SODHI TRANSPORT CO & Anr. v. Coamssioner of Inland Revenue (1925) 10 T.C. 88 and Q:raahai Saigal

Section 28-B makes provision for the procedure to be followed by persons who intend to transport goods by roads into the State of Uttar Pradesh from places out outside the State of Uttar Pradesh for the purpose of transporting them to places .situated outside that State. It provides that when a vehicle coming from any place outside the State of Uttar Pradesh.and bound for any other place outside the State passes through the State, the driver or other person in-charge of such vehicle shall obtain in the prescribed manner a transit pass from the officer in-charge of the first check-post or barrier after his entry into the State and deliver it to the officer in-'charge of the check-post or barrier before the ·exit from the State. If he fails to do so, it shall be presumed that the goods carried thereby have been sold within the State the vehicle. Such presumption when drawn agaitist the owner or the person in charge of the vehicle and he is held to have sold the gOOds inside the State of Uttar Pradesh all the liabilities under the Act which arise in the case of a person who sells goods inside the State would arise.

Rule 87 provides that a person the owner or person in-charge of SODHI TRANSPORT v. STATE [VENKATARAMIAH, J.] . 949 who wishes to get a transit pass shall make an application in Form No. XXXIV to the officer in-charge of the check--post concerned. It also provides for the issue of the transit pass in triplicate and for inspection of the documents, conaign ments and goods to ensure that the statements made are true. The validity of sectiona 28, 28-B and rule 87 was questioned by the petitioners who filed the writ petitiona in the High Court on various grounds. Broadly the contentiona were that (i) the provisiona were outside the scope of Entry 54 of List II of the Seventh Schedule to the Conatitution; (ii) they infringed freedom of trade, co111111erce and intercourse guaranteed under Article 301 of the Constitution; and (iii) they imposed unreasonable restrictions on the freedom of trade guaranteed under Article 19(l)(g) of the Constitution.

The High Court rejected these contentions and dismissed the writ petitions. Hence these appeals by special leave have been filed. Some writ petitions have also been filed in this Court. All these were heard together by us. Now the impugned provisions are just machinery provi sions. They do not levy any charge by themselves. They are enacted to ensure that there is no evasion of tax. As already observed, the Act is traceable to Entry 54 in List II of the Seventh Schedule to the Constitution which reads thus : '54. Taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92A of List I'. It is well settled that when the Legislature has the power to make a law with respect to any subject it has all the ancillary and the law effective. Taxation laws incidental powers charging provisions, usually consist of machinery provisions, and provisions proViding for recovery of the tax.

We may ref er here to the observations of Lord Dunedin in lihit:ney v. Comd.ssioner of Inland Revenue [1925] 10 T.C •. 88 ( 110). The learned Lord said : three parts to make ''My Lords, I shall now permit myself a general observation. Once that it is fixed that there is improbable liability, it is antecedently highly that the statute should not go on to make liability effective. A statute is designed to be workable and the interpretation thereof by a Court should be to secure that object, unless crucial 950 . SUPREME COURT REPORTS [1986] 1 S.C.R. omission or clear direction makes unattainable. Now there are three stages in the imposition of a tax : there is the declaration of liability, that what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessment particularises the exact sum which a person liable has to pay.

Lastly, come the methods of recovery, if the person taxed does not voluntarily pay. " These observations are quoted with approval by our Court in Gursahai Saigal v. Commissioner of Income-tax, Punjab [1963] 3 S.C.R. 893 at 900. The provisions of section 28-B of the Act and rule 87 of the Rules which are impugned in these cases as mentioned above are just machinery provisions. They impose no charge on the subject. They are enacted to ensure that a person who has brought the ·goods inside the State and who has made a declaration that the goods are brought into the State for the purpose of carrying them outside the State should actually take them outside the State. If he hands over the transit pass while taking the goods outside the State then there would be no liability at all. It is only when he does not deliver the transit pass at the exit check post as under taken by him, the question of raising a presumption against him would arise.

We shall revert to the question of presump tion again at a later stage, but it is sufficient to say here that these provisions are enacted to make the law workable and to prevent evasion. Such provisions fall within the ambit and scope of the power to levy the tax itself. Dealing with the question of validity of section 23-A of the Indian Income Tax Act, 1922 lla1clev Singh v. Comaissioner of I.ncome Tax, Delhi & Ajmer [1961] l s.c.R. 482 at page 493 thus : this Court observed in Sardar to us that the "In spite of all this it seems legislation was not incompetent. Under Entry 54 a law could of course be passed imposing a tax on a person on his own income. It is not disputed that under that entry a law could also be passed to prevent a person from evading the tax payable on his own income. As is well-known the legislative entries have to be read in a very wide manner and y - ' SODHI TRANSPORT v.

STATE [VENKATARAMIAH, J,] 951 1 so as include all subsidiary and ancillary matters. So Entry 54 should be read not only as authorising the imposition of a tax but also as authorising an enactment which prevents the tax imposed being evaded. If it were not to be so read, then the admitted power to tax a person on his own income might of ten be made inf ructuous by ingenious contrivances. Experience has shown that attempts to evade the taX are often made. " We shall now deal with the question relating to the preswnption contained in section 28-B of the Act. It is seen that if the transit pass is not handed over to the officer in-charge of the check-post or barrier before his exit from the State it shall be p.resumed that the goods carried thereby have been sold inside the State by the person in charge of the said goods. It is contended that the said rule virtually makes a person who has not actually sold the goods liable to pay sales tax and it is• further argued that a transporter being just a transporter cannot be treated as a dealer within the meaning of that expression as it was defined in the Act at the time when section 28-B was introduced into the Act.

The appellants contend that the words 'it shall be presumed that the goods carried thereby have been sold within the State' in section 28:-B of that it shall be conclusively held that the goods carried thereby have been sold within the State to buttress their argument that a tax is being levied on a transaction which is not a sale at all under introducing a Entry 54 of List II of the Seventh Schedule by the essential difference between the two sets of words set out above. '!he meaning of these words would become clear if we read the defi nitions of the words 'may presume', 'shall presume', and 'con clusive proof' given in section 4 of the Indian Evidence Act, 1872, although the said Act is not directly attracted to this case. These words mean as follows : the Act as meaning fiction. This overlooks argument ,,,,. .. "

I) 14th Edition at page 299 it is stated thus : the basic facts are admitted or proved. "Conclusive presumptions of law are : in which the quantity of evidence 'rules determining requisite support of any particular averment, which is not permitted to be overcome by any proof that the fact is otherwise. They consist chiefly of those cases experienced connection, just alluded to has been to render it found so general and uniform as expedient for the common good that this connection should be taken to be inseparable and universal". They have been adopted by common consent, from motives of public policy, for the sake of greater certainty, and the promotion of peace and quiet in the co1111l!lnity; that all corroborating evidence is dispensed with, and all opposing evidence is forbidden (Taylor, Ev., s.71 : Best, Ev., p. 317, s.304'). therefore, it is ................................................... Rebuttable presumptions of law are, as well as the former, 'the result of experience of a the general connection between certain facts or things, the one \ .. i - being usually found the companion or the to be effect of the other.

The connection, however, in this class is not so intimate or so uniform as to be conclusively presumed to exist in every case; yet, it is so general that the law itself, without the aid of a jury, infers the one fact from the proved existence of the other in the absence of all opposing evidence. In this mode, the law defines the nature artd the amount of the evidence which is sufficient to establish a prima facie case, and to throw the burden of proof upon the other party; artd if no opposing evidence is offered, the jury are the presumption. A bourtd contrary verdict might be set aside as being against evidence. The this class of presumptions as in the former, have been adopted by CODIDOn consent from motives of public policy artd for the promotion of the general good; yet not as further evidence, but only dispensing with it till some proof is given on the other side to rebut the presumption raised.

" forbidding all in favour of to firtd former Having regard the definition of the words 'may E 'shall presume' require the court presume', it is open to a court where they are used in its discretion either to draw a presumption ref erred to in a law or may not. The words draw a presumption accordingly, unless the fact is disproved. They contain a rule of rebuttable presumption. These words i.e., 'shall presume' are being used in Irtdian judicial lore F for over a century to convey that they lay down a rebuttable presumption in respect of matters with reference to which they are used artd we should exi>ect that the U. P. Legislature also has used them in the same sense in which Indian courts have urtderstood them over a long period artd not as laying down a rule of conclusive proof. In fact these presumptions are not G peculiar to the Irtdian Evidence Act. They are generally used wherever facts are to be ascertained by a judicial process.

The history of succintly given in w.s. Holdsworth's Law' (Vol.IX) at page 140 thus : regarding presumptions 'A History of English H 954 SUPREME COURT REPORTS [1986] 1 s.c,R. to be embodied the ordinary process of "From reasoning have suggested various inferences, which have been treated by the courts in different ways, Sometimes they are treated as more or less probable inferences of fact; and it is possible, though by no means certain, that in the remote past mst presumptions originated as mere presumptions of fact. Just as in the case of judicial notice, the courts, as a matter of ·cot11DOn sense, assume the existence of matters of common knowledge without further proof; so they easily drew an obvious in ference from facts proved or admitted, and created a presumption, as common sense dictated. And just as the truisms which elementary experience teaches came in maxims which illustrate the origins of the doctrine of judicial notice, so other maxims arose which illustrate the origins, in that same elementary experience, of some of the coTI1110nest of the presumptions known to the law.

But it was inevitable that as the law developed, some of these presumptions should be so frequently drawn that they took upon themselves the character of rules of laws and we shall see that, to the exigencies of primitive methods of trial, the Legislature and the courts were active in creating them. Some of them were made or became only prima facie rules - rules, that is, which were rebuttable by further evidence. Others were made or became irrebuttable, and therefore, in effect rules of law. Others hovered uncertainly on the border line of tions •••.•. " irrebuttable presump rebuttable and A presumption is not in itself evidence but only makes a prima ~ case for party in whose favour it exists. It is a rule concerning evidence. It indicates the person on whom the burden of proof lies. When presumption is conclusive, it obviates the production of any other evidence to dislodge the conclusion to be drawn on proof of certain facts.

But when it is rebuttable it only points out the party on whom lies the duty of going forward with evidence on the fact presumed, and when that party has produced evidence fairly and reasonably tending to show that the real fact is not as presumed the SODHI TRANSPORT v. STATE [VENKATARAMIAH, J,] 955 purpose of presumption is over. Then the evidence will deter mine the true nsture of the fact to be established. The rules of presumption are deduced from enlightened. human knowledge and eKjlerience and are drawn from the connection, relation and coincidence of facts, and circumstances. ln Izhar Ahmad Khan v. Union of India, [1962] Suppl. 3 S.C.R. 235 @ 257 Gajendragadkar, J. (as he then was) eKJllains the meaning of a rebuttable presumption thus : A B to whether fact B is D "It is conceded, and we think, rightly, that a rule prescribing a rebuttable presumption is a rule of evidence. It is necessary to analyse what the rule C about the rebuttable presumption really means.

A fact A which has relevance in the proof of fact B inherently has some degree of probative or persuasive value in that behalf may be weighed bY a judicial mind after it is proved and before a conclusion is reached as proved or not. When the law of evidence makes a rule providing for a rebuttable presumption that on proof of fact A, fact B shall be deemed to be proved unless the contrary is established, what the rule purports to do is to regulate the judicial process of appreciating evidence and that the said appreciation will draw the inferenc~ from the proof of fact A that fact B has also been proved unless the contrary is established. In other words, judicial discretion either to attach the due probative value to fact A or not and requires prima facie the due probative F value to be attached in the matter of the inference as to the existence of fact B, subject of course, to the said presumption being rebutted bY proof to the contrary ••• " to provide E takes away the rule In our opinion a statutory provision which creates a G the proof of a set of rebuttable presumption as regards circumstances which would make a transaction liable to tax with the object of preventing evasion of the tax cannot be considered as conferring on the authority concerned the power to levy a tax which the Legislature cannot otherwise levy.

A rebuttable presumption which is clearly a rule of evidence has H the effect of shifting the burden of proof and it is hard to see how it ls unconstitutional when the person concerned has the opportunity leading evidence. the presumption by to dlsplace We are of the view that the words contained in section 28-B of the Act only require the authoritles concerned raise a rebuttable presumption that the goods must have been sold in the State if the transit pass is not handed over to the officer at the check-post or the barrier near the place of exist from the State. The transporter concerned is not shut out from showing by producing reliable evidence that the goods have not been actually sold inside the State. It is still open ta him to establish that the goods had been disposed of in a different way. He may establish that the goods have been deli vered to some other person under a transaction which is not a sale, they have been consumed inside the State or have been redespatched outside the State without effecting a sale within the State etc.

It is only where the presumption is not successfully rebutted the authorities concerned are required ta rely upon the rule of presumption in section 28-B of the Act. It is, therefore, not correct to say that a transaction which is proved to be not a sale is being subjected ta sales tax. The authority concerned before levying sales tax arrives at the conclusion by a judicial process that the goads have been sold inside the State and in doing so relies upon the statutory rule of presumption contained in section 28-B of the Act which may be rebutted by the person against wham action is taken under section 28-B of the Act. When once a finding is recorded that a person has sold the goads which he had brought inside the State, then he would be a dealer even according ta the definition of the word 'dealer' as it stood from the very commencement of the Act subject to the other conditions pres cribed in this behalf being fulfilled.

A person who sells goods inside the State of Uttar Pradesh and fulfills the other conditions prescribed in that behalf is a dealer even as per amendments made in 1959, 1961, 1964, 1973 and 1978 to the said definition. lb.ere is, therefore, no substance in the conten tion that a transporter was being made liable for the first time after 1979 with retrospective effect to pay sales tax on a transaction which is not a sale. Tax becomes payable by him only after a finding is recorded that he has sold the goods inside the State though with the help of the presumption which is a rebuttable one. SODHI TRANSPORT v. STATE [VENKATARA.'llAH, J,) 957 The inside the State levy of sales tax on goods which are held to have contravening Article 301 of the Constitution. The restrictions imposed ate not also shown to be ltnreasonahle. They do O!Jt unduly hamper trade. On the other hand they are imposed in the pnblic interest.

The contentions based on ~rticle 301 and Article 19( l) (g) of the Constitut lon are, therefore, 1;ithout considered cannot sub~tance. The foregoing discussion disposes of the contentions regarding legislative competence or unreasonable character :Jf the provisions contained in section 28-B of the Act and rl1le 87 of the Rules. They are introduced, as stated earlier, to check evasion and to provide a machinery for levying tax from persons who dispos~ of goods inside the State and a\•old tas. law provide~ l lable enough protection to them and makes provision to enable them to show that they are in fact not liable to pay any tax. The decision of the High Court upholding the constltutlonallty of section ·za-B of the Act aod rule 87 of the Rule• does not call for any the said provisions. interference. We uphold they are otherwise the validity of to pay. The have made in some cases assessments the assessees have fa l led This, however, ·does not solve all the problems posed before us by some of the parties who are involved in these the assessing cases.

We have parte without authorities appreciating the true meaning of rule of presump·rton contained in section 28-B of the Act. They have proceeded virtually on the basis that the section contains a rule of conclusive presumption. Even realise the meaning of that section and do not appear to have made any attempt to rebut the presump~ion. It is noticed that in ~J,Uany cases even genuine transporters who are not at all engaged in the business of purchase and sale of goods and have not effected any sale of goOds have been found liable for large amounts of tax, which they could have avoided, if the authorities and the assessees had realised the true effect of the provisions contained ln section 28-B of the Act. This has led to serious prejudlce in many cases. When this fact was brought to the notice of the learned counsel for the State of Uttar Pradesh he very fairly submitted on behalf of Cormnissioner of Sales Tax thus : A B c \) 958 SUPRFliE COURT REPORTS [1986] l S,C,R, "Whereas it was observed by the Hon' ble Court in J ·the course of the discussion thst the presuqition ~ under section 28-B is a rebuttable presumption. that while it was pointed out Whereas Commissioner of Sales Tax had issued a circular in 1985 to the effect that ways and means will be found to ensure that inter-State transporters who are not engaged in buying or selling of goods in the Uttar Pradesh are not unduly inconvenienced but the said circular was not extant when assessments were made in numerous pre-1985 cases.

Whereas it was mentioned by the appellants and petitioners that it would be virtually impossible to produce the exit permits of pre-1979 assessments and that it would not be reasonable to treat them as dealers who had sold assessable goods in Uttar Pradesh. Now, therefore, the Commissioner of Sales Tax states as under :- ~ t