable only on the sale or purchase of goods by the dealer. Therefore, it is clear that the “taxable event” for the purpose of imposing VAT tax is either the sale or purchase of goods. The said provision does not contemplate any “presumptive sale” for the purpose of levy of OVAT tax.
49. In the impugned orders under annexures 7 and 9, the Revenue have asserted that there has been violation of Section 74(2)(c) which forms the basis of their apprehension that necessary documentation were not submitted by the petitioner with the objective of a possible sale of the excess stock inside the State of Orissa, in order to evade payment of tax.
50. Section 74 (2) (c) requires the driver or person-in-charge of every vehicle or carrier of goods in transit to produce all the documents, including the prescribed way-bill relating to the goods before the officer-in-charge of the check-post or barrier or the authorised officer. The mere absence of such documents cannot in law give rise to any “presumption” unless such presumption/assumption has any statutory basis. Unless the statute empowers the authority to draw such a presumption of sale, no levy under Section 9 of the OVAT Act can be imposed on the basis of an assumption/ presumption made by the Revenue authority on a “likelihood of sale or evasion of tax”.
51. Section 74 which has been extracted hereinabove in detail, clearly contemplates establishment of check-posts and inspection of goods while in transit. Under Sub-sections (1) and (2), the list of documents that driver or person-in-charge of the vehicle must hold is enumerated. Under Sub-section (3), power is vested in an authorised officer to stop the vehicle in which goods are in “transit within the territory of the State” for inspection. Sub-section (4) thereafter applies to goods which are in transit (within the territory of State) and where it is found that the goods have been transported without documents or not supported by the relevant documents. In such a case the authorised officer is given authority to direct the driver or the person-in-charge of the goods or carrier not to part with the goods in any manner and may also, effect seizure of the goods for reasons to be recorded in writing.
52. Thereafter, the officer-in-charge of the check-posts is required to offer the driver or person-in-charge of the goods, a reasonable opportunity of hearing and an enquiry under Sub-section (5) and if such officer is not satisfied with the explanation provided, the officer-in-charge may impose “penalty” equal to five times of the tax leviable on such goods, or twenty per centum of the value of goods, whichever is higher. It is important to note herein that under Sub-section (5), the Legislature has not contemplated the levy of any “tax” but has prescribed conditions for imposition of “penalty” alone. Sub-sections (6), (7), (8) and (9) are not relevant for the present purpose.
53. Thereafter, Section 74(10) is of importance since it applies to a vehicle 52 coming from “outside the State” and “bound for any other place outside the State”. The driver or other person-in-charge of such vehicle is required, to make a “declaration” that the goods under transport shall not be unloaded, delivered or sold inside the State and, thereafter, obtain a “transit pass” from the said officer. The most important aspect is that the transit pass so obtained must be produced before the officer-in-charge of the “last check-post or barrier” before his exit from the State, failing which, it shall be “presumed that the goods carried thereby have been sold within the State” by the owner or person-in-charge of the vehicle. In Sub-section (11) of Section 74, the officer-in-charge of any check-post or any officer duly is authorised by the Commissioner, has powers similar to Sub-section (3) and may also direct the detention of the vehicle and upon examination of the contents of the vehicle and the records relating to the goods under transport. Upon such inspection if it is found that the vehicle is carrying less goods than originally declared at the point of entry, only then it is available to be “presumed that… the goods carried in the vehicle has been sold inside the State”. It is only thereafter that the said officer is empowered to not only demand “penalty” equivalent to 20 per centum of the value of the goods under transport or Rs. 20,000, whichever is higher, but most importantly, in addition to the demand of penalty is also authorised to demand “tax” as otherwise payable under the Act.
54. The aforesaid detailed analysis of Section 74, clearly gives out two distinct category of transactions. The first category being goods which are “in transit within the territory of the State” and in the event the authorised officer finds that the goods are not covered with necessary documentation, the officer has the authority to impose “penalty” alone. On the other hand, when a vehicle comes along with the “goods from any place outside the State and is bound for any other place outside the State”. In the present case the goods were admittedly purchased at Haldia in the State of West Bengal and the vehicles were carrying the said goods to Maharashtra. In such cases, the “presumption that the goods were sold within the State” would only arise when the driver or the person-in-charge of the vehicle fails to deliver the transit pass obtained at the point of entry at the last check-post or barrier before his exit from the State and it is only in such situation that an officer under Sub-section (11) who is in-charge of the check post or last barrier (exit point) who has the right to inspect the documents as well as the goods and if he finds the same not to be in order and finds any goods missing from the vehicle, the “presumption” of Sub-clause (c) of Sub-section (10) of Section 74, would arise, and the presumption would be that the goods carried have been gold within the State by the owner or person-in-charge of the vehicle.
55. It is due to such a presumption arising under Sub-section (10) of Section 74 of the Act which gives rise to the power to demand “tax” apart from “penalty” as contemplated under Sub-section (11) of Section 74 of the Act. In other words, the presumption that the goods were sold within the State by the owner or person-in-charge of the vehicle is the foundation not for imposition of penalty but also for a demand of “tax”. It is clear that the levy/demand of “tax” under Section 74(11) can only arise where the facts give rise to the “presumption” under Sub-section (10)(c) of Section 74 and not otherwise.
56. In the present case, it is clear from the show cause notice under Section 74(8) of the OVAT Act, 2004 issued to the petitioners, as well as the impugned orders, that the Revenue has proceeded on the footing that there has been violation of the provisions of Section 74(2)(c) and have demanded “tax” apart from “penalty”. Neither Sub-section (8) nor Sub-section (2) of Section 74, authorise the imposition of any “tax”. It is only Sub-section (11) of Section 74, which contemplates levy of “tax” apart from penalty, and the issue of levy of “tax” can only arise where the circumstances contemplated for Sub-section (10) of Section 74 of the Act are satisfied.
57. The levy of “tax” and demand of “penalty” has not been made by the officer-in-charge of the last check-post or barrier before “exit” from the State. The vehicles in question were stopped at the “entry” point into the State and at the entry point into the State, the check-gate officer reached the conclusion that he had reason to believe that the excess bags of PTA would have been sold inside the State of Orissa to evade payment of tax. Such a presumption is not available under the statute. The only presumption that is available under Sub-section (11) of Section 74 and the necessary circumstances do not arise in the present case. In other words, what powers have been vested in a check gate officer of the “exit” barrier cannot be utilised by the officer-in-charge of the “entry” gate. The “tax” demand has been raised at the point of “entry” into the State of Orissa and, therefore, is wholly unauthorised in law.
58. Reliance has been placed by the Revenue on a judgment of the honourable Allahabad High Court in the case of Gopal Agency v. State of Uttar Pradesh [1987] 65 STC 323. The facts in the said case is that the petitioner engaged trucks for carrying coal from the State of Bihar and Bengal to the State of Madhya Pradesh and its trucks travel through the State of Uttar Pradesh. The trucks which had been granted transit passes under the Sales Tax Rules, reached the check-post after a delay of 15 days and other trucks failed to reach even within the stipulated time and date. The Sales Tax Officer issued show cause notice and levied “penalty” under the relevant section of the Act, since no explanation was given to the show cause notice.
59. The challenge to the provision under which penalty was levied was negatived by the honourable single Judge of the Allahabad High Court, holding that the said provision had been enacted by the Uttar Pradesh Legislature to prevent evasion of such tax and therefore, authorised imposing penalty on any person who otherwise acts in contravention of the provision of the Acts and Rules. This judgment does not provide any assistance to the Revenue in their attempt to justify to levy the “tax” on the goods in question.
60. Apart from the aforesaid judgment, the learned senior counsel appearing for the Revenue places reliance upon another judgment of the honourable Allahabad High Court in the case of Godawari Steels v. Commissioner of Trade Tax, U.P., Lucknow [2000] 117 STC 276, by which the Division Bench of the said honourable High Court once again upheld the levy of “penalty” since the goods in question were not accompanied with the relevant bills, challans, etc., and were not produced before the officer concerned at the time of checking. The reasons advanced by the petitioner therein and the circumstances under which such documents were produced, resulted in the demand of “security” equal to 40 per cent of the value of goods. Demand of “security” of 40 per cent was held to be unjustified and in its place, honourable court directed “security” by way of cash deposit to the extent to 15 per cent of the value of the goods. This judgment cited by the Revenue is also not of any help to the Revenue in its claim for levying of “tax”.
61. So far as the present case is concerned, OVAT tax was demanded and penalty was sought to be levied. It is important to note herein that this Court by an interim order dated February 28, 2006, in Miscellaneous Case 2185 of 2006 directed release of the vehicles and goods subject to the petitioners depositing a sum of Rs. 5,00,000 and furnishing bank guarantee to the tune of Rs. 25,00,000.
62. It is averred by the learned Counsel for the petitioners in rejoinder application, and accepted by the Revenue, that pursuant to the interim orders, the amounts directed were deposited and bank guarantees were furnished. Thereafter, the necessary transit passes covering the entire consignment were issued and the vehicles were released. Thereafter, the vehicles exit from Orissa along with the entire consignment and delivered the same to consignees in Maharashtra. All the necessary documents have been appended to the rejoinder affidavit. These clearly establish that the petitioners have complied with the interim directions by depositing Rs. 5,00,000 and offering bank guarantee of Rs. 25,000,000. It is more important to note that the documents clearly establish that the goods in question transited through Orissa and were delivered to the consignee at Nagpur in the State of Maharashtra. This fact conclusively establishes that, in so far as the goods are concerned, there has been “no taxable event” as contemplated under Section 9 of the OVAT Act, 2004, i.e., there has been no sale or purchase of the goods in question within the State of Orissa in order to attract the levy of tax under the OVAT Act. Furthermore, the goods in question having come from outside the State of Orissa and the documents establish the fact that the entire consignment also left Orissa, the “presumption of sale,” as contemplated under Sub-section (10) of Section 74 cannot and does not arise. Therefore, looking at the issue of levy of tax under the OVAT Act, there exists no statutory basis for justifying the same. Therefore, in our considered opinion, not only was the demand of “penalty” invalid for the reasons as noted hereinabove, we are also of the view that the demand for OVAT and entry tax is also without any statutory basis and, therefore, unlawful.
63. Accordingly, the writ application is allowed. The amount of OVAT deposited, is directed to be refunded and the bank guarantee of Rs. 25,00,000 issued in favour of the Revenue may also be similarly released in favour of the petitioners within a period of 4 (four) weeks from the date of this judgment. Imposition of penalty has already been quashed.
64. The orders of the Sales Tax Officer, Unified Check Gate, Jamsolaghat dated January 22, 2006 imposing sales tax and entry tax and penalty are set aside. The orders of the revisional authority are consequently set aside. The writ petition is allowed to the extent indicated above.
65. There shall be no order as to cost.
I. Mahanty J.
66. I agree.