In Re: State of Assam and Others

The Saradha Group, a chit-fund company, had been indulging in large scale malpractices of defrauding subscribers! The Supreme Court in WP(C) 401/2013 (Subrata Chattoraj v. Union of India and others) and 413/2013 (Alok Jena v. Union of India and others) passed order directing Central Bureau of Investigation (CBI) to conduct an investigation into the affairs of the Saradha Group. In the said case it was brought to the notice of the Supreme Court that the chit-fund companies operating in the states of Orissa, Tripura and Assam also had been indulging in large scale malpractices of defrauding subscribers. The Supreme Court directed that the affairs of the chit-fund companies indulged in similar fraudulent activities in the states of Assam and Tripura also should be investigated by the CBI.

In para 23 of the above-said order the Supreme Court has made the following observation.

"There is yet another dimension of the scam which cannot be neglected. That the ponzi companies operated across State borders is evident not only from the pleadings on record but also from the submissions urged in the course of the arguments before us. What is significant is that these companies and such other similar companies indulged in similar fraudulent activities in the State of Assam and Tripura also apart from Orissa where the depositors have suffered. Looking to the nature of the scam and its inter-State ramifications, cases registered in the State of Tripura have since been transferred to the CBI for investigation at the request of the State Government. A similar request has been made by the Government of Assam which has, according to Mr. Siddharth Luthra, learned Additional Solicitor General, been accepted by the Central Government who is shortly issuing notification under which cases concerning the scam registered in the State of Assam shall stand transferred to the CBI".

It is evident in the observation that the counsel who appeared for the state of Assam has submitted to the Supreme Court that the CBI to investigate the affairs of the chit-fund companies operating in the state of Assam. The Additional Solicitor-General(AS-G) has accepted the offer on behalf of the Central government and undertook to issue notification shortly by which cases concerning the scam registered in the state of Assam would stand transferred to CBI and would be investigated by the Central investigating agency. In this regard Sri P.N. Choudhury, the senior retainer-counsel of the CBI, submitted that at the time when the submission was made before the Supreme Court there were only fifteen cases in the state of Assam sent by the government for investigation, of which notification had been issued in respect of four cases: however in respect of 221 cases which are now registered in the state, it would not be possible for the CBI to investigate because of constraint in human resources. It is therefore submitted that a taskforce be constituted to investigate the cases which are not taken up by the CBI for investigation. It is said that a special taskforce headed by former head of the anticorruption wing of the Guwahati chapter of CBI Sri H.N. Nath, who is now Inspector-General in the Special Branch of the Assam Police, can be constituted for effective investigation.

Sri Anirban Guha-Thakurata appearing for the Jeevan Suraksha (JS) group of companies submitted that the Supreme Court directed the CBI to investigate cases registered against the Saradha Group because of their multi-state ramifications and of involvement of politically-influential persons and in respect of JS no such peculiar circumstances are evident. It is submitted that the bank accounts of the group have been freezed; however the company is prepared to refund deposits to subscribers. The investigation is already completed by the CID and five cases have been registered against the directors of the company, therefore the question of investigation of the cases by the CBI ''at this stage'' does not arise.

The counsel appearing for Rangdhalee Real Estate Consultants and Developers (RRECD) (respondent 4 in WP(C) 1120/2014) submitted that RRECD is not a financial institution, only a real estate company: it has returned the money to subscribers. Charge-sheet is also filed against the directors ''only one of them had been in jail for seven months'' of the company. Since the investigation is completed and charge-sheets have been filed, the question of investigation by the CBI does not arise.

The Advocate-General (A-G) gave a list of chit-fund companies - and in how many cases against them investigation pending, charge-sheeted, finally-reported, amalgamated, initiated, etc - indulged in malpractices of defrauding subscribers in the state of Assam, which is extracted below for convenient reference.

Company wise Break-up of cases relating to NBFCs

It appears that as many as 481 cases have been registered against a total of 221 companies mentioned in the list.

The submission of the counsels for the respondents that a CBI-investigation is not necessary and that a special taskforce be constituted to investigate the chit-fund cases appears to be untenable - so much so the contention of the counsels appearing for JS and RRECD that since charge-sheets have already been filed the question of investigation by the CBI does not arise also appears to be tenable.

In view of the undertaking given by the state of Assam before the Supreme Court that the cases registered in the state will be investigated by the CBI and the acceptance of the offer by the AS-G on behalf of the Central government that the Union government will issue notification by which cases concerning the chit-fund scam registered in the state of Assam shall stand transferred to CBI and the Central Bureau of Investigation is directed to investigate the cases concerning the chit-fund scam registered in the state of Assam against the companies shown in the list (supra) given by the A-G. The CBI is also at liberty to conduct further investigation in terms of section 173(8) of the Criminal Procedure Code in the cases where charge-sheets have already been filed.

The writ petitions are disposed of in the light of above direction.

(sic) petitioner is a transporters'' organisation. The goods coming from other states and bound for other north-eastern states have to pass through Assam. The entry check-posts in Assam are insisting production of the documents as contemplated in section 75(3) of the Assam Value Added Tax Act, 2003 (A.V.A.T. Act). Rule 41(9)(iv)(a) of the Assam Value Added Tax Rules (AVAT Rules), 2005 declares that at every entry check-post, invoice, consignment-note manifesto of the transporter and the statutory documents of the importing state, if the goods are taxable in that state, transit pass of other relevant states and an application for transit pass have to be produced.

It is the contention of the petitioner that the insistence of statutory documents of the importing states as envisaged in Rule 41(9)(iv)(a) A.V.A.T. Rules is contrary to the provisions of section 76 of the A.V.A.T. Act.

It is submitted by the counsel for the petitioner Sri K.N. Choudhury, Sr. Advocate that section 76 is an exhaustive provision that incorporates all the checks and balances to prevent evasion of tax in the state of Assam in the event the goods are not really intended to be transported to other states and surreptitiously later sold in Assam. There is a provision in section 76 that after the issuance of transit pass at the entry check-post if the endorsement of the exit check-post is not produced within thirty days the authorities will have every right to levy penalty and initiate all such necessary processes for recovery of tax, including the penalty. It is therefore submitted that when section 76 does not provide for production of statutory documents of the importing state the insistence on such production by Rule 41(9)(iv)(a) is contrary to the provisions of section 76.

It is further argued that Article 286 of the Constitution of India does not permit levy of tax by the state where the goods are transported for the purpose of carrying to other states. Article 301 of the Constitution of India declares that the inter-state commerce is free to all the territories of India. In the present provision (Rule 41(9)(iv)(a)) which insists on statutory documents of the importing state the albeit insisting security or the payment of tax in advance in the form of demand draft or bank guarantee is the violation of constitutional provisions and contrary to the provisions of section 76 of the A.V.A.T. Act.

The counsel further submits that the insistence on statutory documents was never invoked in the state of Assam where the Assam General Sales Tax Act was in operation. The provision if any in the state was in "desuetude" in the light of the decision of the Supreme Court in Municipal Corporation for City of Pune and another Vs. Bharat Forge Co. Ltd. and others, AIR 1996 SC 2856 : (1995) 3 JT 312 : (1995) 2 SCALE 245 : (1995) 3 SCC 434(1) : (1995) 2 SCR 716 . It is argued that when a provision of a statute is in desuetude it is not permissible to give effect to such desuetude provision at a belated length of time, therefore it is submitted that the insistence of statutory documents ''alternatively the bank guarantee, or the payment of tax in advance by demand draft'' is illegal, hence prayed for grant of interim order.

Per contra, Sri N. Dutta, the senior counsel, submitted that the provision of section 75 of the A.V.A.T. Act envisaged production of necessary documents at the entry check-post for their verification whether it was a bona fide inter-state transport passing through the state of Assam. In that regard Rule 41 of the AVAT Rules envisaged production of the statutory documents of the importing states.

It is said that with the advent of Internet in all the states the access to the statutory documents online is available. The dealer who is importing goods would have to inform the tax authorities and such information is available online, therefore there is no difficulty for a genuine transporter whose goods are in transit and passing through the state of Assam for producing statutory document.

The argument that the provision for production of statutory documents was never informed and was in desuetude is also stoutly contested. The counsel relied on the judgment of the Supreme Court in Monnet Ispat and Energy Ltd. Vs. Union of India (UOI) and Others, (2012) 7 JT 50 : (2012) 11 SCC 1 . In para 201 and 202 of the said judgment the Supreme Court laid down that the doctrine of desuetude cannot be invoked merely because the provision was not enforced for a period of thirty years is not a ground to invoke the doctrine of desuetude.

Para 201 and 202 of the judgment in Monnet Ispat (supra) is quoted herein below for ready reference.

"201. From the above, the essentials of doctrine of desuetude may be summarized as follows:

(i) The doctrine of desuetude denotes principle of quasi repeal but this doctrine is ordinarily seen with disfavour.

ii) Although doctrine of desuetude has been made applicable in India on few occasions but for its applicability, two factors, namely, (i) that the statute or legislation has not been in operation for very considerable period and (ii) the contrary practice has been followed over a period of time must be clearly satisfied. Both ingredients are essential and want of anyone of them would not attract the doctrine of desuetude. In other words, a mere neglect of a statute or legislation over a period of time is not sufficient but it must be firmly established that not only the statute or legislation was completely neglected but also the practice contrary to such statute or legislation has been followed for a considerable long period.

Whether doctrine of desuetude attracted in respect of 1962 and 1969 Notifications

Insofar as 1962 and 1969 Notifications are concerned, I am of the view that doctrine of desuetude is not attracted for more than one reason. In the first place, the Notifications are of 1962 and 1969 and non-implementation of such Notifications for 30-35 years is not that long a period which may satisfy the first requirement of the doctrine of desuetude, namely, that the statute or legislation has not been in operation for a very considerable period. Moreover, State of Jharkhand came into existence on November 15, 2000 and it can hardly be said that 1962 and 1969 Notifications remained neglected by the State Government for a very considerable period. As a matter of fact, in 2006, the State Government issued a Notification mentioning therein about the reservation made by 1962 and 1969 Notifications. Thus, the first ingredient necessary for invocation of doctrine of desuetude is not satisfied. Secondly, and more importantly, even if it is assumed in favour of the appellants that 1962 and 1969 Notifications remained in disuse for a considerable period having not been implemented for more than 30-35 years, the second necessary ingredient that a practice contrary to the above Notifications has been followed for a considerable long period and such contrary practice has been firmly established is totally absent. As a matter of fact, except stray grant of mining lease for a very small portion of the reserved area to one or two parties there is nothing to suggest much less establish the contrary usage or contrary practice that the reservation made in the two Notifications has been given a complete go by".

It is said that the provisions of section 76 do provide for collection of tax, levy or penalty, if the endorsement of the exit check-post is not produced; but, however as a preventive measure, Rule 41(9)(iv)(a) envisaged production of the statutory documents, which are available online.

With reference to the statistical data it is said that around one thousand vehicles come through the entry check-posts daily - which may come to Assam or go to other states. For the past fifteen days around 15,000 trucks would have passed through the entry check-posts. Around 250-300 trucks are stranded daily for want of statutory documents from the importing states. When others are complying there should be no good reason for the petitioners to seek exemption. In this regard Sri K.N. Choudhury insisted that the department should file an affidavit to corroborate the said statement.

Keeping in view the above submission we find that at this stage there is serious challenge to the validity of Rule 41 of the Assam Value Added Tax Rules, 2005, which insists production of the statutory documents of the importing states. There is always a presumption about the validity of the statute unless it is rebutted. At this stage after hearing on the interim prayer we do not find any prima facie material to hold Rule 41 of the Assam Value Added Tax Rules, 2005 ultra vires the Assam Value Added Tax Act, 2003 and the Constitution of India. The contention that the insistence on security or payment of advance tax by way of demand draft is a tax-collection-in-disguise violates Article 286 of the Constitution of India is not a tenable argument. Demand drafts are insisted only as a security to ensure that there is no misuse and violation of the provisions of the A.V.A.T. Act, in Assam. If a transporter is able to produce the endorsement of the exit check-post within one month, he would be entitled to refund. There is no hardship. The amounts would be refunded. Therefore it does not amount to collection of tax per se; it is only a preventive measure against the misuse. In that view of the matter we are not inclined to grant interim order at this stage. Accordingly the interim prayer is rejected.