AI Structured Summary
Not yet generated for this judgment
Judgment
Raju, J.—-The above batch of writ petitions have been heard along with Writ Appeal No. 1013 of 1997, which came to be filed against a
conditional order of stay granted by a learned single Judge of this Court in a pending writ petition. Initially, one batch of writ petitions came to be
heard and orders were reserved in them on December 15, 1997. Subsequently, some of the cases relating to the very same batch, which were not
included in the initial batch of cases, came up before the first Bench itself and on the representations of the counsel appearing in the second-listed
batch of cases that the arguments submitted in the earlier batch may be taken as the same for the said second listed batch of cases also and as the
learned counsel appearing on either side represented that the second listed cases also can be disposed of along with the initially listed batch of
cases, the entire batch of writ petitions are dealt with together.
The slight variations apart, in the manner of relief sought for or the nature of writ, these writ petitions involve for consideration the constitutional
validity of Section 12(3) of the Tamil Nadu General Sales Tax Act, 1959, as introduced by substitution by Tamil Nadu Act No. 25 of 1993,
providing about seven rates of penalties in graded scales and form, depending upon the difference in the tax paid and tax assessed, while
dispensing at the same time with the maximum and minimum prescribed under the provision, as it existed prior to the said substitution. The several
assessees who have filed the various writ petitions have made such challenge in respect of the proposed levy at the stage of show cause notice or
penalty imposed after such imposition in respect of assessment made either under the Tamil Nadu General Sales Tax Act, 1959 or under the
Central Sales Tax Act, 1956, by applying Section 12(3) of the Tamil Nadu General Sales Tax Act read with Section 9(2) of the Central Sales Tax
Act, 1956. The cause of action for proposing to levy or for levying penalty in each one or the other of the cases depended upon ever so many
reasons and in one or the other cases, for more than one or variety of reasons. Such reasons varied from the need or justification to make a ""best
judgment assessment"" rejecting the books of accounts or for non-filing of the return in time, or for the reason that the return filed was found to be
defective or incorrect and incomplete in all respects, or that the exemption claimed by the assessee in respect of any particular turnover could not
either be granted as claimed or was claimed wrongly and could not be countenanced, or that one or the other of the statutory forms prescribed as
necessary to be filed within the stipulated time or before the completion of the assessment, as the case may be, to claim or prove exemption from
tax or to avail of concessional rates of tax, or the production or non-production of the same would have direct impact on the very character of the
sale and the liability of such transaction of the sale under the Central Sales Tax Act or under the State Act, or will make the sale outside the reach
of assessment by the authorities under the above Acts in this case.
The challenge, broadly stated, is based on the alleged violation of Articles 14 and 19(1)(g) of the Constitution of India. Though in one or the
other of the affidavits, the ground urged is that the provision under challenge is ultra vires entry 54 of List II of the Seventh Schedule to the
Constitution of India, all the learned counsel who argued, have not projected any such claim and on the other hand, there was a tacit concession
that the legislative competency to enact Sub-section (3) of Section 12 as amended by the Tamil Nadu Act No. 25 of 1993 is not being pressed
and instead, the different learned counsel who argued and those who adopted such submissions of the counsel who argued, confined themselves to
the challenge on various facets of grievances projected vis-a-vis Articles 14 and 19(1)(g) of the Constitution of the India alone.
Mr. C. Natarajan, learned Senior Counsel, supported by Mr. Pramod Kumar Chopda, Mr. Sivanandam and Mr. Ram Gopal spearheaded the
attack, while the other learned counsel individually adopted the submissions of the learned counsel made as above in support of the challenge. So
far as the challenge vis-a-vis Article 19(1)(g) of the Constitution of India is concerned, it is the contention of the learned counsel appearing for the
petitioners that the penal provisions engrafted in Section 12(3) as substituted by Tamil Nadu Act No. 25 of 1993, which had no relation to the
circumstances relating to imposition of tax and really disproportionate to the evil sought to be remedied, cannot be characterised as a mere
provision for penalty and, if enforced, renders the very carrying on of trade or business a peril and an act of distress and, therefore, it is an unjust
and unreasonable restriction on the right to carry on business or trade and opposed also to the basic and essential requirements of the principles of
rule of law and consequently violative of Article 19(1)(g) of the Constitution of India. So far as the challenge based on Article 14 of the
Constitution of India is concerned, the same is projected from several angles. It is claimed that the provision equates dissimilar persons and
different situations, by imposing uniform or same rates or scales or penalty by merely relating it to tax assessed and, therefore, it is violative of
Article 14 of the Constitution of India. The further aspect of challenge that related to the alleged violation of Article 14 of the Constitution of India
is that the impugned provision does not give any discretion to the assessing authorities to exercise quasi-judicial powers under the Act to determine
the quantum of penalty to be levied in individual cases, depending upon the culpability of the assessee or the gravity of the situation, which really led
to the lapse or default or violation and that too without any reference to the wilfulness or otherwise of the assessee concerned by treating all
categories of such persons as falling within the same group and placing them on the same plane. It is also contended that it would be very much
difficult and often it would even be impossible for an assessee to be sure of any claim for exemption or anticipate the fate of any claim made for
exemption depending upon the nature of the transaction and the view that a particular assessing authority or the other authorities under the Act
would take ultimately, inasmuch as what would be the ultimate assessment in a given case could not be within the exact comprehension of the
assessee or his representative. The learned counsel for the petitioners also contend that the expression ""shall"" used in Section 12(3) of the Act
ought to be necessarily construed only as ""may"" and thus viewed, the authorities exercising powers under the Act, particularly, the assessing
authority, shall be left with powers and discretion, where sufficient cause was shown or available, either not to impose penalty or impose a penalty
at the rate of his choice, which need not necessarily conform to the scales in graded form stipulated by the impugned provision. Argued the learned
counsel further, that any provision for penalty, which could be only to prevent any infraction of law, cannot be divorced from the element of
contumaciousness which has necessarily to be attributed to the assessee in a given case before saddling him with any penalty and a provision for
levying penalty by merely calculating the rate or quantum in direct proportion to what the assessing authority may do or refrain from doing at the
time of imposing the penalty on the taxable turnover or the tax to be collected, is per se unreasonable and arbitrary and becomes onerous and
unreasonable and, therefore, violative of Article 14 of the Constitution of India. It is also contended that at times, the exemptions claimed, which
depended on the production of one or the other statutory declarations or forms prescribed, may be ultimately disallowed for the reason that such
declarations or forms are not forthcoming from the other parties to the transaction and it is arbitrary to impose penalties at fixed or standardised
rates, irrespective of even the nature of the lapse or the extent of guilt or for that matter even the lack of any contumacious conduct on the part of
the assessee. The imposition of penalty at different rates depending upon merely the tax difference as assessed as against the tax liability disclosed
and submitted in the return is said to be unreasonable having no relevance or nexus to the object sought to be achieved and the provision operates
inequitably and unjustly in treating both inadvertent omission or genuine claims for exemption by dealers on a par with mala fide or deliberate
omission or vexatious claims default, in the matter of quantum of penalty. The provision, in so far as it accords, both to evaders and non-evaders
the same treatment, is ex facie said to be violative of Article 14 of the Constitution of India and for that reason the provision is stated to suffer the
vice of under-classification. In support of such claim, the learned counsel appearing for the petitioners attempted to illustrate with particular
reference to one or the other cases or instances or postulating hypothetical cases to demonstrate their stand that the provision operates harshly,
unjustly and perpetuates discrimination without justification. It was also contended that the need for the amendment introduced by Tamil Nadu Act
No. 25 of 1993 was not substantiated at all or even urged in any counter-affidavit filed. Finally it has been contended that the element of mens rea
cannot be dispensed with in any provision for levying penalty and that as the provision stands, it is impossible for anyone to comply with the same
to avoid being subjected to penalty and that in effect the levy is an additional tax under the guise of penalty and, therefore, it is merely a colourable
piece of legislation, viewed in the context of Section 15 of the Central Sales Tax Act.
Per contra, Mr. T.R. Rajagopalan, learned Additional Advocate-General, contended that the provision was introduced with the object of
plugging the loss of revenue to the State by penalising a defaulter, so that it would serve as deterrent in the matter of enforcement of a taxation law.
It was also contended for the respondent-State that the impugned provision as introduced by Tamil Nadu Act No. 25 of 1993, removed the mens
rea part of the statutory provision and made default committed simpliciter to be enough for imposing the punishment or levy of penalty and for this
purpose, defaulters are classified as one single category depending upon the degree of default reckoned with reference to the liability for payment
of tax. While traversing the plea of discrimination and the alleged lack of proper classification and the charge of under-classification made on behalf
of the petitioners, the learned Additional Advocate-General contended that all defaulters are treated by the impugned provision as belonging to the
same class of defaulters, the quantum of penalty only varying as per the degree of default fixed with reference to the tax otherwise attempted to be
avoided. While contending that it is not given to a defaulter to dictate to the State as to what should be the rates of penalty, it is submitted for the
respondent-State that there is no equity in taxation and that the classification adopted, treating all defaulters as one category, is not violative of
Article 14 of the Constitution of India and consequently, the grading system adopted under the impugned provision sufficiently ensures proper and
proportionate treatment of the defaulters, keeping in view only the tax liability attempted to have been evaded. Argued the learned Additional
Advocate-General further that in tax or revenue matters, mens rea is not always an essential element in the nature of a condition to fasten liability
upon a defaulter and that, therefore, there are absolutely no merits whatsoever in the grievance expressed by the petitioners and as long as there
was default committed that by itself, is sufficient to warrant the levy of penalty. As for the grievance projected based on the alleged violation of
Article 19(1)(g) of the Constitution of India, it was contended for the respondent-State that the tax legislation was never considered to be a
restriction or violation of rights secured under Article 19(1)(g) of the Constitution of India and, therefore, the challenge has no substance.
The learned counsel appearing for the appellant and writ petitioners invited our attention to several decisions to derive support for some of the
general and well-settled principles of law, all of which we do not consider it necessary to refer to in detail, since the question really before us is the
relevancy of those principles in the context of the challenge made in these writ petitions. In the various decisions so referred to by the learned
counsel, the various courts have taken the view that the taxing statutes are not wholly immune from attack on the ground they violate Article 14 of
the Constitution of India, that a statute otherwise invalid as being unreasonable, is not saved by its being administered in a reasonable manner, that
Legislature cannot be presumed to give ridiculous meaning to words contrary to prevailing conception of justice and reason, that where the plain
literal interpretation of a statutory provision produces a manifestly unjust result, which never has been intended by the Legislature, the court might
modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction, that where a
provision is capable of two constructions, one which is in consonance with the constitutionality of the provision should be preferred and that neither
equals can be treated unequally, nor unequals can be treated equally, but it would be justified, if it is not palpably arbitrary and unreasonable. So
far as the various decisions relied upon for the State are concerned, they are for the proposition urged that the penalty has been held to be leviable,
if the statute so permits, at turnover as finally estimated and it need not be confined to the turnover shown to have been concealed, that the penalty
provisions were intended for the purpose of rendering the evasion of tax unprofitable and for securing to the State compensation or damages
caused by the attempted evasion as against the provision for prosecution, which was for vindicating justice and punish the offender for deliberate
infraction of the law, that the provision of the nature fall within the range of ancillary or incidental powers of the State Legislature under entry 54
read with entry 64 of List II of the Seventh Schedule to the Constitution of India and also do not contravene Article 14 or 19(1)(g) of the
Constitution of India, that the notion that a penalty or punishment cannot be cast in the form of an absolute or no fault liability but must be preceded
by mens rea is not correct, that a penalty imposed by the sales tax authorities for violation of statutory provision was only a civil liability, though
penal in character, that even a provision enabling the imposition and collection of penalty with retrospective effect was not violative of Article 19(1)
(g) of the Constitution of India and that the imposition of penalty under fiscal laws cannot be construed as a punishment as contemplated by the
criminal law and in any event, it is only under the criminal law, mens rea is considered as a guilty intention, but when it is relatable to the tax
delinquency, it is a civil obligation, which implies only ""blame-worthy conduct"". In view of the above, we will refer to only some of those decisions,
which are really appropriate and need reference as being directly relevant.
In the decision reported in [1983] 53 STC 289 (Shiv Dutt Rai Fateh Chand v. Union of India), the apex Court has held as follows (pp. 305-
308 and 310-311) :
It may be true that the circumstances leading to imposition of penalties and the rates of penalties vary from one State to the other but the power to
make a legislative provision on matters relating to penalties is circumscribed by various economic factors and it cannot be said that Parliament has
virtually surrendered its legislative judgment to the State Legislatures. There is a clear legislative policy adopted by Parliament in the case of levy of
penalties and that is that the penalties payable under the Act should be the same as the penalties payable under the general sales tax law of each
State. If the rates of penalties exceed reasonable limits the States which are the beneficiaries of the tax collected under the Act themselves suffer as
such unreasonable levy is bound to lead to the killing of the goose which lays the golden egg. The trade would immediately shift to areas outside the
State which resorts to higher taxes and penalties. The political and economic factors which operate in this field are so powerful that the provisions
with regard to penalties to be made by the State Legislature cannot but be reasonable as they would affect the levy of tax under the State Act also.
The penal nature of the penalties itself is a sufficient guidance regarding maximum limits up to which penalties can be levied. A penalty cannot be
wholly disproportionate to the extent of infringement of law. Moreover Parliament always has the power to amend its own law, i.e., the Act, if it
finds that the provisions relating to penalties in any State law cross the limits of public interest. It is of interest to note here that in the case of M.K.
Papiah and Sons Vs. The Excise Commissioner and Another, ; it was held that the existence of the power to repeal or modify its own law in order
to bring a piece of delegated legislation in accord with its own legislative will should be considered as an effective check on the misuse of legislative
power by the delegate. The power to Parliament to remedy a situation created by the levy of penalties by the general sales tax laws of States not in
consonance with its own pleasure is also an answer to the criticism that Parliament has effaced itself in enacting Sub-section (2A) of Section 9 of
the Act. As long as such power is intact and can be exercised whenever Parliament wishes to take the matter directly into its own hands, there
cannot be a total effacement of the legislative power of Parliament. The above view receives support from the following passage in ''Australian
Constitutional Law'' by Fajgenbaum & Hanks (Second Edition) at page 202 :
''3.009.................. Parliament can delegate to the Crown, or to any servant of the Crown, the power to demand the payment of taxes, including
the power to fix the rate of taxation. A clear illustration is provided by the provisions of the State Transport Facilities Act, 1947 (Qld), and the
State Transport Act, 1960 (Qld), which gave to a Commissioner for Transport very broad powers to licence services for the carriage of
passengers and goods and to fix the amount of licence fee to be paid by every licencee. The validity of these provisions was upheld by the Privy
Council in Cobb & Co. Ltd. v. Kropp (1967) 1 AC 141, rejecting an argument that the Queensland Parliament had no power to abrogate its
taxing power in this way :
In their Lordships'' view the Queensland Legislature were fully warranted in legislating in the terms of the Transport Acts now being considered.
They preserved their own capacity intact and they retained perfect control over the Commissioner for Transport inasmuch as they could at any
time repeal the legislation and withdraw such authority and discretion as they had vested in him. It cannot be asserted that there was a levying of
money by pretence of prerogative without grant of Parliament or without parliamentary warrant.
The Legislature were entitled to use any agent or any subordinate agency or any machinery that they considered appropriate for carrying out the
objects and purposes that they had in mind and which they designated. They were entitled to use the Commissioner for Transport as their
instrument to fix and recover the licence and permit fees : Cobb & Co. Ltd. v. Kropp (1967) 1 AC 141 .''
We feel that even applying the rule in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. Vs. The Asstt. Commissioner of Sales Tax and Others, it cannot
be said that Sub-section (2A) of Section 9 suffers from the vice of excessive delegation of legislative power having regard to the nature of that
provision.
We shall now proceed to consider the question whether by reason of retrospective effect having been given to Sub-section (2A) of Section 9 of
the Act in so far as penalties are concerned by enacting Section 9 of the amending Act Parliament has contravened Article 20(1) of the
Constitution. In order to make good the deficiency in the Act pointed out by the majority judgment in Khemka and Co. (Agencies) Pvt. Ltd. Vs.
State of Maharashtra, the validating provision contained in Section 9 of the amending Act provided in substance that in so far as penalties were
concerned Sub-section (2A) of Section 9 should be deemed to have had effect in relation to the period commencing on January 5, 1957, and
ending with the date immediately preceding the date of commencement of the amending Act. That is obvious from the similarity of the language
between Sub-section (2A) of Section 9 of the Act and Section 9(1) of the amending Act. Section 9(2) of the amending Act also contained the
usual provision validating the levy of penalties completed prior to the commencement of the amending Act and authorising the continuance of the
proceedings for levy of penalties in respect of the period commencing from January 5, 1957. In the instant case it may be noted that in all the
general sales tax laws of the States, there were provisions requiring every dealer to comply with statutory requirements such as the filing of returns,
the payment of the tax due within the specified time, etc., and they were applicable to the dealers under the Act by reason of Section 9(2) of the
Act. Notwithstanding such statutory provisions many dealers failed to perform their statutory duties. They would have been liable to penalties
mentioned in the relevant statutory provisions if the defaults committed by them were those committed under the said statutory provisions. On the
basis of the language of Sub-section (2) of Section 9 of the Act in many States proceedings for levying penalties in accordance with the provisions
relating to penalties in their respective general sales tax laws were commenced against such defaulters under the Act and in some cases
proceedings were completed and penalties were also recovered. Some High Courts also took the view that such penalties were validly leviable.
But ultimately this Court by a majority of three to two held in Khemka and Co. (Agencies) Pvt. Ltd. Vs. State of Maharashtra, that since there was
no express provision in the Act permitting the levy of such penalties, the proceedings relating to the determination and recovery of penalties were
not valid. The amending Act was, therefore, passed expressly to make the levy of penalties as per the general sales tax laws in force in the States
permissible with retrospective effect and also to validate all such previous proceedings. Article 20 of the Constitution reads thus :
''20. (1) No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an
offence nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the
offence.
(2) No person shall be prosecuted and punished for the same offence more than once.
(3) No person accused of any offence shall be compelled to be a witness against himself.''
The contention of the petitioners is that any act or omission which is considered to be a default under the Act for which penalty is leviable is an
offence, that such act or omission was not an offence and no penalty was payable under the law in force at the time when it was committed and
hence they cannot be punished by the levy of penalty under a law which is given retrospective effect. They principally rely on Article 20(1) in
support of their case. Article 20(1) is modelled on the basis of Section 9(3) of Article 1 of the Constitution of the Unites States of America which
reads : ''No bill of attainder or ex post facto law shall be passed.'' This clause has been understood in the United States of America as being
applicable only to legislation concerning crimes : see Calder v. Bull (1978) 3 Dall 386. The expression ''offence'' is not defined in the Constitution.
Article 467 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning
assigned in the General Clauses Act, 1897, may be given. Section 3(38) of the General Clauses Act defines ''offence'' as any Act or omission
made punishable by any law for the time being in force. The marginal note of our Article 20 is ''protection in respect of conviction for offences''.
The presence of the words ''conviction'' and ''offences'', in the marginal note ''convicted of an offence'', ''the Act charged as an offence'' and
''commission of offence'' in Clause (1) of Article 20, ''prosecuted and punished'' in Clause (2) of Article 20 and ''accused of an offence'' and
''compelled to be a witness against himself in Clause (3) of Article 20 clearly suggests that Article 20 relates to the constitutional protection given to
persons who are charged with a crime before a criminal court : see H.M. Seervai, Constitutional Law of India (3rd Edition), Vol. 1, page 759. The
word ''penalty'' is a word of wide significance. Sometimes it means recovery of an amount as a penal measure even in a civil proceeding. An
exaction which is not of compensatory character is also termed as a penalty even though it is not being recovered pursuant to an order finding the
person concerned guilty of a crime. In Article 20(1) the expression ''penalty'' is used in the narrow sense as meaning a payment which has to be
made or a deprivation of liberty which has to be suffered as a consequence of a finding that the person accused of a crime is guilty of the charge.
..................
After giving an anxious consideration to the points urged before us, we feel that the word ''penalty'' used in Article 20(1) cannot be construed as
including a ''penalty'' levied under the sales tax laws by the departmental authorities for violation of statutory provisions. A penalty imposed by the
sales tax authorities is only a civil liability, though penal in character. It may be relevant to notice that Subsection (2A) of Section 9 of the Act
specifically refers to certain acts and omissions which are offences for which a criminal prosecution would lie and the provisions relating to offences
have not been given retrospective effect by Section 9 of the amending Act. The argument based on Article 20(1) of the Constitution is, therefore,
rejected.
The next point to be considered is whether the imposition and collection of penalty with retrospective effect amounts to an imposition of an
unreasonable restriction on the fundamental right of the petitioners to own property and to carry on business guaranteed under Article 19(1)(f) and
(g) of the Constitution. We have already indicated above the circumstances under which it became necessary to levy penalties with retrospective
effect and to validate all the proceedings relating to levy of penalties and recovery thereof. The scope of the power of a Legislature to make a law
validating the levy of a tax or a duty retrospectively was considered by this Court in J.K. Jute Mills Co. Ltd. Vs. The State of Uttar Pradesh and
Another, . The court held that Parliament acting within its legislative field had the power and could by law both prospectively and retrospectively
levy excise duty under the Central Excises and Salt Act, 1944, even where it was established that by reason of the retrospective effect being given
to the law, the assessee were incapable of passing on the excise duty to the buyers.
Reference has been made to Mithu Vs. State of Punjab, at page 479 (para 12) to contend that the gravity of the offence furnishes the guidelines
for punishment and one cannot determine how grave the offence is without having regard to the circumstances in which it was committed, its
motivation and its repercussions and that the Legislature cannot make relevant circumstances irrelevant, deprive the courts of their legitimate
jurisdiction to exercise their discretion not to impose the death sentence in appropriate cases, but compel them to shut their eyes to mitigating
circumstances and imposing a pre-ordained sentence of death. Even at this stage it may be noticed that apart from the fact that such observations
seem to have been made in respect of a criminal offence and that too in the context of the need for imposing the death sentence in any one or the
other cases of murder, there is no rhyme or reason in relying upon such principles in the context of imposition of penalty qua a civil liability.
Reference was also made to the decision reported in M.A. Rahman and Others Vs. The State of Andhra Pradesh, wherein the apex Court has
observed as follows :
(7) The reasonableness of this provision as to cancellation of registration certificate has to be judged in the background of what we have already
said about the purpose of the levy and its liability on the seller. It is true that there are other provisions in the law for realisation of public dues from
those who default in making payments, but generally speaking cancellation of registration in cases like these is one more method of compelling
payment of tax which is due to the State. Collection of revenue is necessary in order that the administration of the State may go on smoothly in the
interest of the general public. The State has therefore armed itself with one more coercive method in order to realise the tax in such cases. It is true
that cancellation of registration may result in a dealer being unable to carry on the business, but the same result may even follow from the
application of other coercive processes for realisation of dues from a trader, for his assets may be sold off to pay the arrears of tax and he may
thereafter be not in a position to carry on the business at all. Therefore, the provision for cancellation of registration for failure to pay the tax or for
fraudulently evading the payment of it is an additional coercive process which is expected to be immediately effective and enables the State to
realise its revenues which are necessary for carrying on the administration in the interest of the general public. The fact that in some cases
restrictions may result in the extinction of the business of a dealer would not by itself make the provision as to cancellation of registration an
unreasonable restriction on the fundamental right guaranteed by Article 19(1)(g). We may in this connection refer to Narendra Kumar and Others
Vs. The Union of India (UOI) and Others, where it was held that :
''The word ""restriction"" in Articles 19(5) and 19(6) of the Constitution includes cases of ""prohibition"" also ; that where a restriction reaches the
stage of total restraint of rights special care has to be taken by the court to see that the test of reasonableness is satisfied by considering the
question in the background of the facts and circumstances under which the order was made, taking into account the nature of the evil that was
sought to be remedied by such law, the ratio of the harm caused to individual citizens by the proposed remedy, the beneficial effect reasonably
expected to result to the general public, and whether the restraint caused by the law was more than was necessary in the interests of the general
public.''
Applying these tests we are of opinion that the cancellation of registration will be justified even though it results in the extinction of business as such
cancellation is in respect of a tax meant for the general revenues of the State to carry on the administration in the interest of the general public."".
In the decision reported in Pooran Mal Vs. The Director of Inspection (Investigation), New Delhi and Others, , the apex Court has held as
follows :
We are, therefore, to see what are the inbuilt safeguards in Section 132 of the Income Tax Act. In the first place, it must be noted that the
power to order search and seizure is vested in the highest officers of the department. Secondly the exercise of this power can only follow a
reasonable belief entertained by such officer that any of the three conditions mentioned in Section 132(1)(a), (b) and (c) exists. In this connection it
may be further pointed out that under Sub-rule (2) of Rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record
his reasons before the authorisation is issued to the officers mentioned in Sub-section (1). Thirdly, the authorisation for the search cannot be in
favour of any officer below the rank of an Income Tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in
Subsection (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized the Income Tax Officer is to
make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how
much will have to be returned forthwith. The object of the enquiry under Sub-section (5) is to reduce the inconvenience to the assessee as much as
possible so that within a reasonable time what is estimated due to the Government may be retained and what should be returned to the assessee
may be immediately returned to him. Even with regard to the books of account and documents seized, their return is guaranteed after a reasonable
time. In the meantime the person from whose custody they are seized is permitted to make copies and take extracts. Sixthly, where money, bullion,
etc., is seized, it can also be immediately returned to the person concerned after he makes appropriate provision for the payment of the estimated
tax dues under Sub-section (5) and, lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure
apply, as far as they may be, to all searches and seizures u/s 132. Rule 112 provides for the actual search and seizure being made after observing
normal decencies of behaviour. The person-in-charge of the premises searched is immediately given a copy of the list of articles seized. One copy
is forwarded to the authorising officer. Provision for the safe custody of the articles after seizure is also made in Rule 112. In our opinion, the
safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as is possible under the circumstances. The
provisions, therefore, relating to search and seizure in Section 132 and Rule 112 cannot be regarded as violative of Articles 19(1)(f) and (g).
In Venkateshwara Theatre Vs. State of Andhra Pradesh and Others, , it has been held as follows (pages 145--148 of STC) :
Article 14 enjoins the State not to deny to any person equality before the law or the equal protection of the laws. The phrase ''equality before
the law'' contains the declaration of equality of the civil rights of all persons within the territories of India. It is a basic principle of republicanism.''
The phrase ''equal protection of laws'' is adopted from the Fourteenth Amendment to the U.S. Constitution. The right conferred by Article 14
postulates that all persons similarly circumstanced shall be treated alike both in privileges conferred and liabilities imposed. Since the State, in
exercise of its governmental power, has, of necessity, to make laws operating differently on different groups of persons within its territory to attain
particular ends in giving effect to its policies, it is recognised that the State must possess the power of distinguishing and classifying persons or
things to be subjected to such laws. It is, however, required that the classification must satisfy two conditions, namely, (i) it is founded on an
intelligible differentia which distinguishes those that are grouped together from others ; and (ii) the differentia must have a rational relation to the
object sought to be achieved by the Act. It is not the requirement that the classification should be scientifically perfect or logically complete.
Classification would be justified if it is not palpably arbitrary. [See : In Re: The Special Courts Bill, 1978, . If there is equality and uniformity within
each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some
included in a class get an advantage over others, so long as they are not singled out for special treatment. (See : Khandige Sham Bhat and Others
Vs. The Agricultural Income Tax Officer, ).
Since in the present case we are dealing with a taxation measure it is necessary to point out that in the field of taxation the decisions of this
Court have permitted the Legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear
and hostile discrimination against particular persons or classes. [See : East India Tobacco Co. Vs. State of Andhra Pradesh, ], P.M.
Ashwathanarayana Setty v. State of Karnataka 1989 Supp (1) SCC 696, Kerala Hotel and Restaurant Association and others Vs. State of
Kerala and others, and Gannon Dunkerley and Co. and Others Vs. State of Rajasthan and Others, .
Reference, in this context, may also be made to the decision of the U.S. Supreme Court in San Antonio Independent School District v.
Rodrigues [1973] 411 US 1, wherein justice Stewart, speaking for the majority has observed :
''No scheme of taxation, whether the tax is imposed on property, income or purchases of goods and services, has yet been devised which is free of
all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose to rigorous a standard of
scrutiny lest all local fiscal schemes become subjects of criticism under the equal protection clause.''
Just as a difference in the treatment of persons similarly situate leads to discrimination, so also discrimination can arise if persons who are
unequals, i.e., differently placed, are treated similarly. In such a case failure on the part of the Legislature to classify the persons who are dissimilar
in separate categories and applying the same law, irrespective of the differences, brings about the same consequence as in a ease where the law
makes a distinction between persons who are similarly placed. A law providing for equal treatment of unequal objects, transactions or persons
would be condemned as discriminatory if there is absence of rational relation to the object intended to be achieved by the law.
In Kunnathat Thathunni Moopil Nair Vs. The State of Kerala and Another, this Court was dealing with a law providing for imposition of
uniform land tax at a flat rate without having regard to the quality of the land or its productive capacity. The law was held to be violative of Article
14 of the Constitution on the ground that lack of classification had created inequality.
The said decision in Kunnathat Thathunni Moopil Nair Vs. The State of Kerala and Another, has been explained by this Court in Jalan Trading
Co. (Private Ltd.) Vs. Mill Mazdoor Union, in the context of challenge to the validity of Section 10 of the Payment of Bonus Act, 1965 providing
for payment of a minimum bonus of 4 per cent by all industrial establishments irrespective of the fact whether they were making profit. This Court
held that the judgment in Kunnathat Thathunni Moopil Nair Vs. The State of Kerala and Another, , has not enunciated any broad proposition that
when persons or objects which are unequals are treated in the same manner and are subjected to the same burden or liability discrimination
inevitably results. It was observed :
''..........It was not said by the court in that case that imposition of uniform liability upon persons, objects or transactions which are unequal must of
necessity lead to discrimination. Ordinarily it may be predicated of unproductive agricultural land that it is incapable of being put to profitable
agricultural use at any time. But that cannot be so predicated of an industrial establishment which has suffered loss in the accounting year, or even
over several years successively. Such an establishment may suffer loss in one year and make profit in another.''(SCR page 35).
It was further observed :
''.........Equal treatment of unequal objects, transactions or persons is not liable to be struck down as discriminatory unless there is simultaneously
absence of a rational relation to the object intended to be achieved by the law.''(SCR page 36).
The limitations of the application of the principle that discrimination would result if unequals are treated as equal, in the field of taxation, have
been pointed out by this Court in The Twyford Tea Co. Ltd. and Another Vs. The State of Kerala and Another, wherein tax at a uniform rate was
imposed on plantations. Hidayatullah, C.J., speaking for the majority, while upholding the tax, has observed :(SCC page 194, para 8).
''.........It may also be conceded that the uniform tax falls more heavily on some plantations than on others because the profits are widely
discrepant. But does that involve a discrimination ? If the answer be in the affirmative hardly any tax direct or indirect would escape the same
censure for taxes touch purses of different lengths and the very uniformity of the tax and its equal treatment would become its undoing. The rich and
the poor pay the same taxes irrespective of their incomes in many instances such as the sales tax and the profession tax, etc.'' (SCR pages 389-
390).
It was further observed :(SCC page 197, para 16); (SCR pages 393-94).
''.............The burden is on a person complaining of discrimination. The burden is proving not possible ""inequality"" but ''hostile ""unequal"" treatment.
This is more so when uniform taxes are levied. It is not proved to us how the different plantations can be said to be ""hostilely or unequally"" treated.
A uniform wheel tax on cars does not take into account the value of the car, the mileage it runs, or in the case of taxis, the profits it makes and the
miles per gallon it delivers. An Ambassador taxi and a Fiat taxi give different out-turns in terms of money and mileage. Cinemas pay the same show
fee. We do not take a doctrinaire view of equality.''
In R.S. Joshi, Sales Tax Officer, Gujarat and Others Vs. Ajit Mills Limited and Another, a larger Bench of seven learned Judges of the apex
Court considered the role of mens rea in an economic offence like the one under consideration and observed as hereunder (pages 507-508) :
..........Even here we may reject the notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability but must be
preceded by mens rea. The classical view that ''no mens rea, no crime'' has long ago been eroded and several laws in India and abroad, especially
regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude
mens rea. Therefore, the contention that Section 37(1) fastens a heavy liability regardless of fault has no force in depriving the forfeiture of the
character of penalty"".
One of the learned Judges, who delivered a separate but a concurring opinion also observed on this aspect as hereunder : (page 528) :
Mr. Kaji next submitted that forfeiture if it is to be penalty would be confined to acts where there is a guilty mind. In other words, he submitted
that the penalty would be confined only to wilful acts of omission and commission in contravention of the provisions of the enactment. This plea
cannot be accepted as penal consequences can be visited on acts which are committed with or without a guilty mind. For proper enforcement of
various provisions of law it is common knowledge that absolute liability is imposed and acts without mens rea are made punishable.
In the decision reported in The Twyford Tea Co. Ltd. and Another Vs. The State of Kerala and Another, , the apex Court observed as
hereunder :
In dealing with this case the arguments have been moulded round the observations in that case. In support of the contention that yield of tea
varies from estate to estate and district to district (of which figures are already quoted in the petition) the Tea Statistics (1967-68) compiled by the
Tea Board of India were also cited. It is hardly necessary to refer to the findings of the Tea Board because it may be assumed without discussion
that there are differences. It may also be conceded that the uniform tax falls more heavily on some plantations than on others because the profit are
widely discrepant. But does that involve a discrimination ? If the answer be in the affirmative hardly any tax direct or indirect would escape the
same censure for taxes touch purses of different lengths and the very uniformity of the tax and its equal treatment would become its undoing. The
rich and the poor pay the same taxes irrespective of their incomes in many instances such as the sales tax and the profession tax, etc. It may be
remembered that in Kunnathat Thathunni Moopil Nair Vs. The State of Kerala and Another, , the majority accepted the observations of S.R. Das,
C.J., in Ram Krishna Dalmia Vs. Shri Justice S.R. Tendolkar and Others, to the following effect :
''A statute may not make any classification of the persons or things for the purpose of applying its provisions but may leave it to the discretion of
the Government to select and classify persons or things to whom its provisions are to apply, In determining the question of the validity or otherwise
of such a statute the court will not strike down the law out of hand only because no classification appears on its face or because a discretion is
given to the Government to make the selection or classification but will go on to examine and ascertain if the statute has laid down any principle or
policy for the guidance the exercise of discretion by the Government in the matter of selection or classification. After such scrutiny the court will
strike down the statute if it does not lay down any principle or policy for the guidance of the exercise of discretion by the Government in the matter
of the selection or classification, on the ground that the statute provides for the delegation of arbitrary and uncontrolled power to the Government
so as to enable it to discriminate between persons or things similarly situate and that, therefore, the discrimination is inherent in the statute itself.
We have always to see what the statute does to make for equality of treatment.''
In the decision reported in (Federation of Hotel & Restaurant Association of India v. Union of India), the apex Court once again held as
follows :
A taxing statute is not, per se, a restriction of the freedom under Article 19(1)(g). The policy of a tax, in its effectuation, might, of course, bring in
some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and
reflects the highest common-factor. Every cause, it is said, has its martyrs. Then again, the mere excessiveness of a tax or even the circumstances
that its imposition might tend towards the diminution of the earnings or profits of the persons of the incidence does not, per se, and without more,
constitute violation of the rights under Article 19(1)(g). Fazal Ali, J., though in a different context, in Km. Sonia Bhatia Vs. State of U.P. and
Others, observed :(SCC page 600, para 29).
''......The Act seems to implement one of the most important constitutional directives contained in Part IV of the Constitution of India. If in this
process a few individuals suffer severe hardship that cannot be helped, for individual interests must yield to the larger interests of the community or
the country as indeed every noble cause claims its martyr.''
In S. Kodar Vs. State of Kerala, , it has been held as follows :
As regards the second contention that the provisions of the Act are violative of the fundamental rights of the appellants under Articles 19(1)(f) and
19(1)(g), as the tax is upon the sale of goods and is not shown to be confiscatory, it cannot be said that the provisions of the Act impose any
unreasonable restrictions upon the appellants'' right to carry on trade. It is, no doubt, true that every tax imposes some restriction upon the right to
carry on a business ; but it would not follow that the imposition of the tax in question is an unreasonable restriction upon the appellants''
fundamental right to carry on trade. Generally speaking, the amount or rate of a tax is a matter exclusively within the legislative judgment and as
long as a tax retains its avowed character and does not confiscate property to the State under the guise of a tax, its reasonableness is outside
judicial ken.
..................
As we said, the additional tax is a tax upon sales of goods and not upon the income of a dealer and so long as it is not made out that the tax is
confiscatory, it is not possible to accept the contention that because the dealer is disabled from passing on the incidence of tax to the purchaser, the
provisions of the Act impose an unreasonable restriction upon the fundamental rights of the appellants under Article 19(1)(g) or 19(1)(f).
In State of Andhra Pradesh and others, etc. Vs. McDowell and Co. and others, etc., , the Supreme Court once again held as follows :
Sri Rohinton Nariman submitted that inasmuch as a large number of persons falling within the exempted categories are allowed to consume
intoxicating liquors in the State of Andhra Pradesh, the total prohibition of manufacture and production of these liquors is ''arbitrary'' and the
amending Act is liable to be struck down on this ground alone. Support for this proposition is sought from a judgment of this Court in State of
Tamil Nadu and Others Vs. Ananthi Ammal and Others, . Before, however, we refer to the holding in the said decision, it would be appropriate to
remind ourselves of certain basic propositions in this behalf, In the United Kingdom, the Parliament is Supreme. There are no limitations upon the
power of the Parliament. No court in the United Kingdom can strike down an Act made by the Parliament on any ground. As against this, the
United States of America has a Federal Constitution where the power of the Congress and the State Legislatures to make laws is limited in two
ways, viz., the division of legislative powers between the States and the Federal Government and the fundamental rights (bill of rights) incorporated
in the Constitution. In India, the position is similar to the United States of America. The power of the Parliament or for that matter, the State
Legislatures is restricted in two ways. A law made by the Parliament or the Legislature can be struck down by courts on two grounds and two
grounds alone, viz., (1) lack of legislative competence and (2) violation of any of the fundamental rights guaranteed in Part II of the Constitution or
of any other constitutional provision. There is no third ground. We do not wish to enter into a discussion of the concepts of procedural
unreasonableness and substantive unreasonableness--concepts inspired by the decisions of United States Supreme Court. Even in U.S.A. these
concepts and in particular the concept of substantive due process have proved to be of unending controversy, the latest thinking tending towards a
severe curtailment of this ground (substantive due process). The main criticism against the ground of substantive due process being that it seeks to
set up the courts as arbiters of the wisdom of the Legislature in enacting the particular piece of legislation. It is enough for us to say that by
whatever name it is characterised, the ground of invalidation must fall within the four corners of the two grounds mentioned above. In other words,
say, if an enactment is challenged as violative of Article 14, it can be struck down only if it is found that it is violative of the equality clause/equal
protection clause enshrined therein. Similarly, if an enactment is challenged as violative of any of the fundamental rights guaranteed by Clauses (a)
to (g) of Article 19(1), it can be struck down only if it is found not saved by any of the Clauses (2) to (6) of Article 19 and so on. No enactment
can be struck down by just saying, that it is arbitrary or unreasonable. Some or other constitutional infirmity has to be found before invalidating an
Act. An enactment cannot be struck down on the ground that court thinks it unjustified. The Parliament and the Legislatures, composed as they are
of the representatives of the people, are supposed to know and be aware of the needs of the people and what is good and bad for them. The court
cannot sit in judgment over their wisdom. In this connection, it should be remembered that even in the case of administrative action, the scope of
judicial review is limited to three grounds, viz., (i) unreasonableness, which can more appropriately be called irrationality, (ii) illegality and (iii)
procedural impropriety [see Council of Civil Services Union v. Minister for the Civil Services (1985) AC 374, which decision has been accepted
by this Court as well. The applicability of doctrine of proportionality even in Administrative Law sphere is yet a debatable issue. (See the opinions
of Lords Lowry and Ackner in R. v. Secretary of State for the Home Department Ex parte Brind, (1991) AC 696. It would be rather odd if an
enactment were to be struck down by applying the said principle when its applicability even in administrative law sphere is not fully and finally
settled. It is one thing to say that a restriction imposed upon a fundamental right can be struck down if it is disproportionate, excessive or
unreasonable and quite another thing to say that the court can strike down enactment if it thinks it unreasonable, unnecessary or unwarranted.
Now, coming to the decision in Ananthi Ammal AIR 1995 SCW 355, we are of the opinion that it does not lay down a different proposition. It
was an appeal from the decision of the Madras High Court striking down the Tamil Nadu Acquisition of Land for Harijan Welfare Schemes Act,
1978 as violative of Articles 14, 19 and 300-A of the Constitution. On a review of the provisions of the Act, this Court found that it provided a
procedure which was substantially unfair to the owners of the land as compared to the procedure prescribed by the Land Acquisition Act, insofar
as Section 11 of the Act provided for payment of compensation in instalments if it exceeded rupees two thousand. After noticing the several
features of the Act including the one mentioned above, this Court observed :
An expression used widely and rather indiscriminately-- an expression of inherently imprecise import. The extensive use of this expression in India
reminds one of what Franukfurter, J., said in Attil Mac Tiller v. Atlantic Cost-line Ranbroad Company (1942) 87 LED 610. ""The phrase begins
life as a literary expression, its felicity leads to its lazy repetition and repetition soon establishes it as a legal formula, un-discriminatingly used to
express different and sometimes contradictory ideas,"" said the learned judge.
''7. When a statute is impugned under Article 14 what the court has to decide is whether the statute is so arbitrary or unreasonable that it must be
struck down. At best, a statute upon a similar subject which derives its authority from another source can be referred to, if its provisions have been
held to be reasonable or have stood the test of time, only for the purpose of indicating what may be said to be reasonable in the context. We
proceed to examine the provisions of the said Act upon this basis.''
In Calcutta Jute Manufacturing Co. and another Vs. Commercial Tax Officer and others, , the apex Court has held as follows :
The State is empowered by the Legislature to raise revenue through the mode prescribed in the Act so the State should not be the sufferer on
account of the delay caused by the tax-payer in payment of the tax due. The provision for charging interest would have been introduced in order to
compensate the State (or the Revenue) for the loss occasioned due to delay in paying the tax [vide Commissioner of Income Tax, Andhra Pradesh
Vs. M. Chandra Sekhar, and Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, . When interpreting such a provision
in a taxing statute a construction which would preserve the purpose of the provision must be adopted. It is well-settled that in interpreting a taxing
statute normally, there is no scope for consideration of principles of equity. It was so said by Rowlatt, J., in Cape Brandy Syndicate v.
Commissioners of Inland Revenue (1921) 1 KB 64 :
''In a taxing statutes one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no
presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.''
The above observation has been quoted with approval by a Bench of three Judges of this Court in Commissioner of Income Tax, Madras Vs.
Ajax Products Ltd. through its Liquidator, . In another decision rendered by a Bench of three Judges of this Court in The State of Tamil Nadu Vs.
M.K. Kandaswami and Others, it has been observed thus :
''In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be
eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would
render it otiose or sterile.''
In Khazan Chand and Others Vs. State of Jammu and Kashmir and Others, the apex Court once again held as follows (page 224 of STC) :
The second part of the challenge under Article 14 was with respect to the rates at which interest is payable under Sub-section (2) of Section 8 on
the amount of tax paid after the expiry of the prescribed date of payment. It is true that the rate of two per cent per month and particularly the rate
of three per cent per month can be said to be on the high side, but we fail to see how this would render the provisions of that sub-section void or
unconstitutional. Providing for payment of interest in case of delayed payment of tax is a method usually adopted in fiscal legislation to ensure that
the amount of tax which is due is paid by the prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing
statute. It is for the State to provide by what means payment of tax is to be enforced and a person who does not pay the amount of tax lawfully
and admittedly due by him can hardly complain of the measures adopted by the State to compel him to pay such amount. It neither lies in the
defaulter''s mouth to protest against the rate of interest charged to him nor is it open to him to dictate to the State the methods which it should
adopt for recovering the amount of tax due by him. In this connection, it is pertinent to note that u/s 10-B of the Act, where as a result of an order
made in appeal or revision, a refund has become due to the dealer or any other person on account of tax or penalty found to have been paid in
excess, the State Government is required to pay to such dealer or person simple interest at the rate of 12 per cent per annum on the amount of
such refund from the date such payment was made up to the date on which such refund was granted and in case of delay in refunding the excess
amount, interest at the rate of 24 per cent per annum if the refund is granted beyond a period of three months but before the expiry of six months
from the date of the appellate or revisional order and at the rate of 36 per cent per annum if it is granted thereafter. Thus, under the Act, the same
rates of interest apply both to the dealer who has made default in payment of tax due by him and to the State Government in case of default made
by it in making payment of the amount of tax or penalty which has become refundable as a result of an appellate or revisional order. The graduated
rates of interest provided by Subsection (2) of Section 8 cannot, therefore, be characterised as arbitrary or unreasonable.
We have carefully considered the submissions of the learned counsel appearing on either side. In our view, the challenge to Section 12(3) of
the Tamil Nadu General Sales Tax Act as incorporated by the amendment introduced by Tamil Nadu Act No. 25 of 1993 on the ground that it is
violative of Article 19(1)(g) of the Constitution of India has no merit whatsoever. It has been often held that a taxing statute is not per se a
restriction of the freedom guaranteed under Article 19(1)(g) of the Constitution of India and merely because the Legislature imposes a tax or
provides for levy of penalty as part of the enforcement machinery, so as to sound a warning and serve as a deterrent and thereby prevent tax
evasion, if at all such levy may have the consequence of diminution of the percentage of profits or the earnings out of the business. But, unless it is
positively demonstrated that the very business is put an end to or liquidated by any such levy of tax or penalty, there is hardly any scope for
pleading violation of Article 19(1)(g) of the Constitution of India. Under the impugned provision, the quantum of penalty is envisaged to be levied
with reference to the tax attempted to be evaded as ultimately determined by the competent authority and as long as the assessment in respect of
the attempted evasion is quantified and finalised, the levy of penalty as an inevitable consequence thereof, can by no stretch of imagination be
branded as a measure otherwise confiscatory in nature. When the Legislature in its wisdom and as a consequence of past experience has chosen to
make the levy of penalty, essentially as an inevitable consequence of an attempted evasion, the court will not normally sit in judgment over the need
or necessity for such a levy. The impugned provision serves not only as an effective deterrent to curb evasion of tax, once and for all, but also
prevent any dealer from succeeding in postponing the levy and recovery of the tax legitimately due to the State and thereby have undue advantage
and use of the revenue otherwise payable to the State and to that extent deprive the State of the legitimate user of the receipts for its ever so many
schemes in public interest and hence the levy contemplated u/s 12(3) has to be viewed at any rate as a just and reasonable restriction only on the
fundamental rights secured under Article 19(1)(g) of the Constitution of India. From the mere fact that the levy of penalty has been ordained
compulsorily with every class or category of evasion, it cannot be claimed to be unreasonable on that account only. The levy of tax and the
incidental levy of penalty being always considered to be an independent power of the State to raise revenue, there is no such fundamental right as
to claim any immunity from taxation. So long as a dealer cannot claim immunity from taxation as such, no grievance could equally be made about
the measure of penalty in order to effectively enforce the taxing provisions and curb evasion of tax due to the State. Consequently, -in our view, the
alleged violation of Article 19(1)(g) of the Constitution of India has no merit whatsoever and is hereby rejected.
The learned counsel appearing for the petitioners have tried to substantiate their grievance about the unreasonable and allegedly discriminatory
impact of the penalty levied u/s 12(3) of the Act and in that process, attempted to impress upon us by pointing out instances of the cases of some
of the individual assessees that the levy is not made to be commensurate to the quantum of turnover or size of the business, but on the difference of
the tax assessed and tax-paid as per return or in the case of non-submission of return on the tax assessed by final assessment, We have carefully
considered these aspects. But, in our view, the grievance cannot be said to be legally sustainable. The question as to the manner in which the
penalty has to be devised or the measure as well as the basis of such penalty has to be fixed to make it more effective and useful to curb evasion of
tax is always a matter of policy and it is for the Legislature to scheme things in this regard out of the experience gained in the enforcement of the
provisions of the Act and it is not for the dealer, who was found to have been in default, or a violator to dictate as to what should be the rate or
basis of penalty or how it should be levied or even for the courts to adjudicate upon the wisdom of the same or the need for such levy. So far as
the rates of penalty stipulated under the impugned provision are concerned, they are, in our view, found to be not only reasonable, but have been
also purported to be levied, admeasured with the yardstick of the difference between the tax assessed and paid on the returns or totally attempted
to be evaded, but finally assessed. Such measure of penalty cannot be considered to have been proclaimed on any extraneous or irrelevant
consideration, which normally should weigh in the matter of levy of penalty. The attempt to demonstrate discrimination by enumerating illustrations
of assessees, who, though were found to have suppressed substantial turnover, but made to suffer the levy of penalty for lesser amount, in our
view, has no reason, rhyme or logic. There is no compelling reason that the levy of penalty, as an anti-avoidance measure, has to be only with
reference to the turnover sought to have been suppressed. So far as the State is concerned, the loss has to be, and in our view could be,
legitimately measured with reference to the tax sought to have been or attempted to have been evaded and the graded scales of penalty fixed with
reference to such tax attempted to be evaded is not only permissible for the Legislature to enact as a matter of policy, but the same, in our view, is
found to be just and reasonable and we do not really find any hostile discrimination or arbitrariness or unreasonableness in the same as vaguely
claimed for the petitioners on mere hypothetical basis. It is not the case of the petitioners that any discrimination is meted out to any dealer in the
matter of levy of penalty vis-a-vis the very standard adopted for measuring the quantum by having recourse to the tax ultimately sought to be
evaded. As long as the provisions under challenge do not make any such discrimination, either in the provisions as they stand or in their
implementation, there is hardly any scope for a legitimate grievance being made on the ground of such provisions being unreasonable or arbitrary.
Hence, this grievance of the petitioners also cannot be countenanced in our hands.
Grievances also have been sought to be made out referring to illustrations of cases, that in similar cases where the tax liability evaded is also the
same, the quantum of penalty varies and differs. We find from such illustrations that such variation is not without sufficient basis. Even though in a
given case or more than one case, the quantum of turnover suppressed or the tax sought to be avoided also, at times, may be one and the same, if
the particular assessee, at the time of final assessment, found to have otherwise paid any amount already before such final assessment, sufficient to
go to reduce the tax liability ultimately determined, the imposition of penalty to that extent is reduced. This again, in our view, proceeds upon an
intelligible differentia or reasonable basis of classification that the State has not ultimately lost its legitimate due and it had the benefit of the same, in
some form or other, from the assessee concerned and, therefore, it was not necessary to once-over-again penalise him. This itself shows that the
Legislature has taken meticulous care to see that there is no unnecessary hardship caused to the assessee and instead of such instances being
vitiating circumstances, they serve, in our view to substantiate and strengthen the plea of reasonableness of the rates of levy taken for the State.
Yet another grievance is made on the alleged discriminatory impact resulting on account of the application of the provisions contained in
Section 12(3)(b)(i-a) and 12(3)(b)(v) of the Tamil Nadu General Sales Tax Act. A cursory perusal even of the respective and relevant provisions
themselves will disclose the required basis and the need for such differential treatment. Whereas Section 12(3)(b)(i-a) provides for the levy of fifty
per cent of the difference of the tax assessed and the tax paid as per return, if the tax paid as per the return falls short of the tax assessed on final
assessment by more than five per cent but not more than fifteen per cent, Section 12(3)(b)(v) deals with a case where one hundred and fifty per
cent of the difference of the tax assessed and the tax paid as per the return, if the tax paid as per the return, falls short of the tax assessed on the
final assessment by more than seventy-five per cent. In substance, a defaulter and evader falling within the range of six per cent to fifteen per cent
and one falling within the category of more than seventy-five per cent is dealt with differently depending upon and commensurate with the drastic
nature of the evasion or attempted evasion determined with reference to the extent of evasion, attempted. A careful reading of the various limbs of
Section 12(3) of the Tamil Nadu General Sales Tax Act would itself demonstrate, as indicated earlier, the meticulous care taken by the Legislature,
in its wisdom to deal with different grades or cases of violation of tax in a different manner to ensure uniformity in the proportion of penalty
imposed and make it commensurate with the magnitude of attempted evasion or evasion of the tax liability. Consequently, the various grievances
highlighted in the matter of implementation and enforcement of the provision, seem to be more hypothetical and imaginary, based on conjectures
and assumptions, than the realities or the reasonableness of the situation and without any regard to the reasonableness of the scheme and the
rationale underlying the impugned provisions.
Great amount of fuss has been made by everyone of the counsel who projected the challenge successively by contending that the provision as
incorporated by Tamil Nadu Act No. 25 of 1993 does not leave any discretion with the assessing authority exercising quasi-judicial powers to
independently and objectively assess the guilt and thereby impose a penalty commensurate with the guilt of the dealer concerned. It was also
contended for the petitioners that a penal provision like the one under consideration and its enforceability must be inevitably linked with the guilty
mind of the dealer concerned and it is not that every lapse or default, irrespective of even the bona fides involved in the same, could be rendered
punishable with the levy of penalty. In substance, the gravamen of the attack was that the element of mens rea could not be totally eliminated from
consideration in the matter of levy of penalty u/s 12(3) of the Tamil Nadu General Sales Tax Act and having regard to the earlier decisions of this
Court as also the apex Court, which declare that the element of mens rea also should be taken into account in the matter of fixing the liability for
penalty notwithstanding the scheme underlying Section 12(3) of the Act as introduced by Tamil Nadu Act No. 25 of 1993, the assessing
authorities must be held to still possess the power to go into the culpability or otherwise of the dealer or take into account the element of mens rea
before either deciding to levy penalty or in arriving at the quantum of penalty to be levied in an individual case. The submissions on behalf of the
petitioners in this regard cannot be countenanced in view of the decision reported in Shiv Dutt Rai Fateh Chand and Others Vs. Union of India
(UOI) and Another, wherein it has been held in unmistakable terms that a penalty imposed by the sales tax authority is only civil liability, though
penal in character. The apex Court had an occasion to deal with this issue analytically, in the context of the scheme underlying the laws relating to
economic violation in the decision reported in Director of Enforcement Vs. M/s. MCTM. Corporation Pvt. Ltd. and others, . It would be useful
and apposite to quote extensively, the masterly analysis undertaken by Dr. Justice A.S. Anand to avoid sacrificing the originality of the propositions
laid down from the said decision, as follows :
''Mens red'' is a state of mind, Under the criminal law, mens rea is considered as the ''guilty intention'' and unless it is found that the ''accused''
had the guilty intention to commit the ''crime'' he cannot be held ''guilty'' of committing the crime. An ''offence'' under Criminal Procedure Code and
the General Clauses Act, 1897 is defined as any act or omission ''made punishable by any law for the time being in force''. The proceedings u/s
23(1)(a) FERA, 1947 are ''adjudicatory'' in nature and character and are not ''criminal proceedings''. The officers of the Enforcement Directorate
and other administrative authorities are expressly empowered by the Act to ''adjudicate'' only. Indeed they have to act ''judicially'' and follow the
rules of natural justice to the extent applicable but, they are not ''judges'' of the ''criminal courts'' trying an ''accused'' for commission of an offence,
as understood in the general context. They perform quasi-judicial functions and do not act as ''courts'' but only as ''administrators'' and
''adjudicators''. In the proceedings before them, they do not try ''an accused'' for commission of ''any crime'' (not merely an offence) but determine
the liability of the contravenor of the breach of his ''obligations'' imposed under the Act. They imposed ''penalty'' for the breach of the ''civil
obligations'' laid down under the Act and not impose any ''sentence'' for the commission of an offence. The expression ''penalty'' is a word of wide
significance. Sometime, it means recovery of an amount as a penal measure even in civil proceedings. An exaction which is not compensatory in
character is also termed as a ''penalty''. When penalty is imposed by an adjudicating officer, it is done so in ''adjudicatory proceedings'' and not by
way of fine as a results of ''prosecution'' of an ''accused'' for commission of an ''offence'' in a criminal Court. Therefore, merely because ''penalty''
clause exists in Section 23(1)(a), the nature of the proceedings under that section is not changed from ''adjudicatory'' to ''criminal'' prosecution. An
order made by an adjudicating authority under the Act is not that of conviction but of determination of the breach of the civil obligation by the
offender.
It is true the breach of a ''civil obligation'' which attracts ''penalty'' u/s 23(1)(a) FERA, 1947 and a finding that the delinquent has contravened
the provisions of Section 10 FERA, 1947 would immediately attract the levy of ''penalty'' u/s 23, irrespective of the fact whether the contravention
was made by the defaulter with any ''guilty intention'' or not. Therefore, unlike in a criminal case, where it is essential for the ''prosecution'' to
establish that the ''accused'' had the necessary guilty intention or in other words the requisite ''mens rea'' to commit the alleged offence with which
he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement in cases of contravention of the
provisions of Section 10 of IERA, would be discharged where it is shown that the ''blameworthy conduct'' of the delinquent had been established
by wilful contravention by him of the provisions of Section 10, FERA, 1947. It is the delinquency of the defaulter itself which establishes his
''blameworthy'' conduct, attracting the provisions of Section 23(1)(a) of FERA, 1947 without any further proof of the existence of ""mens rea"".
Even after an adjudication by the authorities and levy of penalty u/s 23(1)(a) of FERA, 1947, the defaulter can still be tried and punished for the
commission of an offence under the penal law, where the act of the defaulter also amounts to an offence the penal law and the bar under Article
20(2) of the Constitution of India in such a case would not be attracted. The failure to pay the penalty by itself attracts ''prosecution'' u/s 23F and
on conviction by the ''court'' for the said offence imprisonment may follow.
9..............................................
The court then laid down various tests for determining when a Tribunal can be considered to be a judicial Tribunal and after referring to a
catena of authorities, relevant provisions of the Sea Customs Act, 1878 and the nature of the adjudicatory proceedings as contained in that Act,
opined that an adjudicatory authority functioning under the Act was merely an administrative machinery of the purpose of adjudging confiscation,
determination of duty or the increased rate of duty and for imposition of penalty as prescribed under the Act and not a judicial Tribunal. The court
opined Maqbool Hussain Vs. The State of Bombay, :
''We are of the opinion that the Sea Customs Authorities are not a judicial Tribunal and the adjudging of confiscation, increased rate of duty or
penalty under the provisions of the Sea Customs Act do not constitute a judgment or order of a court or judicial Tribunal necessary for the
purpose of supporting a plea of double jeopardy.
It therefore follows that when the customs authorities confiscated the gold in question neither the proceedings taken before the Sea Customs
Authorities constituted a prosecution of the appellant nor did the order of confiscation constitute a punishment inflicted by a court or judicial
Tribunal on the appellant. The appellant could not be said by reason of these proceedings before the Sea Customs Authorities to have been
prosecuted and punished"" for the same offence with which he was charged before the Chief Presidency Magistrate, Bombay in the complaint
which was filed against him u/s 23, Foreign Exchange Regulation Act.''
The Constitution Bench then laid down that though the administrative authorities functioning under the Sea Customs Act had the jurisdiction to
confiscate gold, illegally brought into the country, and levy penalty on the defaulter, none the less the authorities were not trying a criminal case but
deciding only the effect of a breach of the obligations by the defaulter under the Act. On a parity of reasoning, what holds true for the adjudicatory
machinery under the Sea Customs Act holds equally true for the administrative or adjudicatory machinery, designed to adjudge the breach of a civil
statutory obligation and provide penalty for the said breach, under the FERA, 1947, whether the breach was occasioned by any guilt intention or
not is irrelevant.
In ''Corpus Juris Secundum'' volume 85, at page 580, paragraph 1023, it is stated thus :
''A penalty imposed for a tax delinquency is a civil obligation remedial and coercive in its nature and is far different from the penalty for a crime or a
fine or forfeiture provided as punishment for the violation of criminal laws.''
We are in agreement with the aforesaid view and in our opinion, what applies to ''tax delinquency'' equally holds good for the ''blameworthy''
conduct for contravention of the provisions of FERA, 1947. We, therefore, hold that mens rea (as is understood in criminal law) is not an essential
ingredient for holding a delinquent liable to pay penalty u/s 23(1) of FERA, 1947 for contravention of the provisions of Section 10 of FERA, 1947
and that penalty is attracted u/s 23(1)(a) as soon as contravention of the statutory obligation contemplated by Section 10(1)(a) is established. The
High Court apparently fell in error in treating the ''blameworthy conduct'' under the Act as equivalent to the commission of a ''criminal offence'',
overlooking the position that the ''blameworthy conduct'' in the adjudicatory proceedings is established by proof only of the breach of a civil
obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed u/s 23(1)(a) of the Act irrespective
of the fact whether he committed the breach with or without any guilty intention. Our answer to the first question formulated by us above is,
therefore in the negatives.
The principles laid down in the latest pronouncement of the apex Court noticed above, would squarely apply on all fours to the case on hand
and consequently, we are unable to accept the plea on behalf of the petitioners that the element of mens rea is either always inter-related or an
essential condition precedent to the levy of civil penalty in a taxation statute for violating a civil obligation, or that it cannot be dispensed with or
excluded from consideration in the matter of levy of civil penalty in a taxation statute. The grievance in this regard, therefore, has no merit
whatsoever.
For all the reasons stated above, the writ appeal as also all the writ petitions fails and shall stand dismissed. No costs. All the pending
miscellaneous petitions are, consequently, disposed of.