ORDER
V.K. Singhal, J.
1. By order dated June 26, 1997, the learned single Judge found that the validity of the unamended section was upheld in the case of Sree Hajee Ahmed Bava v. Assistant Commercial Tax Officer . Learned counsel for the petitioner relied on the decision given in the case of State of Haryana v. Santlal and submitted that certain questions which have not been raised and considered in the previous decisions require consideration by the division Bench and accordingly the matters were referred to the division Bench by the order of the honourable Chief Justice.
2. All these petitions are disposed of by this common judgment since the questions involved are common. Validity of Section 28-A(2) and 28-A(4) as enacted by the Karnataka Taxation Laws (Third Amendment) Act, 1996 has been challenged as being violative of Articles 14, 19(1)(g), 301 and 304(b) of the Constitution of India and declare the same (sic) asked the learned counsel for the petitioner not to argue individual cases in respect of levy of penalty.
3. For the sake of convenience, facts of Kanpha Labs are taken into consideration. The petitioner is dealing in drugs and medicines. The goods were coming from Maharashtra which were intercepted on May 10, 1997. Notice was issued to the driver. The executive officer of the petitioner-firm appeared before the check-post authority and filed the objections. Since there was no seal of the entry check-post on the documents produced, penalty was levied of Rs. 54,822 under Section 28-A(4) on May 12, 1997. Reply submitted was considered as evasive.
Provisions of Section 28-A(2) and (4) are as under :
“Section 28-A(2) : The owner or person-in-charge of a goods vehicle or a boat shall,–
(a) carry with him a goods vehicle record, a trip sheet or a log book, as the case may be ; and
(b) carry with him a bill of sale or a delivery note obtained from the prescribed authority or such other documents, containing such particulars as may be prescribed, in respect of the goods other than those mentioned in Sub-clause (c) carried in the goods vehicle or boat ; and
(c) carry with him in addition to a bill of sale, a delivery note obtained from such authority containing such particulars as may be prescribed, if the goods carried in the goods vehicle or boat are arecanut, cardamom, cashew, coconut, coffee, copra, edible oil including vanaspathi, iron and steel, liquor, oil seeds, pepper, rubber, timber or such other goods as may be notified by the Commissioner ; and
(d) produce the documents referred to in Sub-clauses (b) and (c) before any officer-in-charge of check-post or barrier or any other officer as may be empowered by the State Government in this behalf and obtain seal of such officer affixed thereon, and in respect of a bill of sale, shall give one copy thereof and in respect of a delivery note, shall give a copy marked as original, to such officer and carry and retain with him the other copy until termination of movement of the goods ; and
(e) on entering the State limits, report at the first situate check-post or barrier and on leaving the State limits, report at the last situate check-post or barrier and shall give a declaration containing such particulars as may be prescribed in respect of the goods carried in the goods vehicle or boat, before any officer-in-charge of the check-post or barrier or any other officer as may be empowered by the State Government in this behalf.
Section 28-A(4) : The officer-in-charge of a check-post or a barrier or any other officer not below the rank of a Commercial Tax Inspector and not higher in rank than a Deputy Commissioner of Commercial Taxes, in respect of any contravention of, or non-compliance with the provisions of Sub-section (2) or (3) or (3-A) or (3-B), for which sufficient cause is not furnished, levy a penalty, which,–
(a) shall not be less than one half of the amount of tax leviable and not exceeding the amount equivalent to the amount of tax leviable in respect of the goods under transport, if a dealer registered under the Act accepts that he is the consignor or consignee of the goods, as the case may be,
(b) in cases other than those falling under Clause (a) shall not be less then double the amount of tax leviable and not exceeding three times the amount of tax leviable in respect of the goods under transport :
Provided that,–
(i) where the amount of penalty leviable is more than the value of the goods, the amount of penalty leviable shall be restricted to such value ;
(ii) no penalty shall be leviable on the goods under transport liable to single point tax under the Act, if the owner or person-in-charge of the goods vehicle or boat produces proof at the time of interception of the goods vehicle or boat that such goods had already been subjected to tax under this Act ;
(iii) in respect of contravention of Sub-section (3-B), where the penalty levied is not paid, the carrier or bailee or person-in-charge of the goods vehicle shall jointly and severally be liable to pay such penalty and such amount of penalty shall for the purpose of Section 13 be deemed to be an amount due under the Act ;
(iv) before levying any penalty under this sub-section, the officer shall give the person-in-charge of the goods vehicle or boat or carrier, or bailee, or a dealer registered under the Act, as the case may be, a reasonable opportunity of being heard.
Explanation : Where the destination of the goods to be delivered in the State is not less than one hundred kilometers, from the check-post or barrier or any other place at which the goods vehicle or boat is intercepted, reasonable opportunity of being heard shall be a period of not less than ten days,”
4. It is submitted that the provisions of Section 28-A(2) can apply only in respect of intra-State sale and not in respect of inter-State trade. Reliance is placed in the judgment given in [1965] 16 STC 894 (Mys) (P. Venkatachalapathi v. Commercial Tax Inspector), (Sree Hajee Ahmed Bava v. Assistant Commercial Tax Officer), (Prakash Road Lines (P.) Ltd. v. Commissioner of Commercial Taxes in Karnataka), (Mahaveer Fancy Stores v. Commissioner of Commercial Taxes in Karnataka), S.T.R.P. No. 45 of 1991 dated June 24, 1993 (Safeguard Packaging v. State) and W.P. No. 9422 of 1994 dated March 31, 1994.
5. It is submitted that in the case of Hanraj Bagercha v. State of Bihar [1971] 27 STC 4, it was observed by the apex Court that the State cannot extend its territorial jurisdiction to inter-State movement and therefore detention of goods and vehicle and initiation of penal proceedings are restrictions on the movement of goods between Maharashtra and Karnataka. No taxable event under the K.S.T. Act has taken place therefore the penalty which has been levied is de hors the law, entry 54, List II of the Seventh Schedule of the Constitution. It is submitted that the Karnataka Act No. 15 of 1996 received the assent of the Governor on August 28, 1996 and published in the Gazette on September 5, 1996. This provision imposes restriction on the movement of goods and impedes free-flow of trade and commerce throughout the country which is guaranteed under Article 401 of the Constitution and places unreasonable restriction on the fundamental right to carry on trade and buy goods from any place and places throughout the country.
6. The amendment has not received Presidential assent as required under Article 404(b) of the Constitution. It is only the regulatory measures which could be imposed but restriction on the movement of trade and commerce cannot be put by the State Legislature. If the State intends to impose any restriction on movement of goods or freedom of trade and commerce, it has to do so by following the constitutional requirement of getting assent of President of India under Article 404(b) of the Constitution. The restriction must be reasonable and in public interest. Reliance is placed on the decision given in the case of Hansraj Bagercha v. State of Bihar and Atiabari Tea Co. v. State of Assam .
7. It is also submitted that no rules have been framed by the State Government and the form 34 which is prescribed under the old law ceased to operate after deletion of the old Section 28-A(2) and thereafter no form is prescribed. Since there is no liability of tax under the K.S.T. Act, penalty cannot be levied as held in Safeguard Packaging v. State (S.T.R.P. No 45 of 1991 dated June 24, 1993). The penalty has been levied as a matter of course in a routine manner. The provisions of Section 28-A are not to levy confiscatory penalty on the petitioner for the technical default of driver or default due to circumstances beyond drivers control. The objections submitted are not taken into consideration.
8. Learned counsel for the petitioner while referring to the decision of Atiabari Tea Co. Ltd. v. State of Assam has drawn our attention to the following observations :
“But restrictions, freedom from which is guaranteed by Article 401, would be such restrictions as directly and immediately restrict or impede the free-flow or movement of trade. Taxes may and do amount to restrictions ; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 401. In determining the limits of the width and amplitude of the freedom guaranteed by Article 401, a rational and workable test to apply would be : Does the impugned restriction operate directly or immediately on trade or its movement ?
When it is said that the freedom of the movement of trade cannot be subject to any restrictions in the form of taxes imposed on the carriage of goods or their movement, all that is meant is that the said restrictions can be imposed by the State Legislatures only after satisfying the requirements of Article 404(b). It is not as if no restrictions at all can be imposed on the free movement of trade.”
9. On the basis of the observations it is stated that the establishment of check-post barrier by itself is an obstacle and creates impediment for the free-flow of trade.
10. It is submitted that under Section 28-A(2) even the requirement of carrying the goods record, trip sheet, log book is a restriction, similarly, the provision for carrying the bill of sale or delivery note as per Section 28-A(2)(c) is also a restriction on the right to carry on the business. Certain items have been specified under Section 28-A(2)(c) for the purpose of delivery note and power has been conferred upon the Commissioner to notify other items. It is submitted that power should not have been delegated by the Legislature but it should have been with the State Government. The requirement of production of document before the officer-in-charge of the check-post or any other officer of the State Government or to give a copy of the said documents is also an unreasonable restriction. There is no justification for reporting at the first entry check-post of barrier and give the document or to have their seal.
11. It is submitted that the goods vehicle have been defined under Section 2(m-l) of the K.S.T. Act to mean any kind of vehicle used for carriage of goods either solely or in addition to passengers (other than aeroplanes and rail coaches) and includes push cart, animal drawn cart, tractor trailer and the like. This definition is beyond the scope of the definition given under the Motor Vehicles Act, Under the Motor Vehicles Act certain documents are required to be carried along with the vehicle. Requiring some other documents to be carried is an unreasonable restriction to carry on the business. A push cart is not supposed to carry the document as contemplated by the section. It is further submitted that if the vehicle is intercepted at a place other than the check-post then the power to take the vehicle to the nearest check post or police station affects the right of the petitioner to carry on the business. The provisions of Section 28-A(4) do not contemplate any enquiry and no notice has been given to the dealer nor any efforts are made to find out the owners of the goods and without there being evasion of tax or proving it so simply on non-furnishing of document penalty is levied. The power has been conferred upon the Commercial Tax Inspector also. Non-dealers are also subjected to the provisions of Section 28-A. Even on request the transit passes are not issued. The requirement of furnishing a declaration itself is a restriction. If the goods have moved from outside the State in the course of intra-State trade and commerce the State Legislature is not competent to make the provisions for checking of such goods. The penalty itself is confiscatory in nature. Since the restriction is placed and no assent of the President has been taken, the provision is unconstitutional. Even if there is any evasion of tax of other states the exercise of the power by this state is beyond their jurisdiction as held in Assistant Commercial Taxes Officer v. Sodhi Transport Company [1999] 108 STC 490 (RTT).
12. We have considered over the various contention raised and the judgments relied on.
13. Firstly, it may be observed that the judgment given in the case of State of Haryana v. Santlal has no application because it is a case where the carrying and forwarding agents or dalals or any other person transporting the goods were sought to be made liable who were not dealing with the goods and thus the apex Court has held that the provisions cannot be considered as ancillary and incidental to the main power to tax. The controversy in this regard is covered by the decision given by this Court in W.P. No. 28659-661 of 1997 and other connected matters dated September 7, 1999. The decision in Santlal’s case cannot be of any assistance to the petitioner. The petitioners themselves are the dealers. There is ample power with the State Legislature to make a provision for prevention of evasion of tax. and this proposition is upheld even in the judgments relied by the petitioner, viz., Check-post Officer v. K.P. Abdulla and Bros, [1971] 27 STC 1 (SC) and Hansraj Bagercha v. State of Bihar .
14. In Mahaveer Fancy Store v. Commissioner of Commercial Taxes [1993] 89 STC 524, it was observed by this Court that Section 28-A(2) of the K.S.T. Act contemplated issuance of show cause notice before, levying penalty ; it is implied that the concerned person may explain the circumstances resulting in the failure to have the documents readily available for production at the check-post. Under Section 28-A(4) penalty could be levied only when sufficient cause is not furnished for the non-compliance of Section 28-A(2). An enquiry is thus contemplated in the section itself.
15. In Sree Hajee Ahmed Bava v. Assistant Commercial Tax Officer [1985] 60 STC 328) the validity of Section 28-A(4), (5) and (6) was challenged, wherein the decision given in the case of Check-post Officer v. K.P. Abdulla and Bros. [1971] 27 STC 1 (SC) was distinguished. It was found that the amended provision provide an opportunity to the person aggrieved to show cause or to produce the documents, and the power to levy penalty is purported to be exercised only in cases where the person concerned fails to furnish sufficient cause for the contravention or non-compliance with the provisions of Sub-section (2) or (3) or (3A) of Section 28-A of the Act. They also provide for sufficient safeguards to the person concerned, to appeal against the order levying penalty to the higher authorities as provided under the Act.
16. In Prakash Road Lines v. Commissioner of Commercial Taxes , the same view has been taken and it was also observed that the State’s competence is to be confined to regulate intra-State transactions. State Legislature has no power to make laws adversely affecting inter-State trade.
17. In Automobile Products of India Ltd. v. State of Karnataka [1991] 81 STC 414, it was observed by this Court that if any discrepancy is found in the documents carried in the name of the consignee shown in invoices and goods vehicle record, the check-post officers have no jurisdiction to conclude intention to evade tax and levy penalty.
18. The Rajasthan High Court in Sarna Transport Corporation v. State of Rajasthan [1993] 90 STC 245, examined the validity of Section 22A of Rajasthan Sales Tax Act. A contention was raised that the provisions of Section 22B provides for transit pass but no rules have been framed thereunder. This contention was negatived.
19. The Supreme Court in Delite Carriers (Regd.) v. State of Haryana [1990] 77 STC 170, also upheld the validity of Section 37 of the Haryana General Sales Tax Act, 1973, which provides for establishment of check-post barrier, following the decision given in the case of Sodhi Transport Co. v. State of U.P. [1986] 62 STC 381 (SC), wherein it was held that provision requiring transit passes for vehicles carrying goods from one State outside Uttar Pradesh to another to be delivered at check-post of exit. It was held that the provisions requiring transit pass for vehicles carrying goods from one State to another are enacted to ensure that all persons who brought goods inside the State and who has made a declaration that the goods are brought into the State for the purpose of carrying them outside the State should actually take them outside the State. If he hands over the transit pass while taking the goods outside the State then there would be no liability at all. It is only when he does not deliver the transit pass at the exit check-post as undertaken by him that the question of raising a presumption against him would arise. These provisions are enacted to make the law workable and to prevent evasion and fall within the ambit and scope of power to levy the tax itself. If the driver fails to produce the pass a presumption would arise that the driver or the person-in-charge of the vehicle has sold the goods in the State. Levy of tax on that basis was held valid and not infringing trade or commerce.
20. This decision was followed by the Punjab and Haryana High Court in Monga Road Lines (Regd.) v. State of Haryana [1990] 77 STC 171, carrying the prescribed forms by the carrier for transporting the goods was considered to be not violative of freedom of trade and movement of goods in the course of trade. It was considered that the provisions are incidental and ancillary to levy sales tax and not violative of Article 401 of the Constitution.
21. In Mohammed Habib Ummar v. Commissioner of Sales Tax [1995] 99 STC 166, the Orissa High Court observed that if the goods’ have been purchased from a registered dealer outside the State and brings the goods from outside for sale within the State under proper way-bills and other documents, there could be no reasonable apprehension of evasion of tax.
22. In Tripura Goods Transport Association v. Commissioner of Taxes the matter was considered at length with regard to the provisions for registration and maintenance of document and submission of the document by the transporter at the check-post. It was observed that maintaining the books of accounts of goods transported into or outside Tripura in the prescribed manner and to furnish in the prescribed form such information as the Commissioner requires including filing of form 24 is only for the said objective to be achieved with the help and aid of such transporter or consignee to fix liability on them in correlation with the goods carried by such transporter further requiring the disclosure of such goods with its quantity, value, weight, to help the taxing authorities in collecting taxes, imposing penalties including punishing one for the offences committed. If such an obligation is not cast on such transporters then any dealer under a false name, can despatch his taxable goods to another person through a transporter escaping his sales tax liability on such goods. It cannot be denied that some such dealers and transporters do indulge in such illegal practices.
23. It was found that the requirement of “certificate of registration” by a transporter is also for the same purpose. It only applies to such transporters doing transport business relating to taxable goods in Tripura only. This certainly cannot be construed to be violative of Article 401 of the Constitution of India. Article 401 provides freedom of trade, commerce and intercourse. This article is subject to the other provisions of this part, namely, Part XIII which covers Articles 301 to 307. Article 404(b) empowers the State Legislature to impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within the State as may be required under the public interest. When a provision is made for a certificate of registration which in the present case is brought in by amendment as aforesaid, it is really for checking the evasion of tax. By such registration of transporters or carriers it becomes feasible for the authorities to trace out such dealers escaping tax, through such transporters.
24. Establishment of the check-post by itself is not an impediment in the free-flow of trade. Levy of Sales Tax is also not an impediment in free flow of trade. If the officers of the commercial tax department at the check-post or at any other point intercepted the vehicle then it is only to ensure as to whether the vehicle is carrying the proper document. Even the requirement to carry the document or having the seal thereon at the first entry check-post are to ensure that the transaction is genuine. While considering the validity of the provision stray cases where on fact offence is committed it is within the jurisdiction of the assessing authority to examine and give a finding on the basis of the evidence which may be placed before it. The production of document or inspection thereof are with a view to prevent evasion of tax and at that stage it is not necessary that a finding has to be recorded that there is evasion of tax. There are separate provisions for punishing evasion of tax. The provisions of Section 28-A are not for evasion of tax but for prevention or for checking of evasion of tax. If for the purpose of such a provision which is ancillary and incidental to the main power to levy the tax and the goods which are sold within the State of Karnataka there is a requirement to produce the document or carrying the document with the goods vehicle or having presumption even of sale thereon it could not be considered that a restriction has been imposed on the right to carry on the business. Inspection of the goods which are passing through the State of Karnataka and have moved from a State outside the State of Karnataka and going to a place outside the State, provisions of Section 28-AA exists for which the necessary form can be obtained and even if the forms are not obtained, if the entry is shown at the first entry check-post and also the last check-post of the State that is also the circumstances from which it could be inferred that the goods are not meant for sale within the State of Karnataka. There may be a possibility that the documents are prepared showing consignment of goods from outside the State to outside the State whereas the intention may be to unload them in the State of Karnataka and in such a circumstance the authorities are empowered to inspect the goods and documents. The goods of an individual who is not carrying on the trade which are household articles, are not covered by any provision of the Act and it cannot be considered that the provisions of Section 28-A are applicable to such transfer of goods from one place to another.
25. The Legislature has thought it fit that beside the items specified Section 28-A(2)(c) the Commissioner can further notify the items because it is only by experience the power could be exercised by the Commissioner and it is not necessary even for specification of goods the legislative authority only should intervene.
26. Validity of the provisions of Section 28-A(3) is not in challenge before us in any of the petitions.
27. The power which has been conferred for levy of the penalty is only when a sufficient cause is not shown by the person concerned. The Legislature may cast a burden on him and the provisions of Section 28-A(4) by itself provides an enquiry and application of mind to the reply furnished and passing of the order thereafter. The enquiry could be on the basis of the reply submitted or in any manner which the check post authority considers it proper. To say that the enquiry is not contemplated and penalty is made as a matter of routine is not correct. Conferment of the power by the Legislature not below the rank of the Commercial Tax Inspector cannot be considered to be arbitrary.
28. In Atiabari Tea Co. Ltd. v. State of Assam , while interpreting the provisions of Articles 301, 302, 303, and 304(b) it was observed that Article 401 includes the movement of trade which is the very essence of all trade and is its integral part. If the transport or movement of goods is taxed solely on the basis that the goods are thus carried or transported that directly affects the freedom of trade as contemplated by Article 401. It was observed that the movement or transport of trade must be free subject of course to limitations and exception by other articles in Part XIII. It was observed that it is reasonable and proper to hold that restrictions, freedom from which is guaranteed by Article 401 would be such restrictions as directly and immediately restrict or impede the freeflow or movement of trade. Taxes may and do amount to restrictions ; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 401. The argument that all taxes should be governed by Article 401 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, an extreme approach which cannot be upheld.
29. There is no violation of Article 401 of the Constitution. There can be inspection of the documents when the goods are at the shop. Similarly, inspection can be somewhere in between the point of despatch and point of receipt or may be at the check-post. Right of inspection or the requirement to furnish the document are only the provisions which have been made to safeguard the larger public interest of paying the due tax in accordance with law. The assent of the President was not required and we do not consider that it is a case of creating any restriction on the right to carry on business or in movement of goods from one State to another or being violative of Articles 19(1)(g) and 301 of the Constitution of India.
30. Accordingly these petitions are dismissed.
31. Since we have directed the learned counsel for the petitioners that we will not examine each and every case with reference to levy of penalty, we consider it proper that petitioner, may file appeal within three weeks from today. If the appeal is filed within three weeks no objection regarding limitation would be raised.