PETITIONER:
SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM & ANR.
Vs.
RESPONDENT:
TATA OIL MILLS CO. LTD.
DATE OF JUDGMENT29/07/1975
BENCH:
KHANNA, HANS RAJ
BENCH:
KHANNA, HANS RAJ
BEG, M. HAMEEDULLAH
GUPTA, A.C.
CITATION:
1975 AIR 1991 1976 SCR (1) 152
1975 SCC (2) 304
ACT:
Kerala Genera Sales Tax Act (15 of 1963) s. 22(3) and
Kerala General Sales Tax Rules, 1963, 9(1) Constitution of
India 1950, VII Schedule, List II, Entry 54-Section
providing for payment to Govt. of tax wrongly collected-if
ultra vires.
HEADNOTE:
According to r. 9(1) of the Kerala General Sales-tax
Rules framed under. the Kerala General Sales-tax Act, 1963,
in determining the taxable turnover of a dealer the excise
duty, if any, paid by the dealer to the Government of Kerala
or to the Central Government in respect of the goods sold by
him shall be deducted. Section ,22(3) of the Act provides
that if any dealer or person collects tax on transactions
not liable to tax under the Act or in excess of the tax
leviable under the Act such dealer or person shall pay to
the Government. in addition to the tax payable, the amount
so collected unless it was refunded to the person from whom
it was collected.
The respondent deducted the sum paid by it as excise
duty from its total turnover for the purpose of determining
the taxable turnover. The respondent, however, when it sold
the goods. had collected, sales-tax from the purchasers on
the invoice prices without deducting therefrom the excise
duty paid in respect of the said goods. This resulted in the
respondent realising a sum in excess of the sales-tax
payable in respect of the goods sold by it. The Sales-tax
officer held that the respondent was liable to pay that
amount to the Government under s. 22(3). The writ petition
filed by the respondent was allowed by the High Court on the
ground that s. 22(3) was not covered by Entry 54 of the
State List in the VII Schedule to the Constitution, and
hence, beyond the competence of the Slate Legislature.
Dismissing the appeal to this Court.
^
HELD: (1) Entry 54 empowers the State Legislatures to
make laws, except in certain cases, in respect of taxes on
the sale or purchase of goods. As long as the law relates to
taxes on the sale or purchase of goods, it would be within
their- legislative competence. But, it would not be
permissible for. the State legislature to enact a law under
Entry 54 for recovery by the State of an amount which could
not be recovered as sales-tax or purchase-tax in accordance
with the law on the subject and which was wrongly realised
by a dealer as sales-tax or purchase-tax. Such a l.. would
not be a law relating to tax of the sale or purchase of
goods but would be one in respect of an amount wrongly
realised by a dealer as sales-tax or purchase-tax. [1 55A-C]
(2) The ambit of ancillary or incidental power would
not go to the extent of permitting the Legislature to
provide that. though the amount collected, may be wrongly,
be way of tax,, was not tax, it shall still be paid over to
the Government as if it were a tax. [156D-E]
(3) The fact that the amount realised is in excess of
the tax leviable and not as amount which was not at all
payable as tax, would not make any difference. Any amount
realised by a dealer in excess of the tax leviable, stands,
for the purpose of determining the legislative competence
under Entry 54, on the same footing as an amount not due as
tax under the Act. Tax, according to s. 2(xxiv) of the Act,
means tax payable under the Act. This necessarily means that
everything outside it, collected by the dealer. would be an
exaction not authorised by the Act. The amount which was
realised by the respondent in excess of what was due as tax
cannot be held to be tax, because, such excess amount was
not tax payable under the Act. If the State Legislature
cannot make a law under Entry 54 directing payment to the
State of any amount collected as tax on transactions not
liable to lax under the Act, it would likewise be
incompetent to make a law directing payment to the State of
an amount realised by a dealer in excess of the tax payable
under the Act. [157G-158C]
153
R. Abdul Quader & co. v. Sales Tax Officer , Hyderabad
[1964] SCR 867 and Ashoka Marketing Ltd. v. State of Bihar &
Anr. [1970] SCR 455 followed.
JUDGMENT:
CIVIL. APPELLATE JURISDICTION: Civil Appeal Nos. 1988-
1989 of 1970.
From the Judgment and order dated the 29th day of
October, 1968 of the Kerala High Court in W.P. No. 156 of
1967.
V. A. Seiyed Muhamad and K. M. K. Nair, for the
appellant (In C.A.No. 1988/70.
K. M. K. Nair, for the appellant (In C.A. No. 1989/70)
G. B. Pai, A. G. Meneses, for the respondent.
The Judgment of the Court was delivered by
KHANNA, J.-This judgment would dispose of civil appeals
No. 1989 and 1989 of 1970, Filed on certificate against the
judgment of the Kerala High Court, whereby that court held
that it was beyond the competence of the State Legislature
to enact law contained in sub section (3) of section 22 of
the Kerala General Sales Tax Act, 1963 (Act 15 of 1963)
(hereinafter referred to as the Act) in so far as it
related to payment of an amount collected as tax on
transactions not liable to tax under the Act or in excess of
the tax leviable under the. Act.
We may now set out the facts giving rise to one of the
appeals. Both the learned counsel are agreed that the
decision in that would also govern the other appeal.
Under section 5 of the Act, tax is payable by a dealer
on his tax able turnover. “Taxable turnover`’ is defined in
section 2(xxv) of the Act as the turnover on which a dealer
is liable to pay tax as determined after making such
deductions from his total turnover and in such manner as may
be prescribed by the rules under the Act. It does not,
however, include the turnover of purchase or sale in the
course of inter-State trade or commerce or in the course of
export or import of goods. The Kerala General Sales Tax
Rules have been framed be the State Government in exercise
of the powers conferred by section 57 of the Act. According
to clause (i) of rule 9 of the sail rules. in determining
the taxable turnover the following amount shall be deducted
from the total turnover of the dealer: “the excise duty, if
any paid by the dealer to the Government of Kerala or the
Central Government in respect of the goods sold by him”. It
may be stated that clause (i) was omitted subsequently but
we are concerned with the period when that clause was an
integral part of the rule.
The respondent is an incorporated company engaged in
the manufacture and sale of soaps, toilets and other goods.
The respondent’s accounts disclosed that it had collected
from the persons to whom it sold goods a sum of Rs.
30,591.71 as sales tax in excess of the tax which the
respondent was liable to pay under the Act. The respondent,
it would appear, paid Rs. 6,62,958 as excise duty and
deducted the same from its total turnover for the purpose of
determining the taxable turnover. When, however, the
respondent company sold the
154
goods it collected sales tax from the purchasers on the
invoice price without deducting there from the excise duty
paid in respect of the said goods. This resulted in the
respondent company realising Rs. 30,591.71 in excess of the
sales tax payable in respect of the goods sold by it: The
sales tax officer held that the respondent was liable to pay
the aforesaid amount of Rs. 30,591.71 to the Government
under section 22(3) of the Act. The respondent then filed
writ petition in the Kerala High Court to challenge its
liability to pay the aforesaid amount on the ground that the
provisions of section 22 in so far as they imposed a
liability on a dealer to pay over to the Government any
amount collected by him as sales tax, even though that
amount was not payable as tax, was unconstitutional. The
learned single Judge dismissed the petition filed by the
respondent. On appeal, however, the Division Bench held, as
already mentioned earlier, that the impugned provision was
beyond the legislative competence of the State Legislature.
Sub-section (3) of section 22 of the Act reads as
under:
“(3) If any dealer or person collects tax on
transactions not liable to tax under this Act or in
excess of the tax leviable to under this Act, such
dealer or person shall, unless it is established to the
satisfaction of the assessing authority that the tax so
collected has been refunded to the person who had
originally paid tax, pay over to the Government, in
addition to the tax payable the amount so collected
within such time and in such manner as may be
prescribed.”
The learned Judges of the High Court in holding the above
provision. in so far as it related to payment of an amount
collected as tax on transactions not liable to tax under the
Act or in excess of the tax leviable under the Act to he
beyond the legislative competence of the State Legislature,
referred to entry 54 of the State List in the Seventh
Schedule to the Constitution upon which reliance had been
placed on behalf of the State. It was held that the State
Legislature was incompetent to enact the impugned provisions
contained in sub-section (3) of section 22 of the Act under
the above entry.
In appeal before us Dr. Seiyed Muhammad on behalf of
the appellants has assailed the judgment of the Division
Bench of the High Court. As against that, Mr. Pai on behalf
of the respondent has canvassed for the correctness of the
said judgment. After hearing the learned counsel, we are of
the opinion that there is no merit in these two appeals.
A State Legislature is competent to make a law under
entry 54 of List II in Seventh Schedule to the Constitution
in respect of “taxes on the sale or purchase of goods other
than newspapers subject to the provisions of entry 92A of
List I”. Entry 92A of List I relates to taxes on the sale or
purchase of goods other than newspapers, where such sale or
purchase takes place in the course of inter-State trade or
commerce, and we are not concerned with this entry.
155
Entry 54 enpowers State Legislatures to make law,
except i certain cases with which we are not concerned, in
respect of taxes on the sale or purchase of goods. As long
as the law relates to taxes on the sale or purchase of
goods, it would be within the competence of the State
Legislature to enact such a law. It would not, however, b
permissible for the State Legislature to enact a law under
entry 54 for recovery by the State of an amount which could
not be recovered as sales tax or purchase tax in accordance
with the law on the subject and which was wrongly realised
by a dealer as sales tax or purchase tax. Such a law plainly
would not be a law relating to tax on the sale or purchase
of goods but would be one in respect of an amount wrongly
realised by a dealer as sales tax or purchase tax. It looks
perhaps odd that a dealer should recover in the course of
business transactions certain sums of money as sales tax or
purchase tax payable to the State and that he should
subsequently decline to pay it to the State on the ground
that the same amount is not exigible as sales tax or
purchase tax. Whatever might be the propriety of such a
course, the question with which we are concerned is whether
the State Legislature is competent to enact a law under
entry 54 for recovery by the State of an amount, which
though not exigibie under the State law as sales tax or
purchase tax was wrongly realised as such by a dealer. The
answer to such a question has to be in the negative. The
matter indeed is not res integra and is concluded by two
decisions of this Court.
A Constitution Bench of this Court examined in the case
of R. Abdul Quader & Co. v. Sales Tax officer, Hyderabad(1)
the validity of section l l (2) of the Hyderabad Sales Tax
Act, 1950 which reads as under:
“(2) Notwithstanding anything to the contrary contained
in any order of an officer or tribunal or judgment,
decree or order of a Court, every person who has
collected or collects on or before 1st May, 1950, any
amount by way of tax otherwise than in accordance with
the provisions of this Act shall pay over to the
Government within such time and in such manner as may
be prescribed the amount so collected lay him, and in
default of such payment the said amount shall be
recovered from him as if it were arrears of land
revenue.”
The appellant in that case collected sales tax from the
purchasers of betel leaves in connection with the sales made
by it. The appellant however, did not pay the amount
collected to the government. The Government directed the
appellant to pay the amount to the Government. The appellant
thereupon filed a writ petition in the High Court
questioning the validity of section 11(2). The main
contention of the appellant before the High Court was that
section 11(2) which authorised the Government to recover a
tax collected without the authority of law was beyond the
competence of the State Legislature because a tax collected
without the authority of law would not be a tax levied under
the law and it would therefore not be open to the State to
collect
(1) [1964] 6 S.C.R. 867.
156
under the authority of a law enacted under entry 54 of List
II of the Seventh Schedule to the Constitution any such
amount. The High Court upheld the validity of section 11(2).
On appeal to this Court it was observed by the Constitution
Bench as under:
“The first question therefore that falls for
consideration is whether it was open to the State
legislature under its powers under entry 54 of List II
to make a provision to the effect that money collected
by way of tax, even though it is not due as a tax under
the Act, shall be made over to Government. Now it is
clear that the sums so collected by way of tax arc not
in fact tax exigible under the Act. So it cannot be
said that the State legislature was directly
legislating for the imposition of sales or purchase tax
under entry 54 of List II when it made such a
provision, for on the face of the provision. the
amount, though collected by way of tax, was not
exigible as tax under the law.”
An attempt was made on behalf of the State in that case to
sustain the validity of section 11(2) of the Hyderabad Act
on the ground that the Legislature had enacted that law as
part of the incidental and ancillary power to make provision
for the levy and collection of sales or purchase tax. This
contention was repelled and it was observed that the ambit
of ancillary or incidental power did not go to the extent of
permitting the legislature to provide that though the amount
collected-may be wrongly-by way of tax is not exigible under
the law. as made under the relevant taxing entry, it shall
still be paid over to Government, as if it were a tax.
The question again arose in this Court before a Bench
consisting of six Judges in the case of Ashoka Marketing
Ltd. v. State of Bihar & Anr.(1). In that case in
determining the appellant’s turnover for assessment to sales
tax for the year 1956-57, the Superintendent of Sales Tax
included an amount representing Railway freight in the
appellant’s sales of cement. The appellate authority set
aside the orders directing the inclusion of the Railway
freight in the turnover. After the introduction of section
20-A of the Bihar Sales Tax Act the Assistant Commissioner
issued a notice under section 20-A(3) of the Act requiring
the appellant to show cause why an amount representing sales
tax on the Railway freight which became refundable under the
orders of assessment be not forfeited. The appellant’s
contention that section 20-A was ultra vires the State
Legislature was rejected by the Assistant Commissioner as
well as by the High Court in a writ petition under article
226 of the Constitution. On appeal filed by the assessee
this Court held that sub-sections (3), (4) and (5) of
section 20-A were ultra vires the State legislature. As a
corollary thereto, sub-sections (6) and (7) of that section
were also held to be invalid. Subsection (3) of section 20-A
of the Bihar Sales Tax Act read as under:
“(3)(a) Notwithstanding anything to the contrary
contained in any law or contract or any judgment,
decree or order of
(1) [1970] 1 S. C. R. 455.
157
any Tribunal, Court or authority, if the prescribed
authority has reason to believe that any dealer has or
had, at any time, whether before or after the
commencement of this Act, collected any such amount, in
a case in which or to an extent to which the said
dealer was or is not liable to pay such amount, it
shall serve on such dealer a notice in the prescribed
manner requiring him on a date and at a time and place
to be specified therein neither to attend in person or
through authorised representative to show cause why he
should not deposit into the Government treasury the
amount so collected by him.
(b) On the day specified in the notice under
clause (a) or as soon thereafter as may be, the
prescribed authority may. after giving the dealer or
his authorised representative a reason able opportunity
of being heard and examining such accounts and other
evidence as may be produced by or on behalf of the
dealer and making such further enquiry as it may deem
necessary, order that the dealer shall deposit
forthwith into the Government treasury, the amount
found to have been so collected by the dealer and not
refunded prior to the receipt of the, notice aforesaid
to the person from whom it had been collected.”
In holding sub-section (3) and other impugned provisions of
section 20-A to be beyond the legislative competence of the
State Legislature, this Court in the case of Ashoka
Marketing Ltd. (supra) relied upon the decision of this
Court in Abdul Qadar’s case (supra).
Dr. Muhammad has, however, tried to distinguish the
above two cases on the ground that the present case relates
to an amount realised in excess of the tax leviable under
the Act and not to an amount which was not payable at all as
tax under the Act. This fact, in our opinion, would not
prevent the applicability of the principle laid down in the
cases of Abdul Qadar and Ashoka Marketing Ltd. (supra). Any
amount realised by a dealer in excess of the tax leviable
under the Act stands, for the purpose of determining the
legislative competence under entry 54, on the same footing
as an amount not due as tax under the Act. Dr. Muhammad’s
argument involves inventing a category of a “deemed tax”
which is not there in the Act. The provisions of the Act
contain a definition of “tax”. This necessarily means that
every thing outside it collected by the dealer would be an
exaction not authorised by the Act. “Tax”, according to
section 2(xxiv) of the Act, means the tax payable under the
Act. The amount which was realised by the respondent in
excess of what was due as tax cannot
158
be held to be “tax”, because such excess amount was not tax
payable under the Act. If the State Legislature cannot make
a law under entry 54 of List II of the Seventh Schedule to
the Constitution directing the payment to the State of any
amount collected as tax on transactions not liable to tax
under the Act, it would likewise be incompetent to make a
law directing payment to the State of an amount realised be
a dealer in excess of the tax payable under the Act. The
amount realised in excess of the tax leviable under the Act
would not stand for this purpose on a footing different from
that of the amount realised as tax, even though the same
could not be recovered as tax under the Act.
We would, therefore, dismiss the two appeals with
costs. One hearing fee.
V.P.S. Appeals dismissed.
159