KHEMKA &CO v. STATE OF MAHARASHTRA

Appeal by Special Leave from the Jt:dgmcnt •and Order dat;:d the 22nd February 1968 of the Bombay High Court in Sales Tax Reference No. 36 of 1967 and Civil Appeal No. 2118 of 1970 from the Jud1!lncnt and ord~r dated the 18th March, 1970 of Vfysorc High Co~rt in Writ Petition No. 345 of 1970. S. T. Desai, P. G. Blwrwri and K. J. John, for the api; cllant (In C.A. 2089/69). :'vi, Veerappa, f?r the appellant (in C.A. 2118170). ' I c Sai; tosh Chatter, jee and G. S. Chatterjee for the Applicant/Inter vener (State of West Bengal). L. N. Sinha, Solicitor General, M. N. Shro.fj for Intervener D (L'nion of India in C.A.2089 /69). L. N. Sinha, Solicitor General, M. G. Bha11dare and M. N. Shroff for respondent (C.A. No. 2089/69). The Judgment of A. N. Ray, C.J. and H. R. Khanna, .T. was delivered by Ray, CJ. K. K. Mathew, J. gave a dissenting opinion E on behalf of himself and Y. V. Chandrachud, J., M. H. Beg, J. gave a separate Opinion. RAY, C.J.+-These appeals raise the question as to whether the asscssees under tile Central Sales. Tax Act, 1956 hereinafter referred to <ls the Central Act could be made liable for penalty under the pro- visions of the State Sales Tax Act hereinafter referred to as the State Act. The peJrnlty imposed under the State Act is for default in pay ment of taxes within the prescribed time. F The states section Central Act payable 9(1) the Central Act effected by him in the course of inter-.state trade or commerce shall be levied by the Government of India and the G tax so levied shall be collected by that Government in accordance with the provis:ons of sub-section (2) in the State from which the move ment of gqods_commmced. dealer Section 9(2) of the Central Act is as follows :- "Subject to the other provisions of this Act and the Rules m<.de thereunder, the authorities for the time being empower ed to assess, re-assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State H A B c D E F G H KHEMKA & co., v. MAHARASHTRA (Ray, C.J.' 759 shall, on beh•alf of the Government of India, assess,· re-assess, collect an\! enforce payment of tax, including any penaliy, payable by a dealer under this Act as if the tax or penalty pay able by such a dealer under this Act is a tax or pen•alty pay able U'i1der the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax l'aw of the State; and the provisions of such law, including provisions relating to re turns, provisiu1aal assessment, advance payment of tax. re gisfration of the transferee of any business, imposition of the tax liability of r. person carrying on business on the· tmns feree of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, re covery of tax from third parfas, appeals, reviews, revisions, references, refunds, rebates, penalties, componding of offences and treatment.of documents furnished a dealer as confiden tial shall apply accordingly. Provided that if in any State or part thereof there is no go1eral sales tax Jaw in force, the Central Government, may, by rules made in this behaif make necessary provision for all or any of the matters specified in this sub-section.'' Section 6 of the Central Act provides for liability to tax on inter state sales. Section 8 of the Central Act provides for rates of on sales in the course of inter-State trade or commerce. Section 9 of the Ceiatral Act provides for collection of tax and penalties. Section 10 of the Central Act provides penalties. The various grour, ds for penalties are fully enumerated there. Section lOA (1) of the Central Act provides for imposition of penalty in lieu of prosecu- tion. · The contention on behalf of the assessee is that there is no provision i•,1 the Central Act for imposition of penalty for delay or default payment of tax, and, therefore, imposition of penalty under the provi sions of the State Act for del'ay or default in payment of tax is illegal. The rival contention on behalf of the Revenue is that the provision for penalty for default in payment of tax as enacted h1 the State Act is upplicable to the payment and collection of the tax under the Central Act and is incidental to 'llnd part of the process of such payment and collection. The Solicitor-General on behalf of the Reve'.me placed reliance on th<.: decisions in K. V. Adinarayana Setty v. Commercial Tax Officer, Kolar Circle, Kolar 14 S.T.C. 587; Commissioner of Sales Tax, Madhya Pradesh, Indore v. Kantilal Mohan/al & Brothers 19 S.T.C. 377; M/s H. Jf. Esufali H. M. Abdulali v. Commissioner of Sales Tax M.P. l ndore 24 S.T.C. 1; and Auto Pins (India) v. The State of Haryana & Ors. 26 S.T.C. 466 in support of his contntion. The contentions of the Solicit::>r General are these : Section 9 ( 1) ·of the Central Act speaks of tax. That section does aot mention penalty. 760 SUPREME COURT REPORTS (19751 3 s.c.R. Tax will include collection and enforcement of payme,1t. The words "tax and penalty payable by a dealer under this Act" indicate that the . word~ "under this Act" in the Central Act relate only to a dealer. Section 9 (2) of the Central Act is a provision prescribing the procedure 'The words. for assessing, collecting and enforcing payment :>f tax. "collect and enforce payment of tax, including any penalty" in Sec:tion 9(2) of the Central Act ir1clude not only penalties imposed py the Central Act but also penalties under the State Act. The words "as if the tax or peaalty payable by such •a dealer under this Act is a tax or penalty payable under the general sales tax law of the State" indicate that tax or penalty is imposed by the Central Act and by incorporating the State Act as a 'Part of thP. Central Act the$abi!ity to pay tax is enforced by penalty for delay or default in payment of tax. The Solicitor-General further submitted a.s follows : The latter part of section 9(2) of the Central Act, viz., "for this purpose they may exercise all or any of the powers they have under the ge,1eral sales tax law of the State; •and4the provisions of such law ........ shall apply accordingly" shows that the enforcement provisions in the State Act for delay or default in payment of tax are adopted by the Central Act for working out the provisions relating to assessment, re-assessment, col lection and e;,1Eorcement of tax or penalties. Penalty is a sanction for If the assessee does not pay and if there is no provi non-payment. sion for imposition penalty, there will be no sanction for enforcement of payment The purpose for which the State Act is incorporated in the Ce,1tral Act is, int::.r alia, enforcing payment of tax which inc:ludes In short, just as penalty for deloay and default in payment of tax. penalty is imposed for non-payment of tax under the State Act that provision is attracted for delay or default, in payment of tax under the Cenrtal Act. ' On behalf of the assessee it was said that the provisions. contained i11 section 9 ( 2) of the Central Act mean that only if tax as well as penalty is payatle by a dealer under the Central Act then there can be coHection and enforcement of tax and penalty in the same mal1'ner as provided i11 sales tax law of the State. Second, the Central Act must lrave a substantive provision to wammt imposition of penalty. The provision in a. State Act regarding penalty for default in payment cannot be applied when there is no substantive provision relating to levy or penalty in the Central Act in respect of that default. Third, se:ctim 9(2) of the Central Act is procedural and only deals with utilisation of existing m.:ichinery in State Jaw. The: State authorities are empowered to exercise powers under the general sales tax law of the State to assess, re-assess, collect and enforce payment of tax and penalty payable under the Central Act. Just as tax payable under the Central Act can be collected and enforced similarly, only penalty payabie under the Central Act can be collected and enforced. Counsel on behalf of the assessees relied on the decisions in B. H. Shah & Co. v .. The State of Madras 20 S.T.C. 146; The State of Madras v. M. Angappa_ Chettiar and Sons 22 S.T.C. 226; Guldas Narasappa Thimaiaiah Oil'Mills v. Commercial Tax Officer, Raichur 25 S:.T.C. A B c D E F G H KHEMKA & CO. v. MAHARASHTRA (Ray, C.J.) 761 A B c D E F 489; and Hurdatroy Jute Mills Private Ltd. Katihar & Ors. v. Superin tendent of Commercial Taxes, Purnea & Ors. 30 S.T.C. 151 in support of the proposition that the substantive law for penalty under the State Act is not incorporated in the Central Act. Section 9(2) of the Central Act first provides that the authorities empowered to assess, re-assess, collect and enforce payment of any rax under the general sales tax law of the appropriate State sha:ll, on behalf of the Government of Lldia, assess, re-assess and enforce payment of rax including any penalty payable by a dealer under the Central Act. The State Sales Tax authorities are thus created agents of the Govern ment of India. The second important part in section 9(2) of the Cent ral i\ct is that the State authorities shall assess, re-assess, collect and enforce payment of tax including any pe.rnlty payable by the dealer un der the Central Act as if the tax or penalty payable by such a dealer under the Central Act is a tax or penalty payable under the general sales tax law of the State. This part of the section sets out the scope of work of the State agencies. The words "assess, re-assess, collect and enforce payment of tax including any penalty payable by dealer under this Act" mean that the tax as well •as pe<a!!lty is payable only under the Central Act. To suggest that the words "under this Act" qualify dealer will be unsound for two reasons. First, section 2 (b) of the Central Act defines a dealer. A dealer is not defined as dealer under the Central Act If the words but as one who carries on business of buying a•ad selling. "under this Act" were to relate only to dealer then the words "under this Act" would have to be scored out in relation to the words "tax· including any penalty payable". The result would be that the words "payable by a dealer" in the context of the words "as if the tax or pe1mlty payable by such a dealer under this Act" would be rootless. It is only tax as well as pe<.1alty payable by a dealer under the Cent ral Act which can be assessed, re-as.sessed, collected and enforced regard to payment. The words "as if the tax or penalty payable by such a dealer under the Central Act is a tax or penalty payable under the general sales tax law of the State" have origin and root in the words "payment of tax including any penalty payable by llealer under the Central Act." Just as tax under the State Act cannot be P'ayable and collected and enforced, similarly penalty under the State Act cannot be assessed, collected and enforced. G The words "and for this purpose they may exercise all or any of the powers they have U'ader the general safos tax law of the State" in section 9(2) of the Central Act are important. The words "and for this purpose" relate to "assess, re-assess, collect and enforce payment of tax including any penalty payable by dealer under this Act." . In that context; the last limb of section 9 ( 2) of the Central Act viz. "and the provisions of such law ........ shall apply accordi,1gly" mean that . the provisions of the State Act are applicable for the purpose of assess- H ment, re-assessment, collection aad enforcement of payment of tax including pen•alty payable under the Central Act. The words of the last part of section 9(2) viz. "shall apply accordingly" relate clearly 762 SUPREME COURT REPORTS (19751 3 s.c.R. to the words "1nd for this purpose" with the result that the provisicrn or the StatG Act shall apply only for the purpose of assessment, re assessment, collection and enforcement. The doctrine of efusdem ~;e11eris shows ;hat the genus in section 9 ( 2) of the Central Act is "for In other words, the genus is assessment, re-assessment, this purpose". coflection and enforcement of payment. The genus is appliC'able in regJrd to the procedure for assessment, re-as'icssment, collection and r.nfc1cement of payment. The genus is from whom to collect and ~.~:ii:ist whom to en1forcc. It is apparent that the extent of liability f,~r tax as w1~ll as penalty is not attracted by the doctrine of ejusd,·m .~Ci!':'.' i.1 in th'~ application of the provisions of the State A~t in regard tn :.s,;~ssment, re:assessment, collection and enforcement of payment of !.::x incllding any penalty payable under the Central Act. • A B c The deeming provision in the Central Act that the tax as well as penalty levied under the Central Act will be deemed as if payable under the general sales tax law of the State carmot possibly me~m that tax or penalty imposed under any State Act will be deemed to be tax or prnalty payable under the Central Act. The entire authority of the State machim, ry is that "for this purpose" meaning thereby the pur- D pose of assessing, re-assessing, collecting and e'aforcing payment of tax including any penalty payable under the Central Act, they, meaning ,the State agencies, may exercise powers under the general sales toax law of the State. The words "for this purpose" cannot have the:.effeet of enlarging the content of tax and the content of penalty payable u1.1- der the Central Act. Liability to pay tax as well as liability to pay penalty is created by the Central Act. One of the reasons why tax E as w.:11 as penalty is the substantive provision in the Central Act and is not incorporat~d by reference to the State Act is illustrated by the history of section 9 ( 2) of the Central Act. The present section 9 ( 2) of the Central Act was formerly section 9 (3) of the Central Act. The .Madras High Court in D. H. Shah & Co.'s case pointed out that the imposition of penalty under sectibn 12(3) of the Madras Act, 1959 could not be attracted for levy of penalty. The Madras High Court F gave the reason that then sectio•a 9(3) of the Central Act only adopted the procedure of the State Act for asses~ment, re-assessment, collection and enforcement of tax as well as penalty pay.able under the Central Act. The Madras High Court in Angoppa Chettiar & Sons case ('supra) gave the. correct reason that the power to C'.)!lcct penalty under the G then· section 9 ( 3) of the Central Act would cover only the penalty payable under the Central Act and would not include a power to im- pose penalty for a contravention or omission for which the Central Act did· Mt contain a provision. In that case, the Madras Genera:l Sales Tax Act, 1939 which was i•acorpomted by reference by section 9 ( 3) of the Central Act as' it then stood did not contain a provision for levv of a penalty. Subsequently, section 16(2) of the Madras Generlil H Sales Tax Ac:t 1959 provided for levy of penalty for failure to disclose a relevant turnover. The conclusion which the Madras High Court KHEMKA & CO. v. MAHARASHTRA (Ray, C.J.) 763 A B c D E F G H arrived at was that provisions of then section 9(3) of the Central Act could \.lot be applied for levy of a penalty under section 16(2) of the .\Iadras Act. The Mysore High Court in Guldas Narasappa Thimmaiah Oil Mills case (supra) which is the present appeal pointed out that the provisions contained in section 13 ( 1) and (2) of the State Act in re gard to penalty for default in making payriJ.ent could not he applicable because a comparable provision was not to be found in the Cc<,1tral .:\ct. The Mysore High Court correctly pointed out that the words "as if the tax or penalty payable by such dealer under this Act" show that the words "payable by such a dealer under this Act" relate to tax or penalty which is payable only under the Central Act. The Mysore High Court relied on the decision of this Court Swte of Kera/a v. P. P. Joseph & Co. 25 S.T.C. 483 in support of the proposition that the Sl'ate law is applicable only in regard to pro If c<?dure for assessmeat, re-assessment, collection and enforcement. the liability to pay tax is determined by the provisions of the Central Act the liability to pay penalty is also that which is payable under the Central Act. This Court in the Kerala case said that the procedural law prescribed in the general sales tax Jaw of the State applies to the matter of assessment, re-assessment, collection and enforcement of payment of tax 'under the Central Act because the frability to pay tax ls deter-nincd u.1der the Central Act. Similarly, liability to pay penalty is determined with reference to the provisions of the Central Act. This Court in Orissa Cement Limited v. the State of Orissa & An:·. 27 S.T.C. 118 considered whether rebate provided in section 13(8) c-'1' , h~ Orissa Sales Tax Act was available to dealers if they paid the lax mider the Central Act before tlfe due date of payment. It may be stated that at the relevant time of the decision in :the Orissa Cement case (supra) the provisions co1,1tained in the then s.ectioP 9 ( 3) .of the Central Act stated inter a/ia that "the provisions of such Jaw including the provisions relating to returns, appf.!als, reviews, revisiom, referen ces, penalties and compounding of offence~ shall apply accordingly," and the word "rebate" did not occur there. This Court said that rebate for paymt!at of tax within the prescribed time under the State Act was •available to dealers for payment of tax under the Central Act on the reasoning that the power to collect the tax assessed in the same manner as the tax on the sale and purchase of goods under the general sales tax law of the State would include within itself all concessions given under the State Act for paymc.<,1t within the prescribed time. The reason why rebate is allowed and penalty is disallowed is that rebate is a concession whereas penalty is an imposition. The concession does not impose liability but penalty does. It, therefore, stands to reasor. that rebate is included within the procedural part of collection and enforcement of payment. Penalty like impositicia of tax cannot be included within the procedural part. The decision of this Court in C. A. Abraham, Uppoottil. Kottayam v.The Income Tax Officer, Kottayam & Anr. (1961) 2 S.CR. 765 was relied on by the Solicitor General in support of the proposition 1 tha• 764 SUPREME COURT REPORTS ll 97 SJ 3 s.c.R. ';;,tssessment" ;ncludes iability to pay pmalty. The ratio d the dcx·i In Abraham's Lase (supra J sion docs not support the submission. the assessee was subjected to tax for suppressed income and pcn•,1ltics for conceali,1g the income. The question was whether scctil':t .q of the Income Tax Act would attract liability to pay. Sccclon H of the Act sl'atcd that the asscssee would be liublc to asscssmcnr under Chapter IV for the amount of tax payable and all the proYision~; of that Chapter would apply. This Court said that the word "a,sc~'­ ment" had been used in its widest connotation in Chapter 1 V <.:·!· 1h~ Act. It was contended that an order imposing pewalty under section 28 of the Act could not by virtue of section 44 be impl'Secl. This Court held that section 44 of the Act expressly enacted thaJ: the prn . visions of Chapter IV would apply to the assessment of a bt1siness car- ried on by a firm even after discontinuauce of its business. Section 2 S is one of the sei:tia.is in Chapter IV. Section 28 imposed a penalty for the concealment of income or the improper distribution of profits. The defaults made in furnishing a return of the total incom1~, in comp lying with a notice and in concealing the particulars of income were treated as penalties under setion 28. Section 28 w•as held by Court to be a provision euacted for facilitating the proper assessment of taxable income and to apply to >an assessment under Chapter IV. The decision of this Court in Abraham's case (supra) is non-sequiter in regard to the contentions advanced on behalf of the Revenue in the present case. The reason is that in Abraham's case (supra) •assess ment and imposition of penalty is under the same Chapter in the Act. The assessment is under Chapter IV. Penalty is provided in a section uiader Chapter IV. Penalty is arising in course of assessment under the s•ame Act. This Court in Commissioner,, of Income-Tax, Andhra Pradesh v. M/s. Rhikaji Dadabhai & Co. (1961) 3 S.C.R, 923 dealt with the meaning of the word "assessment." The Income-tax Officer found that the assessce's books of accounts were unreliable and he issued a notice under section 40 of the Hyderabad Income-tax Act to show cause why penalty should ~10t be imposed in addition to tax. The State of Hyderabad merged with the Indian Union during the pen dency of the proceedings before the Income Tax Officer. By section 13 of the Finance Act, 1950 the Hyderabad Income Tax Act ceased to have effect from ·1 April, 1950, but the operation of that Act in respect of levy, assessment and collection of income tax and super-tax .in respect of periods prior thereto for which liability lo income-tax could not be imposed under the Indian Income Tax Act was saved by section 13 (1) of the Finance Act. The question was whether Income-tax Officer had power on 31 October, 1951 to impose penalty under section 40 of the Hyderabad Income Tax Act. This Court held that. the power of the Income-tax Officer to impose penalty under section 40 of the Hyderabad ~ct in respect of the year preceding the date of the repeal of the Hyderabad Income-tax Act was not Jost b.ecause section 13 of the Finance Act, 1950 saved its operation. · The proc~edings for imposing penalty could be continued after the enact ment of the Finance Act, 1950. The decision of this Court in Bhikaii Dadabhat& Co's case (supra) shows that penalty is imposed as a sub- stantive liability. ' A B c D E F G H A B c D E KHEMKA & co. v. MAHARASHTRA (Mathew, J.) 765- The Income Tax Act 1961 imposes penalty up.der sections 270 and 271. These sections in the focome Tax Act provide for imposition of penalty on contumacious or fradulent assessees. Penalty is ::!ddition to income tax, if any, determined as payable by the assessee .. · Tax and pell'a!ty like tax and interest are distinct and differeat concepts under the Indian Income Tax Act. The word "assessment" could. co\-cr penalty proceedings if it is used to denote the whole procedure for imposing liability on the tax payer as happened in Abraham's case (supra). Penalty is withi'.1 assessment proceedings just as tax within assessment proceedings when the relevant Act by substantive · charging provision levies tax as well as penalty. Penalty is not merely sanction. It is 11ot merely consequential to assessment. It is not merely adjunct to assess ment. It is not merely' machinery. Penalty is in addition to tax and is a liability under the Act. Reference may be made to section 28 of the Indian Income-tax Act, : 922 where penalty is provided for concealment of income. Penalty is in addition to the amoU'at of income-tax. This Court in Jain Bro thers & Ors. v. Union of India 77 I.T.R. 107 said that penalty is not a continuation of assessment proceedings and that penalty parrakes of the character of additional tax. The Federal Court in Chatturam & Ors. v. Commissioner of Income ta:r, Bihar 15 I.T.R. 302 said that fability does not depetad on assess ment. There must be a charging section to create liability. There mmt be first a liability created by the Act. Second, the Act must pro vide for assessment. Third, the Act must provide for enforcement of the taxing provisions. The mere fact that tRere is machinery :i.sscssment, collection and enforcement of tax and penalty in the St1te Act does not mean that the provision for penalty in the State Act is treated as penalty under the Central Act. The meaning of penalty und~r the Central Act cannot be enlarged by the provisions of machi nery of the State Act incorporated for working out the Central Act. F G H 1nis Court in State of Tamil Nadu v. K. A. Ramudu Chettiar & Co. A.LR. 1973 S.C. 2230 said that the power to enhance assessment which was contained in the Madras Act of 1959 though such power was not available under the 1939 Act would be available in respect of Enhanceme'.1t of assessment is in assessment under the Central Act. the process of assessment. It is a procedural power. The liability to tax is created by the statute. Therefore, when the power to assess is attracted a fortiori enhancement is within the power. For the foregoing reasons we 'are of opinion that the provision in income-tax the State Act imposing penalty impose penalty on within the prescribed time is not attracted dealers under the Central Act in respect of tax and penalty payable under the Central Act. There is no lack of sanction for payment of tax. Any dealer who would not comply with the provisioas for p~y­ ment of tax, would be subjected to recovery proceedings under the Public Demands Recovery Act. A penalty is a statutory liability. The for non-payment of 766 SUPREME COURT REPORTS fl975l 3 s.c.R. Central Act contains specific provisions for penalty. Those are the only provisions for penalty available against the dealers under the Central Act. Each State Sales Tax Act contains provisions for penalties. These provisions in some cases are also for failure to submit return or failure to regis!er. It is rightly said that those provisions cannot apply to dealers under the Central Act because-the Central Act make~. similar provisions. The Central Act is a self contained code which by charg ing section creates !iablity for tax and which by other sections creates a liability for penalty and impose penalty. Section 9(2) of the Cen tral Act create.s the State authorities as agencies to carry out tax and hssessment, reassessment, collection and enforcement of penalty by a dealer under the Act. For these re•asons the appeal of M/s Khemka & Co. is accepted. The answer to the reference by the High Court is discharged. The question is answered in the negative, viz., that the Tribunal was wrong in holding that penalty could be levied under sectia.1 16( 4) of the Bombay Sales Tax Act, 1953. The appeal of the State of Mysore in Civil Appeal No. 2118 of 1970 is dismissed. The appellant will b.: entitled to costs in Civil Appc•al No. 2089 of 1969. fact that in Civil Appeal No. 2118 of 1970 the Higi1 Court made no order as to costs, the parties will pay and bear their own costs. In view of A B c D MATHEW, J. We take up for consideration Civil Appeal No. 2089 of 1969 and the decision there will govern the decision of Civil Appeal No. 2118 (NT) of 1970~ E The questim for consideration in Civil Appeal No. 2089 of 1969 is, whether, upon a correct construction of s.9 of the Central ~)ales Tax Act (hereinafter referred to as the 'Central Act'), it was permissible for the Sales Tax Officer in question to invoke the provisions of s.16 ( 4) of the Bombay Sales Tax Act for imposing penalty for failure by the dealer to pay the sales tax pa)"ablc under the Central Act within the prescribed time. The High Court of Bombay held that the :Sales Tax OfTic,~r had power to impose the penalty under that section and questio,1 in this appeal is whether the High Court was right. Section 9 of the Central Act, in it·; present form, was introduced in 1969 with retrospective effect from the date of the Act. Sub-section (1) provides that the tax payable by any dealer under the Act on sal-::s of goods effected by him in the course of inter-S1ate trade or commerc2 shall be 1 evied by the Government of India and the tax so levied shall be collected by that Government in accorda·ace with the provisions of sub-section (2); and sub-section (2) says : "Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empower ed to assess, !:!-assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of fadia assess, re-assess, F G H A B c D E F c H .KHFMKA & CO. v. MAHARASHTRA (Ray, C.J.) 767 collect and cnforc~ payment of tax, including any penalty, payable by a dealer under this Act as if the tax or penalty payable by ~uch a dealer under this Act is a t•.:ix or penalty p::iyable und'T the general 'ales tax law of the State: and for this purpose they may exercise all or any of the powers they ha-.·c under the £re•.1crnl soalcs tax Jaw of the State; and prnisions l1f such law. including provisions relating to re turns, provisional assessment, advance payment of tax. re g:,tration of the transferee cif any business, imposition of the tax Jiabilit.y of a person carrying on busi•acss on the trans feree of or successor to, such business, tmnsfor of liability of ary firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or petition of such family, re covery of tax from third parties, appeals, reviews, revisions, references, refunds, penalties, compounding of offences a11d treatment of documents furnished by a dealer as confidential shall apply accordingly." · Section 16 of the Bombay Sales Tax Act provides for payment and recovery of tax. Sub-section (1) of the section says that the tax shall ·be paid in the maimer thereinaftcr provided at svch intervals as may be prescribed. Sub-section (2) states that before any registered dealer furnishes the returns, he shall, in the prescribed manner, pay into a Government treasury the full amount of the tax due from him accord~ ing to such returns. Sub-section (3) provides that before any register ed dealer furnishes a revised return wliich shows a greater amount of tax l.o bi;i due than was paynble in accordance with the original re turn, he shall pay into a Government treasury the extra amount of the tax. Sub-section (4) states tlrnt if the tax is not paid by any dealer within the prescribed time, the dealer shall pay, a penalty in addition to the amount of tax and sub-section (6) enables the realization of tax and penalty as an arrear of land revenue. A careful analysis of s. 9(2) of the Central Act would show that the authorities empowered to assess, re-assess, collect and enforce p2.ymcnt of tax payable under the general sales tax Jaw of the arpro priatc State shall assess, re-asseos, collect and enforce payment ·of, tax including any penalties payable by a dealer under the Central Act 1s if the lax or penalty payable by a dealer under that Act (Ccntr:il Act) is a tax ot' pcnaltv payable under the general sales tax Jaw of the State and for thrit purpose., the authorities may exercise all or any of the powers they have under the general sales tax Jaw of the State. Tn effect, what s. 9 (2) says is that sales tax and pena!lies payabk by a dealer under the Central Act are deemed to be sales tax and penalties payable under the general sales tax law of the State and the sales tax authorities of the State can exercise all or any of the powers they have under the general ~ales tax law ofihe State for the purpose of assessment, re-assessment, collection and ~nforcing payment of that tax. So, if the sales tax authorities of a State have power, when enforcing payment of sales tax payable under the general sales tax law of the State co impose pc'.rnlty for non-p•;iyment of tax vl!thin the prescribed tnne, they will have a like power to impose i68 SUPREME COURT REPORTS U9751 3 s.c.R. that power It was not necessary penalty for enforcing payment of the tax payable under the Ce!C1tral A Act within the time prescribed. impose penalty for enforcing the payment of tax payable by a dealer under the Central Act should have been specifically provided in or" con ferred separately by the sub-section upon the sales tax authorities of the State, because, the power to enforce payment of tax payable under the Central Act in the same manner as the power to enforce tax payable under the gelljeral sales tax law of the State has been given by it. As the power to impose penalty is specifically provided for in s. 16 of the Bombay Sales Tax Act for enforcing payment of tax pay- the ex able under it, it is unnecessary to speculate whether, but for press provision in that Act, a power to impose penalty for enfbrcement of tax payable under that Act would have been implied. The object of the provision for the imposition of penalty in s. 16 of the Bombay Sales Tax Act is to provide a stimulant to the dealer to observe the C mandate of the section directing the payment of the tax within the prescribed time .. In other words the provision for imposition of peDtalty in s.16 of the Bombay Sales Tax Act facilitates the collection of tax as it is a sanction for non-observance of the duty to pay the tax within It operates as a deterrent against the commission the prescribed time. of breach of that duty, and is a means to enforce the payment of tax within the time prescribed. D B. In C. A. Abraham Uppoottil v. The Income Tax Officer( 1) this Court was concerned with the question whether the appellant before the Court who was carrying on business in foodgrains in partnership with another person was liable to a penalty .for submitting the returns of the income It was found that certain iucome of the firm wa~ concealed and the Income E Tax Officer not only assessed the firm to tax for the suppressed income but also imposied penalty for concealing the same. Section 44 of the Indian Income Tax Act, 19220 at the material time stood as follows : o~ the firm even after his. partner's death. "Where any business.... . carried on by a firm ...... has been discontinued ...... every person who was at the time of such discontinuance .... a partner of such firm, shall in respect of the income, profits and gain of the firm be jointly and severally liable to assessment under Chapter IV for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment." F It was contended for the assessee that a proceeding for imposition of penalty and a proceeding for assess~nent of income tax were dis- tinct, that although s. 44 may be resorted to for assessing tax due and G payable by a firm which has discontinued, an order imposing penalty under s. 28 cannot, by virtue of s.44, be passed. The Court said that penalty "is imposable as a part of the machinery for assessment of tax liability". 'The Court quoted with approval the following observa- tions of Subba Rao, C. J. in Mareddi Krish11a Reddy v. Income-tax Officer, Tenali(2) : · " .... The defaults enumerated therein (in s. 28) relate to the process of assessment. Section 28, therefore, is a ----- --·----- (!) [1961] 2 S.C.R. 765 (2) [1957] 31 I.T.R. ms. H KHEMKA & co. v. MAHARASHTRA (Mathew, /,) 7 6 9 provision enacted for facilitating the proper assessment ot taxable income artd can properly be said to apply to an assessment made under Chapter IV .... " tax and the power impose The ratio o~ the decision is that penalty is imposed as part of the: the power for assessment of machinery for the penalty assess would include It is a general princi effective exercise of the power to assess. ple of law that all powers which are necessary and appropriate to effec- Just as the provision tuate the main grant of power will be implied, for imposition of penalty under s. 28 of the Income Tax Act, 1922 facilitated the collection of tax as Subba Rao, C. J. has said and imposable as part of ·the machinery for assessment of income tax, so also the provision for penalty under s. 16 ot the Bombay Sales Tax Act for non-payment of sales tax within the time prescribed would facilitate the collection of tax and is part of the machinery for enforc- ing payment of tax. A B c I) E Jn Commissioner of Income Tax v. Bhikaji Dadabhai & Co.( 1) the Income Tax Officer in question found that the books of account of the respondent were unreliable and after assessing the income for the year 1946-47, issued notice to the respondent on December, 22, 1949, under s. 40 of the Hyderabad Income Tax Act to show cause why penalty should not be levied in addition to the tax and, by an order dated 31-10-1951 directed payment of the penalty. The State of Hyderabad merged with the Indian Union during the peadency of the proceedings before the Income Tax Officer and b'y s. 13 of the Finance Act, 1950, the Hyderabad Income Tax Act ceased to have effect from April 1, 1950, but the operation of that Act in respect of levy, assessment and collection of income tax and super tax in respect of the period prior thereto for which liability to income tax should not be imposed under the Indian Income Tax Act was saved. One question before this Court was whether the Income Tax Officer had power on October 31, 1951 to impose penalty under s. 40(1) of the Hyderabad Income Tax Act. The Court held that the power of the Income Tax Officer to impose penalty under s. 40(1) of the Hydera bad lnC'Ome Tax Act in respect of the years preceding the date of the repeal of that Act was not lost because by s. 13 of the Finance Act, , 1950, the operation of the Hyderabad Act in respect of levy, assess ment and collection of income tax and super tax in period prior to April 1, 1951 was saved and therefore the proceedings for imposing the penalty could be continued even after the enactment of s. 13(1) of the Indian Finance Act, 1950. respect of The real significance of the ruling for the point under consideration here is that at the time when the penalty was imposed, the only pro visions of the Hyderabad Income Tax Act which survived the repeal · were those relating to levy, assessment and collection of income tax and super tax in respect of the period prior to April 1, 1951 and un . less the power to impose the penalty was included within the power to levy, assess, or collect the tax, the imposition ·of oenalty would have been ultra vires the power of the Income. Tax Officer. F G H (I) [1961] 3 S.C.R. 923. - 3-564SCl/75 770 SUPREME COURT REPORTS [19751 3 s.c.R. In Orissa Cement Limited v. The State of Orissa & A nother(I), the question was whether a dealer under the Central Act could claim the benefit of s. 13(8) of the Orissa Saks Tax Act, 1947, whkh prc vided that rebate of one per cent on the amount of tax payable by a dealer shall be allowed if such a tax is paid by the dealer ·on or be fore the due date of payment, by virtue of s. 9 (3) (as it stood then) of the Central Act. This Court said that the rebate was offered to facilitate, expedite and stimula.te the collection of tax an'd was part of the process of collection and that the appellant-dealer who paid the tax on the due date wa~ entitled to the rebate. substantive liability and is If rebate can be given on the basis that it would facilitate, ex. pedite and stimulate the collection of tax, we see no reason why a penalty cannot be imposed to expedite, facilitate and stimulate the collec!ion of tax and as part of the process of collection. It is said that penalty is the imposition of a character whereas rebate is a concession and is part of the procedure. We are not clear whether this is a distinction at all. Payment rebate is a liability frcm the point of view of the Revenue, though it is concession from the point of view of the assessee. If penalty is levy of money on an assessee, rebate means . payment of _money t'O an assessee. What then is the differen:e? No body has yet succeeded in drawing the precise line between a procedural and substantive pro vision and in this case we do not think we are required to do so for the simple reason that we are only concerned with the question whe-. ther for the purpose Qf enforcing the payment of tax payable under the Central Act, the authorities 'Of the State can exercise all the powers they have under the gee.era! sales tax law of the State whether one characterizes them as procedural or substantive. It is difficult to imagine that Parliament, wlien it enacted s. 9(2) of the Central Act and adopted the machinery of the general tax law of the State fol" enforcing payment of tax payable und1~r the Central Act, did not want to avail of the sanction of penalty for enforc ing the payment of it which the general sales tax law of the State pro vides for enforcing payment of tax due under that law. We find difficult to hold that Parliament invested the state authorities with power to assess, re-assess, collect and enforce payment 'Of tax payable under the Central Act as if the tax is tax payable under the general sales tax law of the State, but denuded them of their power to invoke the provision in the general sales tax law of the state for imposition (I) 27 S.T.C. 118. A B c D E F G H ' KHEMKA & co. v. MAHARASHTRA (Mathew, J.) 771 A B c D E F G of penalty for enforcing payment of the tax payable thereunder, as that is an effec'tive means to the enforcement of payment of within the prescribed time. I It was contended that only the pena!ties expressly provided for in the Central Act could be imposed by the sales tax authorities of the State by employing the machinery for collecti'on of tax under the general sales tax law of the State and that no penalty which is not provided for by the Central Act could be imp'osed by the State autho In this connection, the appellant placed great reliance upon rities. the decision of a Division Bench ·of the Calcutta High Court Mohan Lal Chokhany v. The Conunercial Tax Officer(!). The question there was whether penalty can be imposed for failure to sub- mit the return bY a dealer under the Central Act though only general sales tax law of the State provided for it. The Court came to the· c-onclusion that no penalty can be imposed. For doing so, the Court said : firstly, that by s. 9(2) of the Central Act, the whole machinery provided in the .general sales tax law of the State has not been incorpprated in the Central Act; secondly, that the authorifa:s for the time being empowered to assess, re-assess, collect and enforce payment of any tax unaer the general sales tax law ·of the appropriate State are only so empowered "on behalf of the Government of India" suggesting thereby that the Government of India is to be the principal and the State only the agent and that the agent can have no greater power than the principal himself, so that if the principal has no pm1·.;r tu impose penalty for non-submission or delayed submission of returns, the State, "on behalf of the Government of India", cannot impose such penalty, thirdly, thats. 9(2) speaks only of penalty payable under . "this Act" (Central Act) and not of any penalty payable under State law; fourthly, th•at the power of state authorities is qualified by words "as if the tax or penalty payable by such a dealer under this Act is a tax or penalty payable under the general sales tax law of the State", that this is the deeming provision and can deem no more than what it says, namely, that the "penalty payable under this (Central) Act", and not any other penalty, will be deemed 'as if' payable under the general sales tax law of the State; and, fifthly, that the expressions in s. 9(2) of the Central Act "for this purpose they may exercise all or . any of the. powers they have under the general sales tax law of the State" are limiting words, viz., for the enforcement of tax and the penalries specified in the Cen•ral Act H We do not understand how the analogy of principal and agent has any relevance in this context. If the power of enforcem 'nt of payment (I) 28 S.T.C. 367. 772 SUPREME COURT REPORTS [197 SJ 3 5, C.R. of tax payable under the Central Act. conferred on_ the au~hori~ies of the State would include the power to mipose penalties provided m the general sales tax law of the _State, there i? an end o~ the matter. 'P1e whole fallacy in the reaso~mg ?f the High. Court 1s the .assumption that only the penalties provided m the Central Act can be imposed by the authorities by using the machinery of the sales tax law of !he State as they alone are specifically mentioned in s. 9(2) and in ignormg what B are the powers actually conferred by the words "enforce P.aymen~ of . tax .... as if the tax .... payable by such a dealer under this Act is a tax ...... payable under the general Sales tax law of the State"', in the sub-section. any of that he the course .of inter-state The marginal note of s. 10 of the Central Act is 'penalties' and (a) the section enumerates six grounds for imposing penalty from to (f) : (a) ·failure of a dealer to get himself registered as required by s. 7; (b) a registered dealer falsely representing when purchasing any clas" of goods that the goods of such class are covered by his certifkate of registration; (c) not being a registered dealer, falsely representing when p;urchasing is a dealer, (d) after purchasing any or commerce (b) of the purposes specified sub-section (3) of s. 8, failing without reasonable excuse to make use of the goods for any such purpose; (e) havi!Jg in his possession any form prescribed for the purpose of sub-section ( 4) of s. 8 which has not bi:en obtained by him in accordance with the provisions of the Act or any rules made thereunder; and (f) collecting any amount by way of tax in contravention of the provisions contained in s. 9A. When a person comes within any 0£ these six grounds he shall be punishable with simple imprisonment which\ may extend to six months or with fine or with both and when the 1,offence is a continuing offence, with a daily fine which may exten" to Rs. 50 per day during which offence continued. in clause Sub-section ( 1) of s. lOA provides that if any person purchasing goods is guilty of an offence under clause (b) or clause (c) or clause (d) of s. 10, the authority who granted to him or, who is competent to grant to him a certificate of registration under the Act may, after giving him a reasonable opportunity of being heard by order in writing, impose upon him by way of penalty a sum' not exceeding one-and-a-half times the tax which would have been levied und1!r sub-section (2) of s. 8 in respect of the sale to him of the goods if the sale had been a sale falling within t!iat sub-section. Sub-section (2) says that penalty imposed· upon any dealer under sub-section (l) ~hall be co~lected by the Government of India in the manner provided m sub-section (2) of s. 9. · It is clear from s. 9(2) that the penalties which can be imposed by the State authorities by virtue of the express provision in· it are th;! penalities provided in section 10 read with s. lOA. The fact that s. 9(2) expressly authorizes the sales tax authorities of the State c D E F G H KHEMKA & co. v. MAHARASHTRA (1\tluthew, /,) 77 3 A B. c D E F G H ip.1pose the pen_alties payabie by a dealer under the Central Act by employing the machinery of the general sales tax law of the State does not mean that they have no power to enforce payment of tax payable under the Central Act by imposing penalty as provided in the general sales tax law of the State. As we said, by virtue of s. 9 ( 2), the mach inery provided in the general sales tax law of the appropriate State for assessment, reassessment, collection and enforcement of payment of tax payable under the Central Act has been adopted and that machin ery necessarily includes the means and facilities provided in that law for the effective exercise of the power to assess, re-assess, collect and enforce payment of therefore, the absence of an tax; and, express provision in the Central Act for imposition of penalty for non payment of tax within the prescribed time would not i.ndicate that for enforciag payment of tax payable under the Central Act, the authori ties of the State have no power to impose the penalty. When s. 9(2) says that assessment, re-assessment, collection and enforcement of payment o~ tax due under the Central Act should be made by authorities of the State as if the tax payable under that Act is tax payable .under the general sales tax law of the State and for that pur pose "they may exercise all or any of the powers they have under the sales tax law of the State", there can be no manner of doubt that if, for enforcing payment ~f tax due under the sales tax law ·of the State, they have power to impose penalty, they have the same power of imposing penalty for enforcing payment of tax payable under the Central Act. The express provision in s. 9(2) enabling the imposition of penalties payable under the Central Act by the sales tax authoritir ~ of the State does not in any way derogate from the grant of power to those authorities to enforce the payment of tax payable under the; Central Act as if the tax was payable under the general 1sales tax Jaw of the State and to enforce payment of it under the machinery of the general sales tax law of the State. The reason why the sales tax autho rities of the State were given specific power under s. 9(2) to epforce the penalties payable by a dealer under the Central Act is that those penalties were not and perhaps could not have been provided for in the sales tax law of the State. The penalties provided for in s. 10 read with s. lOA of the Central Act are not for the purpose of or in connection with assessment, re-assessment, collection and enforce ment of payment of tax payable by a dealer under the Central Act and could not have been imP'osed by the sales tax authorities of the State in making assess'ment, re-assessment, collection or in enforc ing payment of the tax payable under· the Central Act. Therefore, express power had to be conferred upon the sales tax authorities of the State to enforce the penalties payable by a dealer under Central Act. This does not mean that these authorities have no power to impose the penalties provided in the general sales· tax law of the State and which are necessary to make power of assessment, re-assessment, collection or en; forcement of payment of tax effective. How could these penalties have been separately prnvided for in the Central Act when it is seen that the sales tax authorities of the State were given power to assess, reassess, collect and enforce payment o~ tax payable under the Central Act as if that tax were tax payable under the general sales tax law of the State and to exercise all or any '774 SUPREME COURT REPORTS l1975l 3 s.c.R. of the powers they have under the sales tax law of the State for that purpose ? Parliament must be presumed to know when it adopted the machinery of the general sales tax law of the State for assessment, re-assessment, collection and enforcement of tax payable under the Central Act, the existence of the provisions for imposition of penalty in connection with and for the purpose of assessment, reassessment, collection and enforcement cf payment of tax in the sale tax law of the State. Therefore, there was no necessity to provide separately for pe:nalties in connection therewith in the Central Act or give express power to sales tax autlrorities of the State for imposition of penalties If, in the process of or for the purpose of in connection therewith. assessment, reassessment, collection and enforcement of payment of tax pa.yable under the sales tax law of the State, a penalty can be imposed, we do irot understand why it cannot be imposed in the pro cess of or for the purpose of making the assessment, re-assessment, collection or enforcement of payment of tax payable under the Central Act. Is it possible to imagine any reason for Parliament to withhold from the saks tax authorities of the State an effective means for enforcing the payment of tax payable under the sales tax law of the State and which is specifically provided for in that law for collection of tax payable under the Central Act? We think not. As we said, in the nature and the scheme of the Central Act, it was not necessary to provide for imposition of penalty or for the other methods of en forcing the payment ·of tax payable under the Central Act since Parlia ment has adopted the machinery provided in the general sales tax law of the State as respects enforcement of the tax payable under the Central Act. The decisions in B. H. Shah & Co. v. The State of Madras(!), The Swte of Madras v. M. An gap pa Chettiar & S~ns (2), Guldas Narasappa Thimmaiah Oil Mills v. Commercial Tax Officer, Raichur( 3 ) and Hardatroy Jute Mills Pvt. Ltd. v. Superintendent of Commercial Taxes. Pumea(4) relied on by the appellants do not require any elaborak consideration as they do not advance any reasons other than thrn;e already referred !o in this judgment. The reasoning of the Madras High Court in B. H. Shah & Co.'s case to the effect that Parliament could, not ~ave adopted by s. 9(3) ·of the Central Act (substariti{tlly correspondmg to present s. 9(2) of the Central Act) a provision o.f the general sales tax law of the State which was not in existence at the time of the enactment of s. 9(3) has no relevance here. . The appellant did not contend . that the provision in question imposi.tion of penalty in the general sales tax law of the State was not in ,existence at the relevant time and therefore they could not in any event h'!ve been adopt1~d by s. 9(2). Wt- do not therefore think it necc.,sary or proper to consider the question whether Parliament can b'y legislation adopt a State law and the future amendments thereto. A B c D E F G Jt was argued that the expression 'penalties' occurring in the latter ~art of s. 9(2) must refer to the penalties mentioned in the former part H (I) 20 S.T.C. 146.. (3) 25 S.T.C. 489. (2) 22 S.T.C. 226. (4) 30 S.T.C. 151. A B c D E F G H . KHEMKA & CO,, v. MAHARASHTRA (Mathew, J.) \ 775 cf the sub-section, namely, penalties payable by a dealer under Central Act. We see no reason why the expression 'penalties' in the laiter part of the sub-section should refer to the penalties payable by a dealer under the Central Act at all. The expression 'penalties' in the latter part of the sub-sec!ion can only refer to penalties imposable under the rreneral sales tax law of the State in connection with assess ment, rcas;-essmcnt, collection and enforcement of payment of tax. The. latter part of the sub-section only enumerates some of the powers exercisable by the sales tax authorities of the State to assess, reassess, collect and enforce payment of tax payable under the Central Act. The language of the sub-section beginning with "and for this purpose they may exercise all or any of the powers they have under the general sales tax Jaw o~ the State; and the provisions of such law, including rrovisi·ans relating to returns, provisional assessment, advance payment of tax ........ appeals, reviews, revisions, references, refunds, penal- ties. . .. " makes it clear that the word 'penalties' occurring therein. can refer only to penalties provided in the general sales tax law of the Jn other words. the express mention of the power to impose State. 'penalties' among the enumerated powers beginning with the words "and the provisions of such Jaw including the provisions relating to ...... p~nalties" would put it beyond doubt that the word 'penalties' in the latter part of the sub-section can only refer to penalties imposable under the general sales tax law of the State in relation to assessment, reassessment, collection and enforcement of payment of, tax payable thereunder. We hold that the Sales Tax Officer was empowered to impose penalty provided in s. 16 ( 4) of the Bombay Sales Tax Act for non-payment of the tax payable under the Central Act within the prescribed time. We would dismiss Civil Appeal No. 2089 ·af 1969 and allow Civil Appeal No. 2118 (NT) of 1970 without any order as to costs. I3EG, J .-Civil Appeal No. 2089 of 1969 arises out of an assess ment ordi;-r relating to the period of assessment from 1-4-1959 to 30-12-1959. The order purports to have been made under the Cent ral Sales Tax Act o.f 195 6 (hereinafter referred to as the 'Central Act') and the assessment year given there is 1962-63. The total sales tax was assessed at Rs. 44, 181.92. In addition, a penalty of Rs. 8347.32 was levied for delay in payment. The order passed on the appeal to the Assistant Commissioner of Sales Tax shows that the only point pressed in the appeal related t-o the penalty levied under Section 16(4) of the Bombay Sales Tax Act of 1953, (hereinafter referred to as 'the Bombay Act of 1953'). As the appeal was rejected, a revision appli cation was filed before the Sales Tax Tribunal. Bombay, which also upheld the penalty imposed under Section 16(4) of the Bombay Act of 1953. This provision laid down: "16(4) )f the tax is not paid by any dealer within prescriocd time the dealer shall pay, by way of penalty in addition to the amount of tax, a sum equal to (i) one per cent of the amount of tax for each month for the first three 776 SUPREME COURT REPORTS l1975J 3 s.c.R. months after the expiry 'Of the prescribed time, and (ii) two and one-half per cent .for each month subsequent to the first three months as aforesaid during which he continues to make default in the payment of Provided that, where the tax has not been paid by any dealer within the prescribed time but the dealer has filed an appeal or an application for revision in respect of such tax, the authority hearing the appeal or the application for revision may direct that the penalty in respect of any period shall be paid at such rate as it may think fit, the rate being not less than one per cent and not more than two and one half per cent of the amount of tax for each month". tax. The High Court had, upon a reference to it, decided in favour of the Department the question framed as follows : "Whether having regard to the facts and circumstances o.f the present case which is under the Centni.l Sales Tax Act, 1956, the Tribunal was justified in law in holding that . penalty could be levied under Section 16(4) of the Bombay Sales Tax Act, 19 5 3 ?" In the appeal now before us by special leave it has been contended for the assessee that the penalty was levied without jurisdiction as it was not warranted by the provisions of Section 9(2) of the Central Act, 1956. Civil Appeal No. 2118 of 1970 arises out of an assessment order relating to the assessment year 1964-65 under the Central Act for a sum of Rs. 14,332.80 np. and a penalty 'Of Rs. 10,104.36 ps. levied for default in the payment of penalty imposed under Section 13 of the Mysore Sales Tax Act of 1957, (hereinafter rderred to as 'the Mysore Act'), which was assumed to be applicable by reason of· Section 9(3) of the Central Act. The relevant provision of Mysore Act lays down : "Payment Md recovery of tax (1) The tax under this Act, shall be paid in such manner and in such instalments, if any and within such time, as may be prescribed. (2) If default is made in making payment in accordance with sub section (1) : (i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the proper tie~ uf the person or pers·ons liable to pay the tax under this Act; and (ii) the person or persons liable to pay the tax under this Act shall pay a penalty equal to- (a) one per cent of the amount of tax remaining unpaid for each month for the first three months, after the expiry of the time pres cribed under sub-section ( 1) and A B c D E F G H A B c D E F G H KHEMKA & CO, V, MAHARASHTRA (Beg, J.) 777 (b) two and one-half per cent o,f such amount for each month subsequent to the first three months as aforesaid. (3) Any tax assessed, or any other amount due under this Act from a dealer, may without prejudice to any other mode of collec tion, be recovered- ( a) as if it were an arrear of land revenue, or (b) on applicati'On to any Magistrate, by rnch Magistrate as if it were a fine imposed by him .... " In this case, the Commercial Tax· Officer, Raichur, filed applica tion under Section 13(3)(b), of the Mysore Act before the Munsif Magistrate of Raichur for· recovery qf the sum due as penalty as if it was a fine imposed by the Court. The Munsif Magistrate having issued a distress warrant for recovery of this sum, assessee applied to the High Court under Section 13(4) of the Mysore Act which reads as follows : "The High Court may either suo motu or an application by the Commissioner or any person aggrieved bY the order revise any order made by a Magistrate under clause (b) of sub-section (3)''. Thereafter, the assessee filed a Writ Petition which was heard together _wjth the Sajes Tax Rev!sio_n petition. The High Court had allowed the assessee's claim that the levy of penalty was ultra-vires. The State of Mysore had, therefore, come up in appeal by special leave to this Court. I have had the advantage of going through the judgments of the learned Chief Justice and my learned brother Mathew. Even if I was of the opinion that two views on an interpretation •of Section 9(2) of the Central Act are equally well entertainable, as one could be on a mere reading of Section 9(2) of the Central Act only, I would, with great respect, prefer the view adopted by the learned Chief Justice on the principle that the assessee must get the benefit of such It, however, seems to me, on a careful consideration of uncertainty. the two possible views, that reasons for accepting the contentions on behalf of the assessee are quite compelling and decisive, I, therefore, proceed to ~tate these shortly. So far as the case from Bombay is concerned, I find that Section 76(a) "Of the Bombay Sales Tax Act of 1959 (hereinafter referred to as 'the Bombay Act of 1959'), repeals· the Bombay Act of 1953. Section ·16 of the Bombay Act of 1959 refers to an entirely different subject matter. Provisions relating to penalties are contained Section 36 to Section 38 of the Bombay Act ·af 1959, which have been amended from time to time. In any case, there wa.s no provi sion, at the time when the assessment order was made, for imposition of any penalty under Section 16(4) of the Bombay Act 'Of 1953, which the Sales Tax authorities and the High Court sought to utilize to justify the penalty imposed. 778 SUPREME COURT REPORTS 09751 3 s.c.R. in 1956 Relying upon the principles indicated by this Court in Re Delhi Laws Act (1912) etc.,(1) I think one could say Parliament couJ.d not have applies its mind to provisions which came lt could not, therefore, have incorporated into existence afterwards. them by reference as parts of· a procedure applicable to assessments which took place, after 1959 when the Bombay Act of 1953 was repealed. At the time of the passing ·of the Central Act, the relevant statute in existence in Bombay was the Bombay Act of· 1953. But, Section 16(4) of the Bombay Act of 1953 under which the Sales Tax authorities purported to act, did not exist on th~ statute book at the time of assessment. Unless we assume that Section ·9(2) of the Cent ral Act, by a necessary implicati'on, authorises the State Legislatures to go on imposing such penalties for such brcac~es of duty as pleases them to lay down on behalf of Parliament, subsequently enact ed provisions of State enactments would not be available. I also find from the Mysore A<:t of 1957, that Section 13 of the Act was entirelv re-cast in 1958. It would, I think be carrying the theory of referential legislation too far to assume that Section 9(2) of the Central Act 1956 purported to authorise the State Legislatures to impose liabilities in the nature of additi'onal tax or penalties kav ing their rates and conditions for their imposition also to be deter mined by the State Legislatures as and when the State Legislatures It is evident that these differ decided to impose or amend them. from State to State. and, in the same State, at different times. A rnnfrrment of such ·an uncontrolled' power upon the State Legislatures could, if it was really intended. be said to travel beyond the province of permissible delegated legislation on the principles laid down !long ago by this Court in Re-Delhi Laws' case (supra) as no guide are l'iven in Section 9(2) about the nature, condifrons, or extent of pena'ities leviabk. H such a power was really conferred would it ·not amount to an abdication of an essential legislative function with respect to a matter found as item 92A of the Union List I of the Seventh Schedule so that, accwding to article 246(1) of our Consti tution. Parlimnent has exclusive power to legislate on a topic covered by it ? As this question was not argued before us I would only say that the correct cannon of construction to apply in such a case is that we sh'Ould so interpret Section 9(2) of the Central Act, if possible, that no part of it may conceivably be invalid for excessive delegation. The well known maxim applicable in such cases is : ut res magis \'(l/t?i/[ f{lli/11! p<'I fa/. It is evident from Section f6E4> of the Bombay Act of 1953_ :that there is a particular percentage of ·f!le amount .of tax levied which is prescribed as penalty to be paid as an "additi'on to the amount of tax for every month after the expiry of the prescribed period of default"_ In other words, it is a liability itl the nature of an addition al or penal tax. Section l 3(3)(b) of the Mysore Act also makes it clear that, on an application made to the Magistrate, such as the one made in the case which has come up before us from Mysore, penalty may be equated with a fine. Section 63 of the Bombay Act (l) [1951] S.C.R. 747. A B c D E F G H A B c D .E 'F G H KHEMKA & co. v; MAHARASHTRA (Beg, /.) 779 of 1959 speaks of certain "offences and penalties". 8 of that Act is itself headed as "Offences and Penalties". Indeed, Chapter On a consideration of the provisi'Ons mentioned above, it seems levying a to me to be clear that whatever may be the objects of penalty, its imposition gives rise to a substantive liability which can be viewed either as an additional tax or as a fine !'or the infringement of the law. The machinery or procedure for its realizatron comes into operation after its imposition. In any case, it is an imposition of a pecuniary liability which is comparable to a punishment for the lt is a well settled cannon of construc commission of an 'Offence. tion of statutes that neither a pecuniary liability can be imposed nor It may be debatable whether an offence created by mere implication. a particular procedural provision creates a right or liability. But, I do not thinR that the imposition of a pecuniary liability, which takes the form of a penalty or fine for a breach of a legal obligation, can be relegated to the region of mere procedure It is more than that. Such and machinery for the realization of tax. liabilities must be created by clear, unambiguous, and express enact ment. The language used should leave no serious doubts about its effect so that the persoris who are to be subjected to such a liability for the infringement of law arc not left in a state of uncertainty as to what their duties or liabilities are. , This is an essential requirement It is implied in the constitutional of a good government of laws. mandate found in Section 265 of ·our Constitution : "No tax shall be levied or collected 1except by authority of law". substantive It was argued on behalf of the State that Section 9(2) of the Cent ral Act contains an express reference to provisions relating to, inter ;;;lia, "refunds, rebates, penalties, compounding of offences". Relying upon these words in the last part of Section 9(2) of the Act,. it was urned that there is no manner of doubt that the penalties' leviable under the State law can be utilised for the purpose of enforcing the tax liabilities under the Central Act. Section 9 of the Central Act itself has undergone several amend ments. In 1956 it sto'Od as follows : "9( l) The tax payable by any dealer under this Act shall be levied and collected in the appropriate State by the Gov ernment of India in the manner provided in sub-section (2). (2) The authorities for the time being empowered assess, collect and enforce payment of any tax under the genei-al sales tax law of the appropriate State shall, on be half of the Government of India and subject to any made under this Act, assess, collect and. enforce payJ!1ent of any tax payable by a' dealer under this Act in the same man ner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and col lected; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the 780 SUPREME COURT REPORTS fl 97 51 3 s.c.R. State; and th1~ provisi:ons of such law, including provisions references, relating to returns, appeals, reviews, revisions, penalties and compounding of offences, shall apply accord ingly. (3) The proceeds (reduced by the cost of collection) in any financial year of any tax levied and collected under this Act in any State. on behalf of the Government ·of India shall, except in so far as those proceeds represent proceeds attributable to Union territories, be assigned to . that State and shall be retained by it; and the proceeds attributable to Union -territories shall form part of the Cons·o!idated Fund of India". It was amended by Act 31 of 1958, and Act 29 of 1969, and Act 61 of 1972. We are only concerned here with the amendment by Act 31 of 1958 because this Act introduced the provisions which were in operation at the time when the assessment orders under con .. sideration were made. A B c Section 6 of the Central Sales Tax Second Amendment Act 31 of 1958 changed Section 9(2) and (3) and introduced sub-s. (4). These provisions read as follows : D "(2) The penalty imposed upon any dealer under section 10-A shall be collected by the Government ol' 1ndia in the manner provided in sub-section (3) : (a) in the case of an offence falling under clause (b) or clause (d) of section 10, in the State in which the person purchasing the goods obtained the form prescribed for the purposes of clause (a) of sub-section (4) ·of section 8 in con nection with the purchase of such goods; (b) in the case of an offence fallin_g under clause (c) of section 10, in the State in which the pcrs"n purchasing the goods should have registered himself if the offence had nut peen committed. (3} The authorities for the time being empowered assess, collect and enforce payment of any tax under the general sales-tax law of the appropriate State shall. on behalf of th~ Government of India and subject to any rules made under. this Act, assess, collect and enforce payment of any tax, including any penalty, payable by a dealer under this Act in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is asses sed paid and collected; and for this purpose they may exer cise all or any of the powers they have under the general sales-tax law of the State; and the provisions of each law, including provisions relating to returns appeals, reviews, revisions, references, penalties and compounding of offenc- es, shall apply accordingly : ' E F• G H KHEMKA & CO. V, MAHARASHTRA (Beg, J.) 781 Provided that if in any State or part thereof there is no ge.;eral sales-tax la\v in force, the Central Government may, by rules made in this behalf, make necessary provision for all or any of the matters specified in this sub-section and such rules may provide that a breach 0£ any rule shall be punishable with fine which may extend to five hundred rupees; and where the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues. ( 4) The proceeds in any financial year of any tax in cluding any penalty, levied and C'Ollected uncl.er this Act in any State (other than a Union territory) on behalf of the Gover~ment of India shall be assigned to that State and shall be retained by it; and the proceeds attributable to Union territories shall form part of the Consolidated Fund of lndja". It will be seen that Secti'On 9(1) of the Central Act 1956 pro vided only for "the manr1er" of levy and assessment as provided in Sec. 9(2). Again, the new Sec. 9(2), introduced by Act 31 of 1958, empowered the Government o.f India only "to collect" the penalties mentioned in Sec. lOA of this Act "in the manner" laid down in Sec. It is. clear that Section 10, relating to the penalties provided 9(3). by the Central Act, was meant for penalties by way of imprisonment and fine. Section lOA provided only for levy of certain penalties at the rate specified there in lieu of prosecutions under St'.c. 10. This is the only kind of penalty which was enforceable by the procedure laid down in Section 9(3) of the Act as it stood after the 1958 amend ment. Section 9(2), after the Act 31 of 1958, also makes it clear that Section 9(3), which corresponded to the earlier Section 9(2) of the 1.956 Act only lays down "the manner" of this "collection" of In other words, Sec. 9(2) 'Of the Act, as it stood after the penalty. 19.58, did not provide for an imposition of a penalty as a substantive It only authorised collection of penalty pecuniary liability or tax. in the manner laid down in Section 19(3) of the Central Act as it stood after 1958. The imposition of a penalty was regulated exclu sively by Sec. lOA of the Central Act and not by any provision of the State Act. · It has to be remembered that Section 9(2) of the 1956 Act, which corresponds to Section 9(3) after 1958, begins with : "subj.ect to the other proyisions of this Act and the rules made thereunder, the autho rities for the time being empowered to as~ess, re-assess, collect and enforce payment of any tax under the general sales tax law· of the appropriate State shaH .... ". In other words, the powers of the State Sales Tax Officers are specifically limited by the provisrons of the Central Act. They cannot go beyond these provisions. The next part of Section 9(2) of the 1956 Act further emohasises this aspect by making it clear that these powers are exercisable only "for In other words, they are not authorised too collect this purpose". dues for purposes extraneous to the Central Act. We may then go to the last part of Section 9(2) of the 1956 Act, which is strongly B c I) E F G H 782 SUPREME COURT REPORTS rl 97 51 3 s.c.R. relied upon on behalf of the States concerned, to urge that the State provisions relating not merely to collection of taxes but imposition of penalties are incorporated by reference il1!o the provisions Central Act. fn this debatable area, I think the true meaning can only be found by considering the provisions as a whole. The con text .of the whole sales tax law of the State as well as that of the law contained in the Central Act must be taken int·o account. ·of After considering the provisions of the Central Act as well the State Acts relating to penalties, one is irresistably driven to the conclusion that provisions relating to penalties are special and speci fic provisions in each Act. They arc not part of "the general sales tax law" ·of either the State or of Union. If the provisions relating to penalties, such as those found in the Central Act and the Stat..: Acts, arc really special provisions -.yhich can be invoked in the special circumstances given in each statute, we must interpret the reference to penalties in the concluding portion of Section 9(2), preceding th.o proviso; to relate only to the special provisions relating to penalti:es provided for specifically in the Central Act. A B c I. think that the maxim of interpretation to apply here "Exprrssiu U niw; exc/11sio a/terius". This is explained as follows 'vfaxwrll on the Interpretation of Statutes (12th Edn. p. 293); is : D .. By the rule usually kn'own in the form of this Latin Maxim, mention of one or more things of a particular class may be regarded as silently excluding all other members of class; expres.111111 facit cessare wcitwn''. No doubt this maxim has been described as "a useful servant hut a dangerous master". I can, however, think of no kind of case more apt for its applicafron than the one before us. As the Privy l.ouncil said long ago, with regard to a -statute purporting to impose a charge in Oriemal Bank Corporation v. Wright, (1) that in such a case, the rule to be applied is "that the intention to impose a charge upon the subject. must be shown by clear and unambiguous langu If the language leaves room for coming to the conclusion that age". only penalties specified iv. the Central Act. are enforceable by tt1c machinery for enforcement of liability under the general Sales Tax Jaw of a State, I think that the legislative intent could safely be pre sumed to be to C'Onfine penalties mentioned in the concluding part of Section 9(2) to only those mentioned specifically in the Central Act. For the reasons given above, I respectfully concur with the opi· the Chief nion expressed and the orders proposed by My Lord Justice. E F C.A. 2089 of 1969 allowed. C.A. 2118 of 1970 dismissed H P.B.R: (I) (1880) 5 App. Cas. 842 at 256.