By TIOL News Service

ALLAHABAD, FEB 20, 2019: THE ISSUE BEFORE THE LARGER BENCH IS - Whether mere failure to carry Transit Declaration Form, will not ipso facto attract penalty, unless the person charged of the wrong doing is unable to lead evidence to rebut the presumption of intra State sale. YES IS THE VERDICT.

Facts of the case:

The present reference had been made to the Larger Bench, noticing divergence of opinion between judgements of two Co-ordinate Benches in M/s Prakash Transport Corporation Vs. CCT, 2013 UPTC 1456 and M/s S.B. International Gularbhoj Vs. The Commissioner, Commercial Tax, Lucknow 2013 UPTC 1144.

In case of M/s Prakash Transport Corporation, a vehicle carrying the goods was seized by the mobile squad of the commercial tax department of the State on account of non-production of transit declaration form. In response to show cause notice, the noticee produced a TDF downloaded from the official website of Department. The authorities however, refused to place reliance upon the same, as according to them, the TDF should have been carried by the driver alongwith him. Since he failed to carry the same, consequently, it was presumed u/s 52 of U.P. VAT Act r/w Rule 58 that the goods were meant for sale within the State. Resultantly, a seizure order exercising power u/s 48/50/51 r/w Rule 58 was passed. When the matter reached High Court, the Single Judge deciding the validity of the seizure order held that the authorities had no power to seize the goods for non-production of TDF, though the same may attract penal consequences. In this Case, the Court decided the matter in reference to an identical circular dated July 30, 2009 issued by the Commissioner, Commercial Tax U.P. and held that there was no provision under the Act which empowers the authorities to seize the goods in default of production of TDF, albeit it could be made a ground for imposing penalty. In taking such a view, the Court also held that in the present era of globalization, checking of vehicles or goods during transport results in hindrance in trade and commerce though it may be necessary to check evasion. The Court also took into consideration the practical aspect that drivers/vehicle owners were mostly illiterate persons and were not amply equipped to download the TDF.

Similarly, in case of M/s S.B. International also, the driver of the vehicle failed to produce TDF at the time vehicle was intercepted by the authorities. Here also, it was treated to be a violation of the mandatory provisions of Section 52 r/w Rule 58. In response to show cause notice, the vehicle owner produced the TDF generated two days after the interception of the vehicle. As in case of M/s Prakash Transport, the authorities did not accept the same but treated the non-production of TDF at the time of interception as a violation of the mandatory provisions of Section 52 r/w Rule 58 and directed for seizure of the goods. However, in this case, the seizure order was given a seal of approval by this Court. The Court also held that there was no dispute that the provisions of the Act requiring TDF to accompany the driver/vehicle owner was mandatory, consequently, TDF generated two days after the goods were intercepted would be of no consequence and accordingly, the seizure of the goods was held to be valid.

HC Larger Bench held,

++ the basic issue which falls for consideration in the present reference is, whether in the absence of TDF form being produced by the driver/owner, the authorities are justified in drawing a conclusion that sale had taken place within the State and there was an effort to evade the tax liability inviting seizure and penalty provisions. Section 28-B of the U.P. Sales Tax Act, which was subject matter of challenge in Sodi Transport case, contained a similar rule of evidence by providing that driver or other person in charge of the vehicle coming from outside the State shall obtain transit pass from the first check-post and surrender the same at the time of exit from the State, 'failing which it shall be presumed' that the goods carried thereby have been sold within the State. The Supreme Court in this case held that it only raises a rebuttable presumption. The authority before levying the tax has to arrive at a conclusion by a judicial process that the goods have been sold inside the State and in doing so, it may where the presumption contained under the Act and the Rules had not been successfully rebutted, be justified in imposing tax and penalty by treating the sale to have taken place within the State. This pronouncement by the Apex Court, clinches the issue and does not leave room for any further discussion. Section 54 of the U.P VAT Act stipulates that "Where the driver or person in charge of the vehicle, as the case may be, (i) fails to carry documents referred to in Section 52 and also fails to prove that goods carried in his vehicle are meant for delivery to dealers or person outside the State, he is liable to a penalty specified therein, in addition to the tax, if any, payable by him. The liability to pay penalty arises not merely for failure to carry documents referred to in Section 52, but when the driver or person in charge of the vehicle also fails to prove that goods carried in his vehicle are meant for delivery to dealers or persons outside the State. It is beyond any pale of doubt that failure to carry documents including TDF ipso facto does not attract penalty but only when the person charged of the wrong doing is unable to lead evidence to rebut the presumption;

++ a plain reading of Rule 6(7) would show that driver or person in charge of a vehicle even if carrying documents referred in Section 52 (Rule 58), is found not to carry such goods outside the State, he would be subjected to assessment and penal proceedings. Thus, the material event for imposition of tax or penalty is not failure to carry the documents referred in Section 52, but failure to prove that goods were meant for delivery to dealer or person outside the State. There is not much dispute between the parties that the presumption contained u/s 52 and Rule 58 is rebuttable and it is open to the person against whom the rule of presumption is applied to lead evidence and prove that the sale had not taken place nor is intended to take place within the State. The more contentious issue between the parties is whether the authorities could seize goods for the mere fact that the driver was not carrying TDF during transit of goods through the State. According to the Revenue's counsel, as soon as a vehicle is intercepted without the driver carrying the prescribed documents including TDF, a presumption arises that the consignment was meant for sale within the State, and the authorities get invested with the power to seize goods in exercise of power u/s 50(4) of the VAT Act. On the other hand, according to the assessee's counsel, since the presumption is rebuttable, therefore, there is no power of seizure, though it may attract penalty. Alternatively, even if power of seizure would be exercised at the stage of detention of goods during transit, the presumption is rebuttable. If in response to show cause notice issued u/s 50(4), it is proved by cogent evidence that the sale is not meant to take place within the State, the authorities do not have power to seize the goods;

++ the provision of Section 50 provides that any person importing goods into the State by road could do it after obtaining a declaration in prescribed form. The declaration could be obtained from the AO having jurisdiction over the area, where his principal place of business is situated or, in case there is no such place, where he ordinarily resides. The provision also facilitates, in the alternative, downloading of the declaration form from the official website of the department. Sub-section (3) of Section 50 invests the authority with the power to stop the vehicle, keep it stationary for so long as may be necessary, search the vehicle and inspect the goods and all documents referred to in the preceding sections and compel the driver or person in charge of the vehicle to give his name and address and the names and addresses of the owners of the vehicles and of the consignor and consignee of the goods. Sub-section (4) confers power upon the officer making the search or inspection to seize the goods after giving him opportunity of hearing if he finds that a person is transporting or attempting to transport any goods to which the section applies without being covered by the proper and genuine documents referred to in the preceding sections. As already noted, where a vehicle coming from any place outside the State and bound for any other place outside the State is found not to carry the documents prescribed u/s 52 and Rule 58 by the Commissioner it is assumed that the goods carried thereby are meant for sale within the State by the owner or person in charge of the vehicle. This would invest the authorities with the power to invoke Section 50, drawing an inference that the goods are meant for sale within the State. Once again, the officer inspecting the goods in transit is invested with the power to seize goods, if he finds that the documents in respect of the consignment is false, bogus, incorrect, incomplete or invalid. These powers are wide enough to empower the officer making search of goods in transit to seize the goods where TDF is not being carried by the driver or the owner of the vehicle. It would be a case where incomplete or invalid documents are carried during transit;

++ it is noteworthy that the provisions of seizure of goods both in respect of a dealer as well as a driver or a person in charge of a vehicle, are not in themselves penal or confiscatory in nature but to secure the interest of the revenue in case ultimately penalty is levied on such person. The same is clear from Section 48(7) which restricts the power of the officer seizing the goods to demand an amount not exceeding such amount as would be sufficient to cover the penalty likely to be imposed and on deposit whereof in cash, the goods so seized are to be released in favour of the person concerned. Before the goods are seized, as provided u/s 50(4), the person concerned has to be given an opportunity of hearing. A similar hearing is also stipulated under Rule 55(2)(b). The order of seizure could only be passed if the concerned officer is satisfied after giving opportunity of hearing that goods were being so transported in an attempt to evade assessment or payment of tax due or likely to be due under the Act. Likewise, under Rule 55(2) the officer concerned is empowered to inspect the documents and records relating to goods carried and if on such examination, the officer finds or has reason to believe that any such documents in respect of any consignment is false, bogus, incorrect, incomplete or invalid, the officer shall issue notice to the driver or person in charge of vehicle or vessel why the goods should not be seized. At this stage, it is apposite to note the penalty provision, i.e. Section 54, which again embodies the principles of natural justice by conferring right in favour of the person concerned to a reasonable opportunity of hearing before penalty is imposed in addition to tax, if any. The penalty could only be imposed if the driver or person in charge of the vehicle, though found not carrying the documents referred in Section 52, fails to prove that the goods carried in his vehicle are meant for delivery to dealers or persons outside the State. Once the scheme of the Act reveals that the seizure is not automatic but a result of quasi judicial process where decision is taken consistent with the principles of natural justice after recording satisfaction regarding infraction of the provisions of the Act or an attempt to evade payment of tax, it follows as a necessary corollary that the presumption contained under Section 52 and Rule 58 would also be rebuttable at such stage, otherwise providing hearing would be an empty formality and eyewash;

++ hence, the observations made in M/s Prakash Transport Corporation that good cannot be seized for non-production of TDF was confined to the facts of that case, but cannot be approved as laying down any general principle of law. Again, the observations made in M/s S.B. International were based more on concession of the parties than laying down any law of general application. Thus, none of the these judgments lay down any general proposition of law to be treated as a precedent and therefore, no question of conflict arises between the two judgments. Further, the provision relating to carrying of TDF is a machinery provision. The production of TDF during transit is mandatory in the sense that it thereby denudes the authorities of their power to draw presumption under Section 52/Rule 58. Absence of the same does not mandatorily lead to the conclusion that goods are meant for sale within the State. It only gives rise to a rebuttable presumption.

(See 2019-TIOL-394-HC-ALL-VAT-LB)