http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 36  

PETITIONER: R.   S. JOSHI, S.T.O. GUJARAT ETC.  ETC.

       Vs.

RESPONDENT: AJIT MILLS LTD., AHMEDABAD & ANR.  ETC.  ETC.

DATE OF JUDGMENT31/08/1977

BENCH: KRISHNAIYER, V.R. BENCH: KRISHNAIYER, V.R. BEG, M. HAMEEDULLAH (CJ) CHANDRACHUD, Y.V. BHAGWATI, P.N. UNTWALIA, N.L. FAZALALI, SYED MURTAZA KAILASAM, P.S.

CITATION:  1977 AIR 2279            1978 SCR  (1) 338  1977 SCC  (4)  98  CITATOR INFO :  R          1979 SC1588  (17)  RF         1979 SC1803  (19)  R          1984 SC1543  (22)  R          1985 SC 218  (20)  R          1986 SC 178  (1,2,3,4,7)  F          1987 SC  27  (4,5)

ACT: Bombay SalesTax Act, 1959-Ss. 37, 46, 63 validity  of-Act prohibited collection of anysum  not  payable  by  way  of sales tax or in excess of tax payable-Amounts socollected forfeited-Forfeiture,  it within the legislative  competence of the State Legislature. Constitution  of  India,  1950-Entries 54  and  64-List  II- Constitutional   validity   of   an   enactment-Rests    for determination of-Forfeiture, if a penalty. Words  and phrases-"Colourable",  "forfeiture"  "collected"; "shall be forfeited"-Meaning of.

HEADNOTE: Section  46(1)  of  the  Bombay  Sales  Tax  Act,  1959  (as applicable  to the State of Gujarat) enacts that  no  person shall  collect any sum by way of tax in respect of  sale  of any goods on which by virtue of s. 5 no tax is payable  Sub- section (2) provides that no person, who is not a registered dealer  and  liable  to pay tax in respect of  any  sale  or purchase, shall collect on the sale of any goods any sum  by way  of tax from any other person and no  registered  dealer shall  collect  any amount by way of tax in  excess  of  the amount  of  tax payable by him under the provisions  of  the Act. Section  63(1)(h) provides that whoever contravenes  any  of the  provisions  of s. 46 shall, on conviction  be  punished with  simple  imprisonment  or ’With,  fine  or  with  both. Section  37(1)  which deals with imposition of  penalty  de- partmentally for contravention of s. 46 provides in cl.  (a) that  if  any person, not being a dealer liable to  pay  tax

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 36  

under  the Act collects any sum by way of tax in  excess  of the  tax  payable  by  him  or  otherwise  collects  tax  in contravention of the provisions of s. 46 he shall be  liable to pay, in addition to any tax for which he may be liable, a penalty  as prescribed in cl. (i).  Clause (i)  states  that where there has been a contravention referred to in cl.  (a) a   penalty  of  an  amount  not  exceeding   two   thousand rupees .... and in addition any sum collected by the  person by way of tax in contravention of s.    46     shall      be forfeited to the State Government. The  respondents, who were registered dealers of sales  tax, collected  from  various  customers amounts  qua  sales  tax prohibited  by s. 46 of the Act.  Acting on the  prohibition plus  penalty contained in s. 46 read with s. 37(1)  of  the Act  the Sales Tax officers imposed penalties and  forfeited the  sums collected in contravention of s. 46 (less  amounts refunded). The  High Court struck down the last limb of the  forfeiture provision contained in s. 37(1)(a) as being unconstitutional on  the  ground  that it was not  competent  for  the  State Legislature  to forfeit to the public exchequer  punitively, under entry 54 read with entry 64 of List U, sums  collected by dealers by way of sales tax which was not exigible  under the  Act.  (The High Court of Bombay took an  opposite  view while other High Courts ranged themselves on one side or the other of the controversy). Allowing the appeals HELD  : Per Beg C.J., Chandrachud, Bhagwati,  Krishna  Iyer, Untwalia, Murtaza Fazal Ali, JJ. The punitive impost in s. 37(1)(a) is legitimate and  valid. [349 D] 339 The  High  Court  was  wrong  in  denouncing  the   impugned legislation  as  exceeding legislative competence  or  as  a colourable  device or as supplementary,  not  complementary. [348 F] 1.  (a)  The true key to constitutional construction  is  to view the equity of the   statute   and  sense   the   social mission of the law, language permitting against the    triune facets  of  justice  highlighted  in  the  Preamble  to  the Paramount  Parchment, read with a spacious signification  of the listed entries concerned.  A law hasto be  adjudged for  its  constitutionality by the generality  of  cases  it covers,not by the freaks and exceptions it martyrs.  [348 H] (b)  The professed object of the law being clear, the motive of  the legislature is irrelevant to, castigate an Act as  a colourable device.  The interdict on public mischief and the insurance  of  consumer interests  against  likely,  albeit, unwitting or ex abundanti cautela excesses in the working of a statute are not merely an ancillary power but a  necessary obligation   of   a  social  welfare  state.    One   potent prohibitory process for this consummation is to penalise the trader by casting a no-fault or absolute liability to ’cough up’  to  the state the total unjust takings snapped  up  and retained by him by way of tax, where tax is not so due  from him. [348 D-E] (c)In  a developing country, with the mass of  the  people illiterate  and  below  the poverty line, and  most  of  the commodities  concerned constitute their daily  requirements, there  is sufficient nexus between the power to tax and  the incidental power to protect purchasers from being  subjected to  an unlawful burden.  Social justice  clauses  integrally connected with the taxing provisions, cannot be viewed as  a mere device or wanting in incidentality. [355 H]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 36  

(d)The legal test that divides the constitutional from the unconstitutional  is that if all that the legislation  means to  do is to take over, whatever the verbal veils worn,  the collections  which were ex-hypothesi not sales tax but  were illegal  additives  as if sales tax were due, then  such  an expropriation of’ the expropriators is beyond entry 54  and, therefore,  ultra  vires.   On  the  other  hand,  all  real punitive measures, including the dissuasive penalty of  con- fiscating  the excess collections, are valid,  being  within the  range of ancillary powers of the legislature  competent to exact a sales tax levy. [349 B-C] 2.   (a) "Colourable" is not ’tainted with bad faith or evil motive";  it  is not pejorative or crooked.   Conceptually ’colourability’  is  bound  up  with  incompetency  ’Colour’ according  to Black’s Legal Dictionary, is  ’an  appearance, semblance  or simulacrum, as distinguished from  that  which sereal........  a  deceptive  appearance......  a  lack   of reality’.   A  thing is colourable which is,  in  appearance only  not  in reality, what it purports to  be.,  In  Indian terms,   it  is  maya.   In  the  jurisprudence  of   power, colourable  exercise  of or fraud on legislative  ’power  or fraud on the Constitution are expressions which merely  mean that  the legislature is incompetent to enact  a  particular law, although  the  label of competency is stuck or it,  and then itis colourable legislation.    [349 F] (b) If the legislature is competent to pass theparticular law, the motives    which  impel  it  to pass  the  law  are really irrelevant.If a legislation, apparently  enacted under one Entry in the List, falls in plaintruth and fact, within the content, not of that Entry but of one assigned to another legislature it can be struck down as colourable even if the motive were most commendable. [349 H] (c)If  the questions : what is the pith and  substance  of the  Act;  does it fall within any entry  assigned  to  that legislature  in  pith and substance, or as  covered  by  the ancillary  power implied in that Entry, can the  legislation be read down reasonably to bring it within the legislature’s constitutional  powers ? can be answered affirmatively,  the law is valid.  Malice or motive is beside the point and,  it is not permissible to suggest parliamentary incompetence  on the score of mala fides. [356 A] 3.Having  regard to the object of s. 37 read with s.  46, forfeiture has a punitive impact. [350 F] 340 (a)If  forfeiture  is  punitive in  infliction,  it  falls within implied powers.  If it is an act of mere transference of money from the dealer to the State, then it falls outside the legislative entry. [350 E] (b)Black’s  Legal Dictionary states that ’to  forfeit’  is ’to  lose,  or lose. the right to, by  some  ’error,  fault, offence  or crime’, ’to incur a penalty’.  ’Forfeiture’,  as judicially annotated is ’a punishment annexed by law to some illegal  act  or  negligence.  ..  something  imposed  as  a punishment for an offence or delinquency.’ The word, in this sense, is frequently associated with the word penalty’. [350 G] State  of Maryland v. The Baltimore & Ohio RR  Co.-(11  Led. 714,  722)  and Bankara Municipality v. Lalji Raja  &  Sons: (AIR 1953 SC 248, 250) referred to. (c)The  word ’forfeiture’ must bear the same meaning of  a penalty for breach of a prohibitory direction. [351E-F] (d)In   the   instant  case  the  fact  that   there   was arithmetical  identity  between the figures of  the  illegal collections made by the dealers and the amounts forfeited to the State cannot create a conceptual confusion that what  is

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 36  

provided is not punishment but a transference of funds.   If this  view  be  correcting must be held that  it  is  so-the legislature,  by  inflicting  the forfeiture,  does  not  go outside  the crease when it hits out against the dealer  and deprives  him,  by  the penalty of the law,  of  the  amount illegally   gathered  from  the  customers.   The   Criminal Procedure  Code,  Customs & Excise Laws  and  several  other penal  statutes  in India have used  diction  which  accepts forfeiture as a kind of penalty. [351 F-G] (e)The contention that s. 37(1) fastens a heavy  liability regardless of fault has noforce    in   depriving    the forfeiture of the character of penalty.      The notionthat a  penalty or a punishment cannot be cast in the form of  an absolute or no-fault liability but must be preceded by  mens rea  should be rejected.  The classical view that  ’no  mens rea, no crime’ has long ago been eroded and several laws  in India  and abroad, especially regarding economic crimes  and departmental penalties, have created severe punishments even where  the offences have been defined to exclude  mens  rea. [352 A] 4.(a)  The  decision  in  Abdul  Quader  demarcates   the constitutional  watershed between merely laying  hands  upon collections  by way of tax by traders although they are  not exigible  from  traders  and  the  policing  by  penalizing, including forfeiting illegal exactions of ’the working of  a taxing  statute  and inhibiting injury to the  public.   The ratio  in Abdul Quader lies in the sentence : "it  does  not provide for a penalty (for) collecting the amount wrongly by way of tax from purchasers which may have been justified  as a penalty for the purpose of carrying out the objects of the taxing  legislation."  In  other words,  had  there  been  a penalty  including  forfeiture, coupled with  a  prohibition against  collecting  any amount wrongly by way of  tax  from purchasers, it ’may have been justified as a penalty for the purpose   of  carrying  out  the  objects  of   the   taxing legislation.’ [354 D-E, A] (b)Although in Orient Paper Mills this Court held that  if competence  to  legislate for granting refund  of  sales-tax improperly  collected  be  granted, there is  no  reason  to exclude the power to declare that refund shall be  claimable only  by  the  person  from whom  the  dealer  has  actually realised  the amounts by way of sales tax or  otherwise,  in Ashoka  Marketing it was held that the taking over  of  sums collected  by  dealers from the public under  guise  of  tax solely with a view to return them to the buyers so  deprived was  not ’necessarily incidental’ to ’tax; on the  sale  and purchase  of goods’. [355 F-G] Abdul Quader [1964] 6  S.C.R. 867, approved.               Ashoka  Marketing  [1970] 3  S.C.R.  455,  not               approved.  Orient Paper Mills [1962] 1  S.C.R.               549,  referred to. Forfeiture in. s. 37(1)  is               competent legislation. [357 F] 341 5.(a)  The  word "forfeit" in the  inartistically  worded section is plainly punitive, not nakedly confiscatory.   The marginal  note  to  s. 37(1) treats the forfeit  also  as  a penalty.   When it says that the wrongful collections  shall be forfeited it means what it says.  Forfeiture being penal, it must bear the same sense here too. [357 D] (b)The spirit of the provision contained in s. 37(1) lends force to the construction that "collected" occurring in  the expression  "any  sum  collected  by  the  person  shall  be forfeited" means ’collected and kept as his’ by the  trader. If the dealer merely gathered the sum by way of tax and kept it  in suspense account because of dispute about  taxability

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 36  

or was ready to return it if eventually it was not  taxable, it  was not collected.  The word ’collected’ does not  cover amounts gathered tentatively to be given back if found  non- exigible from the dealer. [358 E] (c)The  meaning  of the expression  "shall  be  forfeited" should  be  limited to "shall be liable  to  be  forfeited". Section  37 itself contains a clear clue indicative  of  the sense in which ’shall be forfeited’ has been used.   Section 37(2)  directs  the  Commissioner to  issue  notice  to  the assessee  to  show  cause why a  penalty,  with  or  without forfeiture,  should not be imposed on him.  Stich a  notice, with  specific reference to forfeiture, points to an  option in  the Commissioner to forfeit or not to forfeit or  partly to forfeit.  This is made planner in s. 37(3) which reads  : "The  Commissioner  shall, thereupon, hold  an  enquiry  and shall  make  such  order  as he  thinks  fit".   This  order embraces penalty and forfeiture.  Therefore the Commissioner is  vested  with a discretion to forfeit the  whole  or  any lesser sum or none at all. [359 B-C] Attorney General v. Parsons [1956] A.C. 421, referred to. (d)The  forfeiture should operate only to the  extent  and not  in excess of, the total collections less what has  been returned  to  the  purchasers.  Moreover.  it  is  fair  and reasonable for the Commissioner to consider any  undertaking given  by  the  dealer  that  he  will  return  the  amounts collected from purchasers to them. [359 E] (e)Section  37(4)  properly  read  forbids  penalty   plus prosecution  but permits forfeiture plus  prosecution.   The word "penalty" in its limited sense in s. 37(1) and s. 37(4) does not include forfeiture which is a different  punitive,. category.   Forfeiture is a penalty, in its  generic  sense, but not a penalty in the specific signification in s.  37(1) and (4). [360 A] Kailasam, J. (concurring) Section  37(1) is within the legislative competence  of  the State Legislature. [373 D] 1.(a)  The  principle  in  construing  words   conferring legislative  power  is that the  most  liberal  construction should  be put on the words so that they may have effect  in their widest amplitude.  None of the items in the List is to be  read in a narrow, restricted sense.  Each  general  word should  be  held to extend to all  ancillary  or  subsidiary matters  which  can  fairly and reasonably  be  said  to  be comprehended  in it.  All powers necessary for the levy  and collection of the tax concerned and for seeing that the  tax is not evaded ,ire comprised within the legislative ambit of the   entry  as  ancillary  or  incidental.   It   is   also permissible to levy penalties for attempted evasion of taxes or default in the payment of taxes properly levied. [362  E- F] (b)The plea of a device or colourable legislation would be irrelevant  it  the  legislature is  competent  to  enact  a particular  law.   In  other words, if  the  legislature  is competent to pass a particular law the motive which impelled it to act is not relevant. [371 ] (c)if  what  is  levied  is  a  penalty  for  the   proper enforcement  of the taxing legislation it will be valid;  if on  the  other hand, it is a device to, collect  the  amount unauthorisedly collected, it will be invalid. [371 E] 2.(a)  In  Abdul Quadar’s case this Court  held  that  in regard  to sums collected by a dealer by way of  tax,  which are not in fact exigible as tax, the 342 State legislature cannot direct them to be paid over to  the Government  because  the ambit of  ancillary  or  incidental

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 36  

power does not permit the State Legislature to provide  that the amount which is not exigible as tax under the law  shall be paid over to the Government as if it were a tax. [370  E- F] (b)In  Orient  Paper Mills’ case this Court  held  that  the Legislature   was  competent  to  grant  refund  of  a   tax unauthorisedly  collected and paid to the Government,  to  a person  from whom the dealer had realised the amount.   This view had been approved by this Court both in Abdul  Quadar’s case  is  well  as in Ashoka  Marketing.  case.   In  Ashoka Marketing  case, however, this Court held that Orient  Paper Mills’  case  does  not  support the  plea  that  the  State Legislature is competent to legislate for demanding  payment to  the  State  or  retaining by the  State  of  the  amount recovered  by  a registered dealer, which were  not  due  as sales tax.  These cases, as also the decision of this  Court in Kanti Lal Babulal, clearly laid down that it is competent for  the  State  Legislature to provide for  a  penalty  for correcting  any  amount  wrongly? by way of tax,  if  it  is levied,  for,.  the purpose of carrying out the  objects  of taxing legislation. [370 F-G] R.Abul  Quader and Co. v. Sales Tax  Officer,  Hyderabad. [1964] 6 S.C.R. 867, followed. Orient Paper Mills Ltd. v. The State of Orissa & Ors. [1962] 1 S.C.R. 549, Ashoka Marketing Ltd. v. State of Bihar & anr. [1970]  3 S.C.R. 455, and Karti Lal Babulal v. H.  C.  Patel [1968] 1 S.C.R. 735, referred to. 3.The  assessee’s  contention that forfeiture  is  not  a penalty cannot be accepted. [372 C] (a)Forfeiture  is  one  form of  penalty.   Forfeiture  of property  is  one  of the punishments provided  for  in  the Indian  Penal Code.  For contravention of the sales tax  law the  section  provides  two forms of punishment  :  levy  of penalty  and  forfeiture.  Therefore, the use  of  the  word forfeiture"   as  distinct  from  penalty  will   not   make forfeiture any the less a penalty. [372 C] (b)A combined reading of s. 37 and s. 55 (which deals with appeals)  makes  it clear that it is not obligatory  on  the part  of  Commissioner  to direct  that  the  entire  amount collected  by way of tax in contravention of the  provisions of the Act be forfeited.  Nor again, is it obligatory on the authorities to levy a penalty which is identically the  same as  the amount unauthorisedly collected.  The amount  to  be forfeited will have to be determined taking into account all the relevant circumstances.  Therefore, the contention  that the   forfeiture  is  only  a  device  for  recovering   the unauthorised collection has no force. [372 F-G] (c)The  plea  that  penalty should  be  confined  only  to wailful acts of omission and commission in contravention  of the  provisions of an enactment cannot be  accepted  because penal  consequences  can be visited on acts which  are  com- mitted  with  or  without a guilty  mind.   For  the  proper enforcement  of  various  provisions of  law  it  is  common knowledge  that  absolute  liability  is  imposed  and  acts without mens rea are made punishable. [372 H] (d)Further,  Courts cannot declare that an Act  is  beyond the  legislative competence of the State Legislature on  the ground that, while under the Act the amounts erroneously  or innocently  collected  by the assessees were  forfeited,  an obligation remained with the assessees to refund the amounts to the persons from whom they were collected.  The mere fact that in some cases dealers were prejudiced would not  affect the validity of the legislation. [373 B-C] (e)Section   46(2)  is  not  unconstiutional.    For   the enforcement of sales tax law such a provision is  absolutely

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 36  

necessary,   for,  without  such  prohibition   unauthorised collection of tax can never be checked.  Sales tax law  will have to demarcate articles on which tax can be collected and prohibit  collection of tax in any manner not authorised  by law. [373 E-F] 343 4.The plea- as to contravention of art. 14 has no  force. No  arbitrary  or uncanalised power has been  given  to  the authorities.   While  the proceedings are in the  nature  of penalty  and  forfeiture under s. 37, it  is  punishment  by criminal prosecution under s. 63(1)(h).  Section 37 makes it clear that when proceedings are taken under that section, no prosecution can be instituted under s. 63(1)(H) on the  same facts. [374 A] 5. The plea based on infringement of art. 19(1)(f) must also fail. [374 C] The  plea which was available in.  Kantilal Babulal’s  case, namely,  that  the :forfeiture was  enforced  without  prior enquiry and for that reason the section was invalid, is not available in this case because s. 37(3) prescribes the  pro- cedure  which  makes  it  obligatory  on  the  part  of  the Commissioner  to give notice of show cause against  levy  of penalty  or forfeiture.  Further, under this Act, there  are provisions    for   appeal   and   revision   against    the Commissioner’s ,orders. [374 B]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal Nos.  533  and 1004 ,of 1975. From  the  Judgment and Order dated 16-8-73 of  the  Gujarat High ,Court in S.C.A. Nos. 421 and 508 of 1971 and           CIVIL APPEALS NOS. 1410 and 1671-1685/75 From  the  Judgment and Order dated 16-8-73 of  the  Gujarat High Court  in SCA No. 400, 377 and 1220/70 and  30,  129, 155,  184, 362, 363, 391, 406, 822, 823 and 1764/71 and  234 and 449/72. S.T.  Desai and R. M. Mehta, M. N. Shroff and Miss  Radha Rangaswami  for the Appellants in CAs. 533, 1004,  and  1410 and 16711685/75. F.S. Nariman, M. N. Shroff and Miss Radha Rangaswami for the Intervener (State of Maharashtra) in CA No. 1410/75. Kanishkar H. Kaji, Mrs. S. Bhandare, M. S. Narasimhan, A. K. Mathur, A. K. Sharma, and Miss Nalini Paduval for Respondent in CA 1671/75. K.   J. John for Respondents in CA 1685/75. B.   Sen (CA 533/75) I. N. Shroff for Respondent No. 1 in CA 533 and RR in C.As. 1677-78, 1680 and 1682-1683/75. The following Judgments of the Court were delivered KRISHNA IYER, J. This bunch of appeals brought by the  State of  Gujarat by certificate has a pan-Indian impact,  as  the sale-tax  project  which has been struck down  by  the  High Court  may  adversely  affect  cousin  provisions  in   like statutes in the rest of the country.  Contradictory verdicts on  the constitutionality of a certain pattern of  sales-tax legislation, calculated to counter consumer victimisation by dealers,  have  been rendered by different High  Courts  and what  complicates the issue is that seasonings in the  prior rulings  of this Court on the topic have been  pressed  into service by both sides.  This slippery legal situation  makes it  necessitous  for the Constitution Bench  of  this  Court (numerically  expanded,  almost to breaking  point,  by  the recent 42nd 344

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 36  

Constitution  Amendment)  to declare the law  with  relative certitude,   reviewing,   in  the  process,   its   previous pronouncements  and over-ruling, ’if required, the  view  of one High Court or the other so that the correct position may finally be restated.  The certainty of the law is the safety of the citizen and, having regard to the history of judicial conflict reflected in the rulings we will presently unravel, an authoritative: decision is overdue. A  prefatory caveat.  When examining a legislation from  the angle  of  its  vires, the Court has to  be  resilient,  not rigid, forward-looking, not static, liberal, not verbal in interpreting  the organic law of the nation.  We  must  also remember  the constitutional proposition enunciated  by  the U.S. Supreme Court in Munni v. Illinois(1) viz ’that  courts do  not  substitute their social and  economic  beliefs  for the  judgment  of  legislative  bodies’.   Moreover,   while trespasses   will   not  be  forgiven,  a   presumption   of constitutionalty  must colour judicial construction.   These factors, recognised by our Court, are essential to the modus vivendi between the judicial and legislative branches of the State, both working beneath the canopy of the Constitution. The  meat  of the matter-rather, the core  of  the  dispute- ignoring,.  for  the  moment,  minor  variations  among  the several   appeals  which  we  may  relegate   for   separate treatment-is  as to whether it is permissible for the  State Legislature  to enact, having regard to the triple Lists  of the  Seventh  Schedule  and Articles 14 and  19,  that  sums collected  by  dealers  by  way of sales  tax  but  are  not exigible  under the State lawand, indeed, prohibited by  it- shall be forfeited to the public exchequer punitively  under Entry  54 read with Entry 64 of List II.  The Gujarat  State whose law, in this behalf, was held ultra vires by the  High Court, has, in its appeal by certificate, raised this  issue squarely and argued for an answer affirmatively.  The law we are concerned with is the Bombay Sales Tax Act, 1959 (Bombay Act  LI of 1959) (for short, the Act) applicable during  the relevant period to the Gujarat State, although the State  of Maharashtra  itself has since modified, the law, as  pointed out by Shri Nariman, who intervened on behalf of that State, to   supplement  and  substantiate  the  validity   of   the legislation. The statutory provisions which have succumbed to unconstitu- tionality (as expounded by the High Court) are ss. 37(1) and 46 of the Act.  The High Court of Maharashtra, however,  has taken  a diametrically opposite view and other  High  Courts have  ranged  themselves on one side or the  other  in  this controversy,  while  dealing  with  more  or  less   similar statutes.  We confine our judgment to the Act that is before us  and  do not go into the validity of the  other  statutes which  have  been incidentally referred to  in  court.   The point involved is so critical, yet delicate, that, that even short  but  significant  variations in  the  scheme  of  the statute may well spell a result which is opposite. We  will now proceed to project preliminarily  the  factual- legal  setting in order to appreciate whether the  legicidal blow  delivered  by  the  High  Court  is  merited  or  not. Fortunately, the facts are few and (1)  (1876) 94 U.S. 113 (quoted in Lahor Board v. Jones  and Laughlin,  301  U.S. 1, 33-34-Corwin,  Constitution  of  the U.S.A., Introduction, p. xxxi). 345 not  in  dispute and lend themselves to sharp focus  on  the legal screen.  The respondent, a registered dealer under the Act, was, by implication of the provisions, eligible to pass on sales-tax leviable from him to the purchaser but  several

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 36  

commodities,  especially the necessaries of life,  were  not liable  to tax (s. 5).  Other situations  of  non-exigibibty also  exist.  Yet several dealers showed a  tendency,  under the guise of sales tax levy, to collect from buyers such tax even in regard to taxfree items or sums in excess of the tax payable  by  them  or  where  the  dealers  were  not   even assessable.   The likelihood of such abuse of the  sales-tax law induced the legislature to protect the public from  this burden  by enacting a prohibition under s. 46  against  such collection from customers.  A mere prohibitory provision may remain a ’pious wish’, unless, to make it  effective,  the statute puts teeth into it.  Section 37(1) (a) and s. 63 (1) (h)   are  the  claws  of  s.  46  which  go  into   action, departmentally or criminally, when there is violation.  Even here we may read s. 46 (1) and (2) :               "46(1) No person shall collect any sum by  way               of  tax  in respect of sale of  any  goods  on               which  by  virtue  of  section  5  no  tax  is               payable.               (2)No  person,  who  is  not  a  Registered               dealer and liable to pay tax in respect of any               sale or purchase, shall collect on the sale of               any goods any sum by way of tax from any other               person and no Registered dealer shall  collect               any  amount  by way of tax in  excess  of  the               amount  of  tax  payable  by  him  under   the               provisions of this Act. Although there is no specific provision enabling the  dealer to  pass  on the tax to the customer, there is  a  necessary implication  in  s. 46 authorising such recovery,  it  being optional for him to do so or not.  The primary liability  to pay  the tax is on the dealer but it is a  wellestab  lished trade practice which has received express or implied  legis- lative  cognisance, that the dealer is not  prohibited  from passing  on the tax to the other party to the sale.  Such  a usage  is  implicit  in s. 46 of the A&.  although  what  is explicit in the provision is that nothing shall be collected by way of tax in respect of sale of any goods exempted under s. 5 and no registered dealer shall exact by way of tax  any sum exceeding what is payable under the Act.  Of course  one who  is not a registered dealer, cannot collect any  sum  by way  of  tax from any other person.  In short,  there  is  a triple  taboo writ into s. 46.  This prohibitory project  is made operational, as stated earlier, by two other provisions one sounding in criminal and the other in departmental  pro- ceedings. Section  63  (1) (b) makes it an offence to  contravene  the provisions of s. 46 (read above) and imposes, on conviction, a punisbment of simple imprisonment (upto 6 months) with  or without  fine (upto Rs. 2.000/-). We may excerpt s.  63  (1) (h) since that may have, to be referred to later               "63 (1) (b)               Whowever contravenes any of the provisions  of               section 46,               shall  on conviction, be punished with  simple               imprisonment               11-768SCI/77               346               which  may extend to six months or  with  fine               not  exceeding  two thousand rupees,  or  with               both;  and  when the offence is  a  continuing               one,  with  a  daily fine  not  exceeding  one               hundred   rupees   during   the   period    of               continuance of the offence." Section    37(1)   relates   to   imposition   of    penalty

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 36  

departmentally for contravention of s. 46.  It reads               "37(1) (a)               If  any person, not being a dealer  liable  to               pay  tax under this Act, collects any  sum  by               way of tax in excess of the tax payable by in,               or otherwise collects tax in contravention  of               the  provisions  of section 46,  he  shall  be               liable  to  pay, in addition to  any  tax  for               which he may be liable, a penalty as follows :               (i)where  there  has been  a  contravention               referred  to  in clause (a), a penalty  of  an               amount not exceeding two thousand rupees;.’. .               and, in addition,. . . . any sum collected  by               the  person by way of tax in contravention  of               section  46  shall be forfeited to  the  State               Government." (emphasis supplied). The provisions impugned are ss. 46 and 37(1) (especially the underscored  part)  and  the  grounds  urged  to  make   out unconstitutionality are dealt with below. It  is  fair  to  state that Shri  Kaji  and  Shri  B.  Sen, appearing   for  two  separate  dealers,  did   dispel   the impression  that the Trade was often to blame for abuse  and did  make  out  that in many cases  the  Revenue  drove  the dealers  to collect, by way of tax, sums from the  customers since  the  law was uncertain and  was  often  overzealously interpreted against the assessees by the Caesarist officials of  the department.  For instance, the  assessing  authority construed  the  entries in the Act  habitually  against  the assessees  or wriggled out of legal and constitutional  bans compelling them to go up in litigation to the High Court and the  Supreme  Court and win their point only to  find  that, after  all the expense and delay and strenuous endeavour  to establish  that  the tax was not  exigible,  the  department quietly resorted to the forfeiture provision.  ’Heads I win, tails  you lose’-was the comfortable of the Revenue,  thanks to the draconic attitude of the tax collectors to view  with hostility  any  legitimate claim for  exemption.   The  pur- chasing  public eventually suffered, as the  merchants  were not  eager  for  phyrric victories  by  litigating  for  tax exemption. Shri  Kaji  mentioned,  for  instance,  the  case  of  works contracts,  forward  contracts,  hire-purchase   agreements, compulsory  transfers, casual sales, artistic works and  the like  where the persistence of the department drove  dealers to  achieve  victorious futilities, for, at the end  of  the litigation,  they did succeed in law but lost in  fact,  the money  being  claimed  back  under  S.  37(1)  (a)  by   the Commissioner. Shri  B. Sen, appearing for the respondent in  Civil  Appeal No.  533  of 1975 bad a more sorrowful tale  to  tell.   The honest dealer made 347 a return of the total slims collected by him on the turnover and it was discovered by the sales tax officer that  certain items  were not taxable and, therefore, refund was due.   He directed  refund  and followed it up with  an  ironic  post- script,  as it were, forfeiting that amount under  s.  37(1) (a) of the Act.  Certainly, these illustrations do emphasize that  the  scope of s. 37(1) (a) is not restricted  to  sums collected along with the price by dealers by way of tax with a touch of turpitude but also innocently on the strength  of the actual or anticipated (albeit) erroneous view of the tax officers  themselves.   Certainly,  the  fiscal  minions  of Government,  if they blatantly misuse power and  overtax  to bring  discredit  to  a benignant State,  must  be  publicly

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 36  

punished since respect for the law is not a one-way  street. We  will bear this in mind when discussing the vires of  the challenged  provisions, although even here we  must  mention that  a large number of dealers for whom the legislation  is made  apparently envisage guilty levies under the  guise  of sales  tax.   A  law  has to be  adjudged  for  its  consti- tutionality by the generality of cases it covers, not by the freaks and exceptions it martyrs.  In any view, the fact  is not  disputed that the dealers against whom s. 46 and s.  37 (1) (a) have been applied have collected sums by way of  tax which  are  not exigible as tax.  The respondents  have  all collected  from their customers amounts qua sales tax  which come  within  the  coils  of  s.  46.   The  tax   officials discovered this deviance and, acting on the prohibition plus penalty  contained  in  s. 46 read with  s.  37(1),  imposed penalties and forfeited the sum collected by the persons  by way  of tax in contravention of s. 46 less amounts shown  to have  been refunded to the customers as wrong levy of  sales tax.   The last limb of forfeiture, sustainable if s.  37(1) were  intro vires in toto, has been invalidated by the  High Court; and the aggrieved State, bewailing the huge financial implications  of this holding and urging that  the  morality and  competency of the impugned provision  is  unassailable, has  appealed.  We may also state that Sbri S. T. Desai  has assured  the Court that the conscionable stand of the  State is-and they will abide by this assurance-that if the  dealer repays  to  the purchaser the forfeiture will not  apply  to such sums. The   trinity  of  points  in  controversy  turns   on   (a) legislative  competency; (b) contravention of Art.  19;  and (c) breach of processual equality guaranteed under Art.  14. The  pivotal problem is one of legislative competency.   The other  two, if good, are sufficient to void  the  provisions under  challenge but have been feebly put  forward,  counsel being perhaps aware of the bleak prospects. He  who  runs and reads gets the  facts  without  difficulty since  the  Revenue has done nothing more than  forfeit  the sums recovered from customers by dealers in the teeth of  s. 46,  less refunded sums, if any.  Even so, the State,  under our  constitutional scheme, has limited  legislative  powers restricted to List IT and List III of the Seventh  Schedule. If s. 37(1) (a) spills over the Entries in List 11  (Entries 54  and  64) and cannot be salvaged under  the  doctrine  of ancillary   powers,   the   law  must   be   bad,   morality notwithstanding.   The State has no divine right to rob  the robber.  The money, if illegally gathered either by  mistake or by mendacity, must go back to whom it belongs, and not to the  State.  Nor is there any legislative entry  which  arms the State to 348 sweep  all  illegal  levies connected with  sales  from  the merchant community into its coffers.  This is the kernel  of the  submission which has appealed to the High  Court.   The counter-argument  which has been urged by Shri S. T.  Desai, for the State, reinforced by added glosses by Shri  Nariman, is that the State has the right not merely to impose tax  on sales but to ensure that the sales tax law is not misused by the  commercial  community to fob off  pseudo-fiscal  burden upon  the  consumer community.  It  is  elementary  economic theory  that while the legal burden of sales tax falls  upon the dealer, the fiscal impact is eventually on the consumer. A  Welfare  State,  with  its logos  and  legend  as  social justice,  has a sacred duty while it exercises its power  of taxation  to police the operation of the law in such  manner as to protect the public from any extra burden thrown on  it

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 36  

by merchants under cover of the statute. Bearing  in  mind the quintessential aspects  of  the  rival contentions, let us stop and ’take stock.  The facts of  the case  are plain.  The professed object of the law is  clear. The motive of the legislature is irrelevant to castigate  an Act  as  a  colourable  device.   The  interdict  on  public mischief  and  the insurance of consumer  interests  against likely, albeit, unwitting or ’ex abundanti cautela’ excesses in  the  working of a statute are not  merely  an  ancillary power but surely a necessary obligation of a social  welfare state.  One potent prohibitory process for this consummation is to penalize the trader by casting a no-fault or  absolute liability  to  ’cough up’ to the State  the  total  ’unjust’ takings snapped up and retained by him ’by way of tax’ where tax  is  not  so due from him,  apart  from  other  punitive impositions  to deter and to sober the merchants whose  arts of dealing with customers may include ’many a little makes a mickle’.   If  these steps in reasoning have  the  necessary nexus  with  the  power to tax under Entry 54  List  11,  it passes one’s comprehension how the impugned legislation  can be  denounced  as exceeding legislative competence or  as  a ’colourable    device’    or    as    ’supplementary,    not complementary’.   But this is precisely what the High  Court has  done,  calling  to its aid  passages  culled  from  the rulings  of  this  Court  and  curiously  distinguishing  an earlier  Division  Bench  decision  of  that  very  Court  a procedure which, moderately expressed, does not accord  with comity,  discipline and the rule of law.  The puzzle is  how minds  trained to objectify law can reach fiercely  opposing conclusions. Expressions like ’colourable device’ and ’supplementary  and not complementary’ have a tendency to mislead., Logomachy is a  tricky  legal  trade;  semantic  nicety  is  a   slippery mariner’s   compass   for  courts  and   the   three   great instrumentalities have, ultimately, to render account to the justice-constituency  of the nation.  The true diagnosis  of interpretative   crises  is  as  much  the   perplexity   of deciphering  the  boundaries  of  constitutional  power   as attitudinal ambivalence and economic predilections of  those who  sit  to scan the symbol- and  translate  their  import. Shakespeare unconsciously haunts the balls of justice : ’Thy wish  was father, Harry, to that thought’ (Henry  IV,  Scene 5).    In   our  view,  the  true  key   to   constitutional construction is to view the equity of the statute and  sense the social mission of the law, language permitting,  against the triune facets of justice high-lighted in the Preamble 349 to   the   Paramount  Parchment,  read   with   a   spacious signification  of the listed entries concerned.  If then  we feed  this programme into the judicial cerebration with  the presumption  of  constitutionality  superadded,  the  result tells  us  whether the measure is ultra vires or  not.   The doctrine of ancillary and incidental powers is also embraced within this scheme of interpretation. An overview of the relevant string of rulings of this  Court may now be undertaken.  The basic ratio, if we may  condense the  legal  test that divides the  constitutional  from  the unconstitutional, is that if all that the legislation  means to  do is to take over, whatever the verbal veils worn,  the collections which were ex hypothesis not sales tax but  were illegal  additives as if sales tax were due,  charged  along with the price by the dealer, then such an expropriation  of the  expropriators  (putting  it in  a  morally  favourable, though exaggerated, light for the State) is beyond Entry  54 and  therefore  ultra vires.  On the other  hand,  all  real

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 36  

punitive  measures,  including  the  dissuasive  penalty  of confiscating the excess collections, are valid, being within the  range of ancillary powers of the legislature  competent to exact a sales tax levy.  The punitive impost in S. 37 (1) (a)  is therefore legitimate and valid.  If we  accept  this test,  the  appeals must succeed, so far as  this  point  is concerned. Before scanning the decisions to discover the principle laid down  therein,  we may dispose of the contention  which  has appealed  to  the High Court based on  ’colourable  device’. Certainly,  this a malignant expression and when flung  with fatal  effect at a representative instrumentality  like  the Legislature,  deserves serious reflection.   If,  forgetting comity,  the  Legislative wing charges the  Judicative  wing with  "  colourable’  judgments,  it  will  be   intolerably subversive  of  the  rule of law. Therefore,  we  too  must restrain  ourselves  from  making  this  charge  except   in absolutely plain cases and pause to understand the import of the  doctrine  of  colourable  exercise  of  public   power, especially  legislative  power.   In  this  branch  of  law, ’colourable’ is not tainted with bad faith or evil  motive’; it   is   not   pejorative   or   crooked.     Conceptually, ’colorability’  is  bound up with  incompetency.   ’Colour’, according  to Black’s Legal Dictionary, is  ’an  appearance, semblance or simulation, as distinguished from that which is real...  a deceptive appearance ... a lack of  reality’.   A thing is colourable which is, in appearance only and not  in reality,  what  it purports to be.  In Indian terms,  it  is may.  In the jurisprudence of power, colourable exercise  of or fraud on legislative power or, more frightfully, fraud on the Constitution, are expressions which merely mean that the legislature  is  incompetent  to  enact  a  particular  law, although the label of competency is stuck on it, and then it is  colourable legislation.  It is very important to  notice that if the legislature is competent to pass the  particular law,  the motives which impel it to pass the law are  really irrelevant.  To put it more relevantly to the case on  hand, if a legislation, apparently enacted under one Entry in  the List, falls in plain truth and fact, within the content, not of that Entry but of one assigned to another legislature, it can  be  struck down as colourable even if the  motive  were most  commendable.   In other words, the letter of  the  law notwithstanding, what is the pith and substance of the Act ? Does 350 it  fall  within any entry assessed to that  legislature  in pith  and substance, or as covered by the  ancillary  powers implied  in  that Entry?  Can the legislation be  read  down reasonably   to   bring   it   within   the    legislature’s constitutional  powers ? If these questions can be  answered affirmatively, the law is valid.  Malice or motive is beside the   point,   and  it  is  not   permissible   to   suggest parliamentary incompetence on the score of mala fides. So much is well-established law.  Therefore, if the  dealers in the appeals before us charge the enactment with the  vice of  colourability,  they  must make out  that  in  pith  and substance  the  impugned legislation does  not  fall  within Entry  54  read  with Entry 64 of List II, that  it  is  not embraced  even  by the expansive  connotation  of  ancillary powers  and that it is not possible to save the law even  by reading  down  some of the wide expressions  used.   In  the present  case,  the  narrow  issue  is  as  to  whether  the forfeiture  clause  in  S.  37(1)  is  bad  because  of  the besetting sin of colourability.  If it is a punitive measure to protect public interest in the enforcement of the  fiscal

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 36  

legislation,  it falls squarely within the area  of  implied powers.  Therefore, the finer point stressed by Shri Kaji is that the expression ’forfeiture’ is a ritualistic recital to cover  up  a secret design to snatch from the  traders  sums which  cannot  be  reached  at  except  by  the  device   of forfeiture.  III frank fact, it is not a measure of  penalty but an oblique methodology to do an illegitimate thing which is  beyond  the legislature’s legitimate  reach.   We  have, therefore,  to examine this short point in the light of  the decisions of this Court. Coming  to  ’forfeiture’, what is the true  character  of  a ’forfeiture’  ?  Is  it punitive in  infliction,  or  merely another  form of exaction   of money by one from  another  ? If it is penal, it falls within implied powers.  If it is an act  of  mere transference of money from the dealer  to  the State, then it falls outside the legislative entry.  Such is the  essence  of  the  decisions  which  we  will  presently consider.   There  was  a  contention  that  the  expression ’forfeiture’  did not denote a penalty.  This, perhaps,  may have  to  be decided in the specific setting of  a  statute. But, speaking generally, and having in mind the object of s. 37  read  with  S.  46, we are inclined  to  the  view  that forfeiture has a punitive impact.  Black’s Legal  Dictionary states that ’to forfeit’ is ’to lose, or lose the right  to, by  some  error,  fault,  offence or  crime’,  ’to  incur  a penalty.’  ’Forfeiture’,  as  judicially  annotated,  is  ’a punishment   annexed   by  law  to  some  illegal   act   or negligence. . . ., ’something imposed as a punishment for an offence  or  delinquency.’  The  word,  in  this  sense,  is frequently associated with the word ’penalty’, According  to Black’s Legal Dctionary.               "The    terms   ’fine’,   ’forfeiture’,    and               ’penalty’,  are often used loosely,  and  even               confusedly; but when a discrimination is made,               the  word ’penalty’ is found to be generic  in               its   character,  including  both   fine   and               forfeiture.  A ’fine’ is a pecuniary  penalty,               and   is  commonly  (perhaps  always)  to   be               collected   by   suit   in   some   form.    A               ’forfeiture’  is a penalty by which one  loses               his rights and interest in his property." 351 More  explicitly, the U. S. Supreme Court has explained  the concept   of  ’forfeiture’  in  the  context  of   statutory construction.  Chief Justice Taney, in the State of Maryland v. The Baltimore & Ohio RR Co.(1) observed               "And  a provision, as in this case,  that  the               party shall forfeit a particular sum, in  case               he  does not perform an act required  by  law,               has  always, in the construction of  statutes,               been  regarded  not  as a  contract  with  the               delinquent party, but as the punishment for an               offence.    Undoubtedly,   in  the   case   of               individuals, the word forfeit is construed  to               be the language of contract, because  contract               is  the  only  mode in which  one  person  can               become liable to pay a penalty to another  for               breach  of duty, or the failure to perform  an               obligation.    In   legislative   proceedings,               however, the construction is otherwise, and  a               forfeiture  is  always  to be  regarded  as  a               punishment  inflicted for a violation of  some               duty  enjoined,  upon the party  by  law;  and               such, very clearly, is the meaning of the word               in the act in question."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 36  

             The  same connotation ha.-; been  imparted  by                             our Court too.  A Bench has held : (2)               "According  to the dictionary meaning  of  the               word ’forfeiture’ the loss or the  deprivation               of  goods  has got to be in consequence  of  a               crime, offence or breach of engagement or  has               to  be by way of penalty of the  transgression               or  a punishment for an offence.   Unless  the               loss or deprivation of the goods is by way  of               a  penalty or punishment for a crime,  offence               or  breach  of engagement it  would  not  come               within the definition of forfeiture." This  word  ’forfeiture’  must bear the same  meaning  of  a penalty  for  breach of a prohibitory direction.   The  fact that  there is arithmetical identity, assuming it to be  so, between  the figures of the illegal collections made by  the dealers and the amounts forfeited to the State cannot create a  conceptual  confusion  that  what  is  provided  is   not punishment  but  a transference of funds.  If this  view  be correct, and we hold so, the legislature, by inflicting  the forfeiture, does not go outside the crease then it hits  out against  the dealer and deprives him, by the penalty of  the law,  of the amount illegally gathered from  the  customers. The  Criminal  Procedure  Code, Customs &  Excise  Laws  and several  other  penal statutes in India  have  used  diction which  accepts  forfeiture  as  a  kind  of  penalty.   When discussing the rulings of this Court we will explore whether this true nature of ’forfeiture’ is contradicted by anything we can find in ss. 37(1), 46 or 63.  Even here we may reject the notion that a penalty or a punishment cannot be cast  in the  form of an absolute or no-fault liability but  must  be preceded by mens rea.  The classical view that ’no mens rea, no crime’ has long ago been eroded and several laws in India and (1)  11 Led. 714, 722. (2)  Bankura  Municipality v. Lalji Raja and Sons  :  A.I.R. 1953 S.C. 248, 250. 352 abroad,    especially   regarding   economic   crimes    and departmental penalties, have created severe punishments even where  the offences have been defined to exclude  mens  rea. Therefore, the contention that S. 37 (1)     fastens a heavy liability  regardless  of fault has no force in  depriv  the forfeiture of the character of penalty. We shall now turn to the plethora of precedents which  have, accumulated   over   the  years  dealing  with   sales   tax legislations from different States, the patterns varying  in structure,  although the financial impact on the dealers  is the  same.  The landmark case is Abdul  Quader(1),  although Ashoka Marketing Co.(2) and Annapoorna Biscuit Mfg.  Co.(3), among others are also pertinent decisions.  While there  are earlier decisions, we may as well start off with Abdul  Qua- der(1).   There,  the appellant dealer collected  sales  tax from  the  purchasers of betel leaves but did  not  pay  the amount  so  collected  to  the  government.   When  the  tax authorities  directed the appellant to pay the said  amounts into the treasury, he filed a writ petition questioning  the validity  of S. 1 1 (2) of the Hyderabad General  Sales  Tax Act,  1950  which  was  the  authority  relied  on  by   the government  to  make the direction.  The  problems  and  the answer  thereto  squarely stated by  Shri  Justice  Wanchoo, speaking  for the Court.  We may except that  portion  which formulates the question and furnishes the answer.               "The  first question therefore that falls  for               consideration  is whether it was open  to  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 36  

             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 was 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  are  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.   The               provision however is attempted to be justified               on  the ground that though it may not be  open               to  a State legislature to make provision  for               the  recovery of an amount which is not a  tax               under  Entry 54 of List 11 in a law  made  for               that  purpose, it would still be open  to  the               legislature to provide for paying over all the               amounts  collected by way of tax  by  persons,               even  though they really are not  exigible  as               tax,  as part of the incidental and  ancillary               power  to  make  provision for  the  levy  and               collection  of  such  tax.  Now  there  is  no               dispute  that the heads of legislation in  the               various  Lists in the Seventh Schedule  should               be  interpreted  widely so as to take  in  all               matters which are of a character incidental to               the topics mentioned therein.  Even so,  there               is  a  limit to such incidental  or  ancillary               power flowing from the legislative entries in               (1)[1964] 6 S.C.R. 867.               (2)[1970] 3 S.C.R. 455.               (3)[1973] 3 S.C.R. 987.               353               the  various  Lists in the  Seventh  Schedule.               These incidental and ancillary powers have  to               be  exercised  in  aid of the  main  topic  of               legislation, which, in the present case, is  a               tax on sale or purchase of goods.  All  powers               necessary for the levy and collection of  the               tax  concerned and for seeing that the tax  is               not  evaded are comprised within the ambit  of               the   legislative   entry  as ancillary or               incidental.   But where the legislation  under               the relevant entry proceeds on the basis  that               the  amount  concerned is not a  tax  exigible               under the law made under that entry, but  even               so  lays down that though it is  not  exigible               under  the  law,  it shall  be  paid  over  to               Government,  merely  because some  dealers  by               mistake or otherwise have collected it as tax,               it is difficult to see how such provision  can               be  ancillary or incidental to the  collection               of tax legitimately due under a law made under               the  relevant taxing entry.  We do  not  think               that  the  ambit of  ancillary  or  incidental               power  goes  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 law as made under the  relevant               taxing  entry, it shall still be paid over  to               Government,  as  if  it  were  a  tax.    ’The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 36  

             legislature  cannot under Entry 54 of List  11               make  a  provision  to the  effect  that  even               though a certain amount collected is not a tax               on the sale or purchase of goods as laid  down               by  the law, it will still be collected as  if               it  was such a tax.  This is what s. 1  1  (2)               has provided.  Such a provision cannot in  our               opinion be treated as coming within incidental               or ancillary powers which the legislature  has               got under the relevant taxing entry to  ensure               that the tax is levied and collected and  that               its   evasion  becomes  impossible.   We   are               therefore   of  opinion  that  the   provision               contained  in S. 1 1 (2) cannot be made  under               entry  54 of List II and cannot  be  justified               even  as an incidental or ancillary  provision               permitted under that entry." (pp. 872873). The  Court proceeded to refer to an attempt made to  justify the provision as providing for a penalty, but found  nothing in  the text to justify the impugned sub-section (2)  of  s. 11,  as  a penalty for breach of any prohibition  under  the Act.  On the other hand, in the setting of the statute,  the Court came to the contrary conclusion :               "Section 11 (2) in our opinion has nothing  to               do with penalties and cannot be justified as a               penalty  on the dealer.  Actually S. 20  makes               provision  in cl. (b) for penalty in the  case               of  breach  of S. 11(1) and makes  the  person               committing a breach of that provision  liable,               on  conviction  by a Magistrate of  the  first               class,  to a fine...... In this connection  we               may  refer to cl. (c) of s. 20 which  provides               that  any person who fails to pay the  amounts               specified  in  subsection (2)  of  section  11               within  the  prescribed  time’  shall,  on   a               conviction by a Magistrate, be liable to fine.               It is remarkable that this provision makes the               person  punishable for his failure to pay  the               amount which is not authorised as a tax at all               under the law, to Government. it               354               does   not   provide  for  a   penalty   (sic)               collecting  the amount wrongly by way  of  tax               from purchasers which may have been  justified               as  a penalty for the purpose of carrying  out               the  objects of the taxing legislation.  If  a               dealer has collected anything from a purchaser               which  is  not authorised by the  taxing  law,               that  is  a matter between him  and  the  pur-               chaser,  and the purchaser may be entitled  to               recover  the  amount  from  the  dealer.   But               unless  the  money so collected’ is due  as  a               tax, the State cannot by law make it  recover-               able  simply  because  it  has  been   wrongly               collected by the dealer.  This cannot be  done               directly for it is not a tax at all within the               meaning  of Entry 54 of List II, nor  can  the               State   legislature   under   the   guise   of               incidental  or ancillary power  do  indirectly               what it cannot do directly."               (p. 874) (underscoring  ours) The  crucial  ratio lies in the  underscored  passage.   Had there  been a penalty, including forfeiture, coupled with  a prohibition against collecting any amount wrongly by way  of tax  from  purchasers,  it ’may have  been  justified  as  a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 36  

penalty  for the purpose of carrying out the objects of  the taxing  legislation.   In  a  sense,  Abdul  Quader  (supra) demarcates  the  constitutional  watershed  between   merely laying  hands  upon  collections by way of  tax  by  traders although they are not exigible from traders (a provision for which the State is underpowered by Entry 54 of List II  even expanding  it  by the doctrine of implied  powers)  and  the policing   by  penalizing,  including   forfeiting   illegal exactions,  the working of a taxing statute  and  inhibiting injury to the public. We  may  now pass on to Ashoka Marketing Co.  (supra)  where this  Court had to consider a slightly  different  provision from what fell for decision in Abdul Quader (supra).  In the latter,  the  provision directed that every person  who  had collected  any  amount  by  way of  tax  otherwise  than  in accordance with the provisions of the Act should pay over to the  government  .... the amount so collected  by  him...... This  was a naked seizure of money collected by  the  dealer there being no prohibition and no penalty and not obligation for  the  government to return such sums to  the  purchasers from whom they were taken.  In Ashoka Marketing Co.  (supra) the  provision  in S. 20A went further.  While  the  illegal collections were to be made over to the Government  treasury it  was further provided that such amounts shall be held  by the  State Government in trust for the person from  whom  it was  realized  by  the  dealer and  the  dealer  himself  on depositing  these  sums into Government  treasury  shall  be discharged  from  his obligation to return the sums  to  the purchasers.   There was an incidental direction that,  on  a claim being made by aggrieved buyers, these dribblers  shall be refunded.  The scheme of cl. (8) of S. 20A made it  clear that  the  legislation was in public  interest,  that  while suits  against  dealers to recover paltry sums  by  a  large number,  of  customers would lead to endless  and  expensive litigation,  a  simpler process of returning those  sums  on application  by  the relevant purchasers would  protect  the common  buyer  while depriving the dealers of  their  unjust gains.  It was manifestly a consumer protection 355 measure,  as  we see it.  Shah, J. speaking for  the  Court, held that this pro bono publico purpose did not dissolve the constitutional disability and ruled :               "The State Legislature may under entry 54 List               II, be competent to enact a law in respect  of               matters necessarily incidental to ’tax on sale               and  purchase  of  goods’.   But  a  provision               compelling  a dealer who has  deliberately  or               erroneously  recovered  an  amount  from   the               purchaser  on  a  representation  that  he  is               entitled  to recover it to recoup himself  for               payment of tax, to pay over that amount to the               State, cannot, in our judgment, be regarded as               necessarily incidental to levying an amount as               tax which the State is incompetent to levy.  A               mere device cannot be permitted to defeat  the               provision of the Constitution by clothing  the               claims in the form of a demand for  depositing               the money with the State which the dealer  has               collected,  but which he was not  entitled  to               collect."                                 (p. 463-464) This  decision  has  been followed by  a  smaller  Bench  in Annapoorna (supra) with no additional reasons adduced. In  Ashoka  (supra) the Bench did not  follow  Orient  Paper Mills(1) where fairly similar provisions were attacked,  but

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 36  

repulsed by this Court with the observation :               "The  Legislature  of  the  Orissa  State  was               therefore  competent  to  exercise  power   in               respect of the subsidiary or ancillary  matter               of granting refund of tax improperly or  ille-               gally  collected,  and the competence  of  the               Legislature in this behalf is not canvassed by               counsel  for the assessees.  If competence  to               legislate  for  granting refund  of  sales-tax               improperly collected be granted, is there  any               reason  to exclude the power to  declare  that               refund  shall be claimable only by the  person               from whom the dealer has actually realized the               amounts by way of sales-tax or otherwise ?  We               see none."               (p. 461 : Ashoka) Despite this holding in Orient(1) the Court-a larger  Bench- held that the taking over of sums collected by dealers  from the  public under guise of tax solely with a view to  return them  to  the  buyers  so  deprived  was  not   ’necessarily incidental’ to ’tax on the sale and purchase of goods’.   We respectfully disagree. In  a  developing  country,  with the  mass  of  the  people illiterate  and  below  the poverty line, and  most  of  the commodities  concerned constitute their daily  requirements, we  see  sufficient nexus between the power to tax  and  the incidental power to protect purchasers from being  subjected to  an unlawful burden.  Social justice clauses,  integrally connected with the taxing provisions, cannot be viewed as (1)  [1962]1 S.C.R. 549. 356 a  mere  device  or wanting in incidentality.   Nor  are  we impressed with the contention turning on the dealer being an agent  (or  not) of the State vis a vis sales tax;  and  why should the State suspect when it obligates itself to  return the  moneys to the purchasers ? We do not think it  is  more feasible for ordinary buyers to recover from the common  run of  dealers  small sums than from government.  We  expect  a sensitive government not to bluff but to hand back.  So,  we largely disagree with Ashoka(supra) while we generally agree with Abdul Quader(supra).  We must mention that the question as  to  whether an amount which is  illegally  collected  as sales  tax can be forfeited did not arise for  consideration in Ashoka (supra). We  may  conclude with the thought that Parliament  and  the State  Legislatures  will make haste  to  inaugurate  viable public  interest  litigation procedures  cutting  costs  and delays.   After all, the reality of rights is  their  actual enjoyment  by  the  citizen and not  a  theoretical  set  of magnificent grants.  ’An acre in Middlesex’, said  Macaulay, ’is  better  than a principality in  Utopia’.   Added  Prof. Schwartz : ’A legal system that works to serve the community is  better  than  the  academic conceptions  of  a  bevy  of Platonic guardians unresponsive to public needs’.(1) A  march past the other decisions of this Court having  some relevance  to  the point at issue is at this  stage  useful. Kantilal  Babulal(2)  dealt with a  provision  substantially similar  to  the  one that falls for  consideration  in  the present  case.   After  laying down  a  prohibition  against collection  by dealers from purchasers of amounts by way  of sales tax ’unless he is a registered dealer and is liable to pay  tax himself’, Section 12A of the concerned Act  (Bombay Sales Tax Act V of 1946) provided that collections  contrary to   the  provision ,hall  be  forfeited  to   the   State Government.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 36  

The   Revenue  urged  that  S.  12A(4),  which  dealt   with ’forfeiture’ was a penal provision incidental to; the  power to tax sales.  The, Court expressly declined to  investigate whether  the  provision was penal at all.  However,  it  was assumed  that a penal provision was within  the  legislative competence   of  the  State  Legislature  and   the   entire discussion,  and  therefore. the sole ratio, turned  on  the alleged  violation of Art. 19(1)(f).  It was held that  Art. 19 was violated because, in the Court’s view the  forfeiture clause  was silent as to the machinery and procedure  to  be followed in determining the question as to whether there had been  a  contravention of s. 12A(1) and (2) and, if  so,  to what  extent.  Processual reasonableness being  absent  Art. 19(1)(f)  stood contravened.  In short, the  whole  decision focussed  on  the  procedural  portion  of  the  law   being repugnant  to Art. 19(1) (f) read with Art. 19(5).   It  did not engage in a consideration of legislative competence. (1)  Bernard  Schwartz; The Law in America; p. 7 :  American Heritige-Bigen- tennial Series. (2)  [1968] 1 S.C.R. 785. 357 Aside  from this case, the other rulings of this Court  like Maneklal(1),  George Ooakes (2), Jhaveri(3)  and  Abdulla(4) have  only a peripheral relevancy.  While we have  listened, persued and reflected over these citations, we have screened them  from specific reference in this judgment  since  these decisions  were  cited by counsel merely to drive  home  the significance of some stray thought expressed in these  judg- ments having but marginal meaningfulness. Skilful  submissions  were made on the construction  of  the text  of  s. 37(1) of the Act to convince us that  the  sub- section  itself  made  a  distinction  between  penalty  and forfeiture, suggesting that forfeiture was not regarded as a penalty.  Side references to a few other sections were  made to  reinforce this thesis.  The identity of the forfeit  and the  illegal collection was also urged by the assessee as  a tell-tale  circumstance  to contend that it could not  be  a penalty.  Moreover, the express penalty in s. 37(1) (a)  had a ceiling while the additive forfeit was unlimited.  A penny worth of penalty and a pound worth of forfeiture proved that the  statute  itself meant the latter to be not  a  penalty. From  a  verbal,  syntactic and structural  angle  there  is something to be said for this submission.  But the heart  of the matter is that the forfeit in the inartistically  worded section is plainly punitive, not nakedly confiscatory. The  marginal note which, in ambiguous situations, may  shed some light, treats the forfeit also as a penalty.  Secondly, the words of a statute are purposeful symbols to be  decoded straight-forwardly,  not by unveiling the- words behind  the words.   And  so,  when s. 37 (1) expressly  says  that  the wrongful  collections  shall be forfeited it means  what  it says.   Forfeiture  being penal, terminologically,  it  must bear  the same sense here too.  Moreover, so far as the  Act of  1959  is concerned, there is no case of  outwitting  any anterior  judicial  verdict.   The fact  that  mens  rea  is excluded  and  the  penal forfeiture  can  be  enormous  are germane to legislative policy, not for judicial  compassion. A  limited penalty, without forfeiture, may  prove  illusory where  the  illegal  collections  run  into  millions.   The inevitable conclusion is that the forfeiture in s. 37(1)  is competent legislation. Before we move on to a consideration of the fragile  charges of  flouting Arts. 19(1)(f) and 14, we may state  that  Shri Nariman’s invitation to take a new look at the problem  need not  be  considered in the view we  take.   The  Maharashtra

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 36  

State,  for  whom  be appears, is  the  intervener  and  the Maharashtra  legislation has a better sense of  equity,  the dealer  being  absolved from purchasers’ claims  a,,,,  Gov- ernment  squarely  undertaking  to repay  them.   We  expect Gujarat  to legislate not merely to forfeit but also  to  be fair to the dealer and buyer.  The possible consequences  of inaction,  which we are not examining, will not be  lost  on that State, we hope. (1)  [1967] 3 S.C.R. 65. (2)  [1062] 2 S.C.R. 570. (3)  [1973] 2 S.C.R. 691. (4) [1971] 2      817. 358 The challenge based on Art. 14 is met by this Courts  ruling in  Maganlal  Chhaganlal(1).  The High Court  has  found  no merit in it either, although, as will be presently seen,  we have  to  read S. 37(1) in such manner as to pare  down  the gaping disparity in impact between s.   37(1)     and     S. 64(1)(h).   Article 19(1)(f) also cannot avail, in  view  of Kantilal(supra)  where  the only infirmity found  by  this Court was procedural. This  shortfall has been made  good in the present Act and the HighCourt itself has rejected the plea as not pressed. Shri Kaji has urged that the dealers will, under the  scheme of  the Act, have the worst of both the worlds and  that  is unreasonable.   The State forfeits the whole illegal  (often erroneous)  collections and the purchasers can  demand  back the  very  same  sums.  There is  injustice  here.   Without holding  that Art. 19(5) is violated, we think the  ends  of justice  can  be met by reading down the  forfeiture  clause interpretatively. Section 37(1) does say that ’any sum collected by the person by  way of tax...... shall be  forfeited.........  Literally read, the, whole sum goes to the State.  Let us suppose  the dealer has returned the whole or part of the collections  to the customers.  Should the whole amount, regardless of  such repayment, be forfeited ? We think not. Section   37(1)  uses  the  expressions,  in   relation   to forfeiture,  ’any sum collected by the person .... shall  be forfeited.’ What does ’collected’ mean here ?  Words  cannot be construed effectively without reference to their context. The  setting colours the sense of the word.  The  spirit  of the provision lends force to the construction that ’collect- ed’ means ’collected and kept as his’ by the trader.  If the dealer merely gathered the sum by way of tax and kept it  in suspense account because of dispute about taxability or  was ready to return it if eventually it was not taxable, it  was not collected.  ’Collected’, in an Australian Customs Tariff Act,  was  held  by Griffth C. J.,  not  ’to  include  money deposited  under  an agreement that if it  was  not  legally payable  it will be returned’, (Words & Phrases, p.274).  We therefore  semanticise  ’Collected’  not  to  cover  amounts gathered tentatively to be given back if found  non-exigible from the dealer. The  expression ’forfeiture’ may now be examined.   For  one thing, there is authority to hold that ’shall be  forfeited’ means ’liable to be forfeited’, depending on the setting and the sense of the statute.  Lord Porter, in Attorney  General v.  Parsons  (2)  observed,  in  the  context  of   language suggestive   of   automatic  forfeiture,   negativing   such inference               "The  strength of the opposite  opinion  rests               upon  the fact that ’forfeiture’ in section  1               (1)  must,  on the construction which  I  have               adopted, mean ’liable to forfeiture,  whereas,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 36  

             as my noble and learned friend Lord Morton  of               Henryton  points out in his opinion,  which  I               have  had an opportunity of reading, it  bears               the  meaning of ’forfeited’ and not liable  to               ’forfeiture in sub-section (2) (iv).  This  is               true,   but  the  collection   is   different.               Admittedly the word ’forfeited’ may bear               (1)   [1975]1 S.C.R. 1.                (2)  (1956) A.C. 421.               359               the meaning ’liable to forfeiture at the  will               of the person to whom the right of  forfeiture               is  given and does not, in every  case,  imply               automatic forfeiture." (p. 443) Lord Cohen, in the same judgment, considered it  appropriate to  read ’forfeiture’ as meaning ’liable, to be  forfeited’. Although  there was a conflict of opinion on this point,  it is sufficient to state that such a construction is  tenable. Moreover,  s. 37 itself contains a clear clue indicative  of the  sense  in  which ’shall be forfeited’  has  been  used. Section  37(2) directs the Commissioner to issue  notice  to the  assessee to show cause why a penalty, with  or  without forfeiture, should not be imposed on him. Such    notice, with specific reference to forfeiture, points to an optionin the, Commissioner to forfeit or not to forfeit or partly  to forfeit. This is made plainer in s.37(3) which reads :  The Commissioner  shall,  thereupon, hold an enquiry  and  shall make  such  order  as he thinks fit.’  This  order  embraces penalty  and  forfeiture.   Therefore  the  Commissioner  is vested with a discretion to forfeit the whole or any  lesser sum  or none at all limit the sense of ’shall be  forfeited’ as meaning ’shall be liable to be forfeited’ This   signification  of  ’forfeiture’  as   ’liability   to forfeiture’   saves   the  equity  of  the   statute.    The Commissioner must have regard to an the circumstances of the case,,  including the fact that amounts illegally  collected have  been  returned to the purchasers to whom  they  belong before  passing the final order.  We are clear in our  minds that  the forfeiture should operate only to the extent,  and not  in excess of, the total collections less what has  been returned  to  the purchasers.  We may go a step  further  to hold that it is fair and reasonable for the Commissioner  to consider  any undertaking given by the dealer that  he  will return  the amounts collected from purchasers to them.   The humanism of a provision may bear upon its constitutionalism. Counsel have argued, is it not unreasonable to forfeit  huge sums and still to expose the dealer to several actions ?  Is it  not discriminatory to make the  departmental  punishment disproportionately  onerous vis a vis  criminal  inflections under  S. 64(1) (h) ? Blessed are they who  are  prosecuted, for  the  criminal law is benign  These  possibilities  only underscore the necessity, even on conviction, of deprivation of  illicit collections as on departmental penalty  imposts, coupled   with   discharge  for   dealers   protector   plus inexpensive and prompt return of sums to purchasers by rough and ready verifications followed by money order remittances. While   we   uphold  the  legislation,   we   suggest   such salvationary  modifications, if constitutionality is to  be, impregnable.  There is no last word in constitutional law. For  the  nonce,  we are satisfied  that  these  speculative interrogations   do  not  destabilize   the   constitutional position.   Moreover, our construction obligates  the  State not  to  forfeit  sums already returned,  undertaken  to  be returned  and the like.  Our direction that the State  shall disgorge  the sums by some easy process, back to the  buyers

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 36  

helps the dealer against claims from the former. The  apparent  apprehension  that the  financial  burden  of forfeiture  can  be avoided if the dealer is  prosecuted  is also not correct.  The cri- 360 minial  court can punish only to the extent specified in  s. 64(1).   Section 37(4), properly read, forbids penalty  plus prosecution,  but permits forfeiture plus prosecution.   The word ’penalty’ in its limited sense in s.    37(1)       and s.37(4)  does  not include forfeiture which is  a  different punitive category.  Forfeiture is a penalty, in its  generic sense,  but not a penalty in the specific  signification  in s.37(1)  and (4). After all, the functionary  is  exercising quasi-judicial   powers   and  not  insisting   on   maximum exactions.   Every consideration which is just and  relevant must enter his verdict lest the order itself be vitiated for being unreasonable or perverse exercise of discretion.   The fulfilment  of the undertaking must be ensured by  necessary guarantees  so that the dealer may not play a  double  grime and  the purchaser stands betrayed.  We are not  giving  any hidebound  prescriptions but stating guidelines  for  taxing authorities who exercise these quasi-judicial powers.  There is  a  tendency  for valiant  tax  executives  clothed  with judicial  powers  to remember their former capacity  at  the expense   of  the  latter.   In  a  Welfare  State  and   in appreciation of the nature of the judicial process, such  an attitude, motivated by various reasons, cannot be commended. The  penalty for deviance from these norms is the  peril  to the  order passed.  The effect of mala fides on exercise  of administrative power is well-established. In  strict  legality, once the money is  forfeited  to  the, State,  there  is  no  obligation to make  it  over  to  the purchaser,  but in the welfare orientation of our State  and certain constitutional emanations we leave unexplored,  such an obligation should be voluntarily undertaken. A  fairly  exhaustive  survey of  case-law  has  been  made, consuming considerable industry of counsel and presenting  a sky-view and groundview of judicial mentation in this branch of sales-tax law, bedrocked on constitutional law.  While we are  edified  by the immense project  undertaken,  in  these crowded  days of explosive docket backlog, the fine  art  of miniaturization, without traumatization, may well be a crea- tive  Darwinan  mutation  in forensic  submissions  for  the survival of the great judicial institution.  Moreover, small can  be beautiful, both in judgments and arguments.  But  we must   append   our  appreciation   of   the   thoroughness, thoughtfulness, perspicacity and persuasiveness of Sarvashri Kaji, B. Sen, S. T. Desai and F. S. Nariman (for the  inter- vener), the plurality of counsel presenting each a  separate facet geared to the same goal of enlightening the Court. For the reasons set out above we allow the appeals, but,  in the circumstances, without costs. It  was submitted by the learned counsel at the time of  the conclusion  of the arguments that some of the appeals  raise points  unconnected  with constitutionality but  turning  on facts  and  legislative construction.   Separate  directions will be issued in regard to such appeals. KAILASAM, J. Civil Appeals Nos. 1410 and 1671-85 of 1976 are by Certificate and the rest are by special leave granted  by this  Court.  The State of Maharashtra is the intervener  in Civil Appeal No. 1410 of 1976. 361 While  I agree with the conclusion reached by  V.  R.Krishna Iyer J. that the appeals should be allowed, would confidence discussion  to  the points that arise for  decision  in  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 36  

appeals. The main question that was raised before the High Court was whether sections  37(1)  (a) and. 46(2)  of  the  Bombay Sales Tax Act, 1959 arebeyond   the   legislative    power conferred by Entry 54, List 11, ScheduleVII   of    the Constitution.  The court held that the impugned  sectionsare beyond  the  power of the State  legislature  and  therefore ultra  vires’  Aggrieved  by  the  decision  the  State  has preferred these appeals.               Section 37(1)(a) and (b) runs as follows               "37. (1)If any person-               (a) (i)not  being a dealer liable  to  pay               tax under this Act, collects any sum by way of               tax, or               (ii)being a registered dealer, collects  any               amount  by  way of tax in excess  of  the  tax               payable by him, or               (ii-a)being a registered dealer, collects               any  amount  by  way  of  additional  tax   in               contravention of the provisions of sub-section               (2) of section 15A-I, or               (iii)otherwise collects tax in  contravention               of the provisions of section 46, or               (b)   being  a dealer liable to pay tax  under               this  Act, or being a dealer who was  required               to  do  so  by the Commissioner  by  a  notice               served  on him fails in contravention of  sub-               section  (1)  of  section 43 to  keep  a  true               account of the value of the goods purchased or               sold  by him, or fails when directed so to  do               under  that  section to keep  any  account  or               record in accordance with the direction,-               he  shall be liable to pay in addition to  any               tax  for which he may be liable, a penalty  of               an amount as follows               (i)   Where  there  has been  a  contravention               referred  to  in clause (a) (i)  or  (iii),  a               penalty   of  an  amount  not  exceeding   two               thousand rupees or double the sum collected by               way of tax-whichever is less.               (ii)Where  there  has been  a  contravention               referred  to in clause (a) (ii) or  (ii-a)  or               clause  (b),  a  penalty  of  an  amount   not               exceeding   two   thousand  rupees,   and   in               addition,  any sum collected by the person  by               way of tax in contravention of subsection  (2)               of  section  15A-I  or  section  46  shall  be               forfeited  to the State Government.  When  any               order of forfeiture is made, the  Commissioner               shall publish or cause to be published a               12--768SCI/77               362               notice  thereof  for the  information  of  the               persons  concerned giving such details and  in               such manner as may be prescribed." Section  46(1) prohibits collection of tax in certain  cases by pro-,tiding that no person shall collect any sum by  way of  tax in respect of sales of any goods on which by  virtue of  section  5 no tax is payable.  Subsection (2)  which  is held to be ultra vires runs,               "46(2)  No  person, who is  not  a  Registered               dealer and liable to pay tax in respect of any               sale or purchase shall collect on the sale  of               any goods any sum by way of tax from any other               person and no Registered dealer shall  collect

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 36  

             any  amount  by way of tax in  excess  of  the               amount  of  tax  payable  by  him  under   the               provisions of this Act;               Provided  that,  this  sub-section  shall  not               apply  where a person is required  to  collect               such amount of the tax separately in order  to               comply  with the conditions  and  restrictions               imposed on him under the provisions of any law               for the time being in force."               Entry  54, List 11, which is relied on by  the               State   as  conferring  power  to  enact   the               impugned sections is :-               "54.   Taxes on the sale or purchase of  goods               other   than   newspapers,  subject   to   the               provisions of entry 92A of List I." The  principle  in construing words  conferring  legislative power is that the most liberal construction should be put on the  words,  so that they may have effect  in  their  widest amplitude.  None of the items in the List is to be read in a narrow  restricted sense.  Each general word should be  held to  extend to all ancillary or subsidiary matters which  can fairly and reasonably be said to be comprehended in it.  All powers  necessary  for the levy and collection  of  the  tax concerned  and  for seeing that the tax is  not  evaded  are comprised  within  the  legislative ambit of  the  Entry  as ancillary  or  incidental.  It is also permissible  to  levy penalties  for attempted evasion of taxes or default in  the payment of taxes properly levied. It has been held that the State legislature under its powers under  Entry  54,  1st 11, cannot make a  provision  to  the effect that the money collected by way of tax even though it is not due as a tax ’under the Act shall be made over to the Government.   The legislature may provide for a penalty  for collecting any amount wrongly by way of tax from purchasers, as  being  for the purpose of carrying out  the  objects  of taxing legislation. The  impugned  section  37 (1 ) (a) imposes  a  penalty  for contravening  certain  provisions,  It provides  that  if  a person not being a dealer tax, or being a Registered  liable to  pay tax collects any sum by way of dealer  collects  any amount by way of tax in excess of the tax payable by him, or being  a  registered dealer, collects any amount by  way  of additional  tax in contravention of the provisions  of  sub- section (2) of 363 section 15A-1, or otherwise collects tax in contravention of the  provisions of section 46, he shall be liable to pay  in addition  to any tax for which he may be liable, a  penalty. The  penalty that is imposed is (1) a penalty of  an  amount not  exceeding  two  thousand  rupees  or  double  the   sum collected  by way of tax whichever is less; (2)  in  certain other cases a penalty not exceeding two thousand rupees, and in  addition, any sum collected by the person by way of  tax in  contravention  of  subsection (2) of  section  15A-1  or section 46 shall be forfeited to the State Government.   The rest  of  the section prescribes the procedure for  levy  of penalty   or  forfeiture.   It  is  thus  provided  that   a contravention would incur levy of a penalty of an amount not exceeding  two  thousand  rupees  in  addition  to  the  sum collected  by  way  of  tax being  forfeited  to  the  State Government.  If the forfeiture is levied for the purpose  of enforcement  of the enactment, it would be valid but if  the forfeiture is for the purpose of collecting the amount which is  wrongly collected. by the assessee, the use of the  word "forfeiture"  would  be merely a device. to get at  the  sum

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 36  

which had been collected in contravention of the  provisions of the Act, and beyond the power of the State legislature as the  intention of the State is to secure the sum  which  has been  collected by the assessee which is not exigible  as  a tax. While  the contention of the State is that it is within  the competence  ,of the State legislature under List  11,  Entry 54,  to impose any penalty including forfeiture of  the  sum unauthorisedly collected by the assessee for the purpose  of proper  enforcement of the Act, the contention on behalf  of the  assessec  is  that the forfeiture of the  amount  is  a device  by  the State to secure  the  amount  unauthorisedly collected  by the assessees, though the amount so  collected is not exigible as tax. The decisions of this Court bearing on the point may now  be examined.  The earliest case is the Orient Paper Mills  Ltd. v.  The State of Orissa and Others.(1). The dealers  in  the case  were  assessed to and paid tax on the  turnover  which included  sales outside the State of Orissa, but  after  the decision  of  this Court in State of Bombay  v.  The  United Motors (India) Ltd.(2) they applied under section 14 of  the Act for refund of tax paid on the ground that sales  outside the State were not taxable under clause (1) (a) of Art.  286 of  the Constitution read with the ExPlanation.  Refund  was refused by the Sales Tax Authorities and the assessees moved the High Court which ordered the refund of the tax paid  for certain  periods.  The Orissa Sales Tax Act was  amended  in 1958  with retrospective effect incorporating  section  14-A which  provided that refund could be claimed only by way  of sales-tax  or otherwise.  The effect of this  amendment  was that  the dealer could not claim the refund of tax  paid  on sales  outside the State but only the person from  whom  the dealer had realised the amount. Section  14-A of the Orissa Sales Tax (Amendment) Act,  1958 provides thus               "Notwithstanding.  anything contained in  this               Act  where any amount is either  deposited  by               any person under sub-               (1)   [1621] 1 S.C.R. 549.               (2)   [1953] S.C.R. 1069.               364                     section (3) of section 9B or paid as tax               by a dealer  and where such amount or any part               thereof  is  not  payable by  such  person  or               dealer,  a refund of such amount or  any  part               thereof can be claimed only by the person from               whom  such  person  or  dealer  has   actually               realised such amounts whether by way of sales-               tax or otherwise and the period of  limitation               provided  in the proviso to s. 14 shall  apply               to    the aforesaid claims." The  Court  held  that  the  legislature  was  competent  to legislate for  granting  refund  of  sales  tax   improperly collected; there is no reason      to  exclude the power  to declare that refund shall be claimable only  by  the  person from whom the dealer has realised the amount as sales-tax or otherwise. Dealing with the power of the State under   Entry 54, List 11, it held : "The Legislature of the Orissa  State was therefore competent to exercise power in respect of  the subsidiary or  ancillary  matter of granting refund  of  tax improperly or illegally  collected,  and the  competence  of the  Legislature in this behalf is not canvassed by  counsel for the assessees." It was further held that if   the Legislature  was competent to legislate for granting  refund of the    sales tax improperly collected, there is no reason

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 36  

why the power to    declare  that refund shall be  claimable only by the person from whom  the   dealer   has    actually realised the amounts by way of sales-tax or  otherwise, should be excluded. It was thus found that the State legislature   is  competent  in  granting  refund   of   tax unauthorisedly      collected and to declare that refund  is claimable  only by the person from whom the dealer  realised the amount.  In fact the competence     to   legislate   for granting the refund of the sales-tax improperly   collected was  not  questioned.  This decision did  not  consider  the question whether a direction by the Government directing the assessee  to  pay  the amount to the  Government  is  within legislative competence. This  question came up for decision in R. Abdul  Quader  and Co.       vs.   Sales  Tax  Officer  Hyderabad.  (1).    The assessee  collected sales tax from the purchasers  of  betel leaves in connection with the sales made by it.  But it  did not  pay  the  amount  collected  to  the  Government.   The Government  directed the assessee to pay the amount  to  the Government  and  it thereupon filed a writ petition  in  the High Court questioning the validity of section 11(2) of  the Hyderabad  Generaf Sales Tax Act, 1950.  The  contention  of the assessee before      the  High  Court was  that  section 11(1) of the Act 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 any such amount under the authority of a law enacted under  Entry54  of  List  IT of  the  VII  Schedule  to  the Constitution.  While the High Court held that Section  11(2) was  good  as  an ancillary provision  with  regard  to  the collection of sales or purchase tax, this Court reversed the decision and held that it cannot be said that the State (1)[1964] 6 S.C.R. 867. 365 legislature  was directly legislating for the imposition  of sales or purchase tax under Entry 54, List II, when it  made the  provisions  of  section 11(2) for on the  face  of  the provisions  the amount though collected by way of  tax,  was not exigible as tax under the law.  Section 11(2) of the Act provides-               "Notwithstanding 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               by  him,  and in default of such  payment  the               said amount shall be recovered from him as  if               it were arrears of land revenue." Under section 11(2) any person who has collected any  amount by  way  of  tax  otherwise  than  in  accordance  with  the provisions  of the Act, shall pay over to the Government  in the  manner  prescribed.  This Court held that as  the  sums collected  by way of tax are not in fact tax exigible  under the  Act, 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.  As what was  collected  was not  tax exigible under the Act, though collected as a  tax, this  Court  held  that  the  amount  collected  cannot   be recovered as tax.  The position is explained thus :-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 36  

             "We  do not think that the ambit of  ancillary               or  incidental  power goes 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." Referring  to  the Orient Paper Mills Ltd. vs The  State  of Orissa  and Others,(1) the Court held that the decision  had no  application to the facts of the case before them on  the ground that the matter dealt with the question of refund and observed  that "it cannot be doubted that refund of the  tax collected  is  always  a matter covered  by  incidental  and ancillary powers relating to levy and collection of tax". An attempt to justify the provisions of section 11(2) on the ground that it was by way of penalty was not accepted as  in the  opinion of the Court section 11(2) cannot be  justified as  a  provision  for  levying a tax  or  as  incidental  or ancillary provision relating to the collection of tax.   But the  Court  added that the provision did not provide  for  a penalty for collecting the amount wrongly by way of tax from purchasers  which may have been justified as a  penalty  for the  purpose  of  carrying out the  objects  of  the  taxing legislation.    The  decision  therefore  is  not  only   an authority  for  the  propositions  that  unless  the   money collected is due as a tax, the State cannot by law. make  it recoverable  because  it has been wrongly collected  by  the dealer (1)  [1962] 1 S.C.R. 549. 366 but  also declares that State Government may provide  for  a penalty for collecting the amount wrongly as the levy  would have been justified as a penalty for the purpose of carrying out  the  objects  of the taxing legislation.   If  what  is levied  under section 37(1)(a) of the Bombay Sales Tax  Act, 1959,  with  which we are concerned, is a  penalty  for  the proper  enforcement  of the taxing legislation  it  will  be valid  while  if  it  is a  devise  to  collect  the  amount unauthorisedly collected without the levy being a penalty it will not be competent. The next important decision which is strongly relied upon on behalf of the assessee is the case of Ashoka Marketing  Ltd. vs.   State of Bihar and Anr.,(1) The Sales Tax  authorities included  an  amount  representing Railway  freight  in  the assessee’s  sales  of cement.  The Appellate  authority  set aside  the  orders directing the inclusion  of  the  Railway freight  in  the  turnover.  The excess  tax  paid  was  not refunded  but  an amendment to the Bihar Sales Tax  Act  was made  by introduction of section 20-A(3). which called  upon the assessee 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  provisions of section 20-A were challenged.  They are-               "(1) No person who is not a registered  dealer               shall  collect from any person any amount,  by               whatever name or description it may be called,               towards  or  purporting to be tax on  sale  of               goods.               (2)No registered dealer shall collect  from               any  person any such amount, except in a  case               in  which  and  to the extent  to  which  such               dealer is liable to pay tax under this Act.               (3)   (a)Notwithstanding   anything   to   the               contrary  contained in any law or contract  or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 36  

             any judgment, decree or order of 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               either   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)   x x x x x               (4)Where  any  amount so collected  by  the               dealer   and   deposited  by  him   into   the               Government Treasury has already been  refunded               to  the dealer in pursuance of or as a  result               of  any  judgment,  decree  or  order  of  any               Tribunal, Court or authority, but the,  dealer               has not refunded the amount to the person from               whom  he  bad  collected  it,  the  prescribed               authority  shall, notwithstanding such  refund               to  the  dealer,  proceed to  take  action  in               accordance with the provisions of  sub-section               (3) for securing deposit of such amount.               (1)   [1970] 3 S.C.R. 455.               367               (5)Where  any  such  amount  has  not  been               refunded to the dealer before the commencement               of this Act but a refund has been directed  by               a  Court,  Tribunal or authority,  the  amount               shall,  notwithstanding  such  direction,   be               deemed to be a deposit made in pursuance of an               order under sub-section               (3).               (6)   x        x x x x x               (7)   Notwithstanding anything to the contrary               in  any  law or contract, when any  amount  is               deposited  by a dealer in compliance  with  an               order under sub-section (3) or subsection  (4)               or  is deemed, under sub-section (5), to  have               and   so   deposited,   such   deposit   shall               constitute  a good and complete  discharge  of               the liability of the dealer in respect of such               amount to the person from whom it was  collec-               ted.               (8)The  person  from whom  the  dealer  has               collected the amount deposited in pursuance of               an order under sub-section (3) or  sub-section               (4) or deemed, under sub-section. (5), to have               been  so deposited shall be entitled to  apply               to’ the prescribed authority in the prescribed               manner for refund of the amount to him and the               said authority shall allow the refund if it is               satisfied that the claim is in order :               Provided that no such refund shall be  allowed               unless  the  application is  made  before  the               expiry   of  the  period  within   which   the               applicant could have claimed the- amount  from               the. dealer by a civil suit had his  liability               not  been  discharged in accordance  with  the               provisions of sub-section (7) :

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 36  

             Provided further that no claim for such refund               shall be rejected without giving the applicant               a reasonable opportunity of being heard." This  Court  held  that sub-sections (3),  (4)  and  (5)  of section 20-A are ultra vires of the State legislature and as a  corollary  sub-sections (6) and (7) must also  be  deemed invalid.  On behalf of the State   of Bihar it was contended that the legislation is not for levyor   collection   of an amount as tax which the State is not competentto   levy or  collect, but for compelling a registered dealer  to  pay overthe  amount collected on behalf of the State as tax  so that  it may be made available to a person from whom it  was unlawfully  recovered.  While distinguishing Abdul  Quader’s case  on  the ground that levy is not for collection  of  an amount  as tax which the State is not competent to  levy  or collect it relied strongly on the Orient Paper Mills’  case. Justice  Shah speaking for the Court held that Orient  Paper Mills’  case  bad no bearing on the  question  whether  the, State  was competent to enact section 21 of the Bihar  Sales Tax Act as the case does not support the plea that the State legislature is competent to legislate for demanding  payment or  for retaining amounts recovered by a  registered  dealer but  which  are not due as sales tax to the State.   In  the Orient Paper Mills’ case tax was collected on sales  outside the  State  of Orissa and when refund was  demanded  by  the assessees in 368 consequence  of, the decision in State of Bombay  v.  United Motors  (India) Ltd. (supra) which held that  sales  outside the  State  concerned  were  not  taxable  the   legislature intervened  providing that the refund could be claimed  only by a person from whom the dealer had realised the amount  by way  of  sales  tax.  In Ashoka Marketing case  tax  on  the amount  representing railway freight was collected and  when such levy was set aside the legislature intervened  treating the sales tax  collected on the Railway freight as  deposit. Section 20-A (7)of   the  Bihar Sales Tax Act, 1959,  in the Ashoka Marketing casepro  vided that the deposit by the assessee shall constitute a goodand  complete, discharge of the liability of the dealer in respect ofsuch amount to the person from whom such amount was collected,Sub section  (8) provided that the person from whom  the  dealer had  collected  the amount shall be entitled  to  apply  for refund  of the, amount to him.  In Ashoka Marketing case  by the amendment the amount of tax on railway freight which was collected  by  the  Revenue was sought  to  be  retained  by treating  the  amount  as deposit and in the  event  of  the deposit having been returned to recover it.  Though the show cause notice called upon the dealer as to why the amount  in deposit  should  not  be forfeited  the  provisions  of  the section  proceed  on  the basis that  the  amount  would  be treated as deposit.  It was held that a provision compelling a  dealer who has deliberately or erroneously  recovered  an amount  from  the purchaser on a representation that  he  is entitled to recover it to recoup himself for payment of  tax to the State, cannot be regarded as incidental to Entry  54, List  II.  A mere device cannot be permitted to  defeat  the provisions of the Constitution by clothing the-claim in  the form  of  a demand for depositing the money with  the  State which  the  dealer  has  collected, but  which  be  was  not entitled to collect. A case which deals with the power of forfeiture is Kanti Lal Babulal  V.  H. C. Patel.(1) As the sale by  the  registered dealers  outside the State of Bombay were not  exigible’  to tax, the assessees were directed to refund amounts collected

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 36  

from  their purchasers in respect of these sales by  way  of tax failing which it was directed that the amounts would  be forfeited under section 12A(4) of the Bombay Sales Tax  Act, 1946.  The assessees filed a writ petition in the High Court restraining the authorities from taking action under section 12A(4).  The High Court dismissed the petition.  The Supreme Court  held that section 12A(4) of the Bombay Sales Tax  Act was  void  being  violative  of  Article  19(1)(f)  of   the Constitution.    Section  12-A(4)  which  is  the   relevant provision reads as follows               (4)If any person collects any amount by way               of  tax in contravention of the provisions  of               sub-section  (1) or (2) or if  any  registered               dealer  collects any amount by way of  tax  in               excess of the amount payable by him under this               Act,  the amounts so collected shall,  without               prejudice  to  any  prosecution  that  may  be               instituted  against such person or dealer  for               an offence under this Act be forfeited to  the               State Government and such person or dealer, as               the case may be, shall               (1)[1968] 1 S.C.R. 735.               369               within the prescribed period, pay such  amount               into  a Government treasury and in default  of               such payment, the amount shall be recovered as               an arrear of land revenue." Sub-section (4) provides for forfeiture to the State of  any amount  collected by the dealer by way of tax in  excess  of the  amount payable by him under the Act.  It was  contended by the Revenue that section, 12A(4) is a penal provision  as it provides for the imposition of a     penalty on those who contravene section 12A(1) and (2) and that   such  a   power was incidental to the power to tax sales and as such   valid. A decision of the Gujarat High Court in Rain Gopal v.  Sales Tax  Officer, Surat and Another (16 S.T.C. 1005) was  relied on.  The Gujarat High Court upheld the validity  of  section 12A (4).In Kanti Lal Babulal’s case this Court observed :               "We  shall  not go into the  question  whether               from the language of the impugned provision it               is  possible  to  hold  that  it  is  a  penal               provision.   For our present purpose we  shall               assume it to be so.  We shall also assume that               the legislature had legislative competence  to               enact  that  provision.  But the  question  is               whether  it  is violative of Art. 19  (1)  (f)               which   guarantees   the   freedom   to   hold               property." It  was held that the Act is silent as to the machinery  and procedure  to be followed in determining the question as  to whether  there has been a contravention of  sections  12A(1) and (2), and if so, to what extent.  As the section did  not provide  for  any inquiry as to the disputed  question,  the forfeiture  under  section  12A(4)  prima  facie   infringed Article 19(1)(f).  The decision proceeded on the  assumption that the legislature had competence to enact a provision for forfeiture  and that the provision is penal in nature.   The decision  therefore cannot be taken as an authority for  the proposition that a provision for levy of a penalty by way of forfeiture  is-  beyond the legislative  competence  of  the State.   A sentence in the course of the judgment  that  "if that decision (16 S.T.C. 1005) lays down the law  correctly, then the appellants are out of court.  But we think that the said  decision cannot be sustained" cannot be understood  as having  laid  down that a provision levying penalty  is  not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 32 of 36  

within,  the  competence of the State  legislature.   In  16 S.T.C.  1005 the Bench of the Gujarat High Court  held  that section 12A(4) of the Bombay Sales Tax Act, 1946 was clearly a provision providing for penalty if any person collects any amount  by way of tax in contravention of the provisions  of sub-section (1) or (2) of section 12A and therefore it was a valid   exercise  of  incidental  or  ancillary   power   of legislation.   The  Bench followed its earlier  decision  in Kantilal Babulal’s case reported in 16 S.T.C. 973 an  appeal against  which  was allowed by the Supreme Court(1)  on  the ground  that  it contravened Art. 19(1)(f).   This  decision cannot be understood as having held that a levy of a penalty for  contravention  of the provisions of Sales  Tax  Act  is beyond the legislative competence of, the State. (1) Supra. 370 State  of U.P. Anr. v. Annapurna Biscuit Mfg.  Co.,(1) is  a decision by a Bench of two Judges of the Supreme Court.   In this case the validity of section 29A of the U.P. Sales  Tax Act, 1948 was challenged.  Section 29A runs as follows               "Refund in special cases.               Notwithstanding anything contained in this Act               or  in  any other law for the  time  being  in               force  or in any judgment decree or  order  of               any   court,  where  any  amount   is   either               deposited  or  paid  by any  dealer  or  other               person under sub- section(4)  or  sub-section               (5) of section 8-A, such amount or anypart               thereof  shall on a claim being made  in  that               behalf insuch form and within such period as               may be prescribed,be refunded to the person               from whom such dealer or theperson      had               actually  ’realised such amount or  part,  and               to no other person." Following  the  decision in Abdul Quader’s case  and  Ashoka Marketing  case this Court rejected the contention that  the impugned  section  was  covered  by Entry  54  in  List  II. Section  29A(1)  directs  that a dealer  shall  deposit  the entire  amount (which is not exigible as tax) realised  into the Government Treasury.  The validity of the provision  was not  upheld in view of the decision in Abdul  Quader’s  case This case does not advance the matter any further. At  this  stage  it  will be useful  to  summarise  the  law declared  by the decisions cited above.  In  Abdul  Quader’s case  it  was held that in regard to sums collected  by  the dealer by way of tax which are not in fact exigible as  tax, the State legislature cannot direct these amounts to be paid over to the Government.  The reason given is that the  ambit of  ancillary or incidental power does not permit the  State Legislature to provide that the amount which is not exigible as tax under the law shall be paid over to the Government as if  it were a tax.  The Orient Paper Mills’ case  held  that the  legislature  was  competent to grant refund  of  a  tax unauthorisedly collected and in the hands of the  Government to  a person from whom the dealer had realised  the  amount. So  far  as  the  right to grant  refund  is  concerned  the decision  in  this  case has been  approved  both  in  Abdul Quader’s  case  and  in Ashoka  Marketing  case.   In  Abdul Quader’s case it was observed that it cannot be doubted that refund  of  tax  collected is always  a  matter  covered  by incidental   and  ancillary  powers  relating  to  levy   or collection  of  tax.   In Ashoka  Marketing  case  also  the principle  that  the State can provide for  refund  was  not doubted.  In Ashoka Marketing case on a consideration of the Orient  Paper  Mills’ case it was held that  case  does  not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 33 of 36  

support the plea that the State legislature is competent  to legislate  for  demanding payment or retaining  the  amounts recovered by a registered dealer which were not due as sales tax to the State.  These 3 cases relate to (1 ) direction to the assesses to deposit the amount unauthorisedly collected, (2) an attempt by the State to demand and retain the  amount unauthorisedly  collected, and (3) the right to  direct  the refund of the amounts (1)(1973] 3 S.C.R. 987. 371 collected from the assessee.  The question as to whether the amount  s thus unauthorisedly collected can be forfeited  is not  considered ha any of these cases.  An attempt was  made by  the  assessees to derive support from  Ashoka  Marketing case  that it related to ;a notice issued by  the  Assistant Commissioner  to the assessees under section 20-A(3) of  the Bihar  Sales  Tax Act requiring them to show cause  why  the sales-tax on the railway freight which had become refundable should  not be forfeited.  Though the notice uses the  words "forfeit"  the  provision of section 20-A(3)  only  mentions that  the amounts collected may be required to be  deposited in  the Government treasury.  For deciding the  question  at issue  it is unnecessary to consider the submission made  on behalf  of counsel that the reasoning in Orient Paper  Mills and  Ashoka  Marketing  cases is not  consistent.  In  Abdul Quader’s case the Court clearly laid down that it is  compe- tent for the State legislature to provide for a penalty  for collecting any amount wrongly by way of tax for the  purpose of carrying out the objects of taxing legislation.  In Kanti Lal  Babulal’s case this Court proceeded on the  basis  that the  provision was penal in nature and that the  legislature was competent to enact that provision though the section was struck  down  as  violative  of  Article  19(1)(f)  of   the Constitution.   On  a scrutiny of all the  decisions  it  is clear  that legislature has power to levy a penalty for  the proper enforcement of the taxing statute. The  controversy  therefore centers mainly on  the  question whether  the provision as to the forfeiture in the  impugned section  is  a penalty or whether it is merely a  device  to collect  the  amount unauthorisedly ralised by  the  dealer. The  plea  of a device or colourable  legislation  would  be irrelevant  if  the  legislature is  competent  to  enact  a particular  law.   The question is one of  competence  of  a particular  legislature to enact a particular law.   If  the legislature is competent to pass a particular law the motive which  impelled  it  to  act is  not  relevant.   After  the decision  in  Abdul Quader’s case where it was  pointed  out that it was competent for the legislature, to provide penal- ties for the contravention of the provisions of the Act  for its  better  enforcement,  the  provision  in  an  enactment levying such a penalty cannot be challenged. Mr.  Kaji,  the learned counsel appearing for  some  of  the assessees, submitted that forfeiture under section 37 is not penalty  because penalties by express words are provided  by clause  (1)  as  well as by section  63  and  forfeiture  is mentioned  as  an  addition  to  penalty.   Sub-section  (2) mentions forfeiture separately and independently of penalty. Sub-section  (4)  refers only to penalty.  To  examine  this question  it is necessary to refer to certain provisions  of the Act.  Section 46 imposes prohibition against  collection of tax in certain cases.  Section 46(1) prohibits any person whether dealer or not from collecting any sum by way of  tax in  respect of sales on which by virtue of section 5 no  tax is  payable.  If however any person collects any sum by  way of  tax on sales by him of such goods he is by operation  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 34 of 36  

section 37(1) liable to pay penalty and also penalty by  way of  forfeiture.  This punitive measure affects  all  persons who sell non-taxable goods. 372 In section 37(1)(b)(ii) in addition to penalty not exceeding rupees  two  thousand, the sum collected by way  of  tax  is directed  to  be, forfeited to the  State  Government.   The words  "penalty" and "forfeiture" according to  the  learned counsel  are  different  in their  application  and  in  the present  case forfeiture relates to the amount which is  the same  as has been unauthorisedly collected and therefore  it is  only  a device by the State, to recover  the  amount  so collected.   The section proceeds to lay down the  procedure for effecting the forfeiture by requiring the Commission  to publish  a  notice, hear the parties as to  why  penalty  or forfeiture  or both as prescribed should not be imposed  and make  such  order as he thinks fit.  A  distinction  between penalty and forfeiture is maintained.  I am unable to accept the  plea that forfeiture is not a penalty.   Forfeiture  is one  form  of penalty and forfeiture is  maintained.   I  am unable  to  accept the for in the Indian  Penal  Code.   For contravention of the Sales Tax law the section provides  two forms of punishment, levy of penalty and forfeiture, and use of  the word "forfeiture" as distinct from penalty will  not make it any the less a penalty.  Section 3 7 ( 1 ) (b)  (ii) provides that the sum collected by the person by way of  tax in contravention shall be forfeited to the State  Government Sub-section (2)     provides for an inquiry after giving  an opportunity to the assessee to show cause.  Sub-section  (3) enables  the Commissioner to hold an inquiry and  make  such order as he thinks fit.  The discretion on the  Commissioner "to  make such order as he thinks fit" would imply  that  he has  power  to  direct  the forfeiture  of  the  entire  sum collected by a person by way of tax in contravention of  the provision  or  confine  it to a portion  of  the  amount  so collected  or not to forfeit at all if the circumstances  so warrant.   Section 55 provides for appeals.   Section  55(6) provides that every appellate authority shall have power  to confirm,  reduce,  enhance or annul the  assessment  or  set aside  the  assessment  and  in  an  appeal  against   order importing  a penalty the appellate authority may confirm  or cancel such order or vary it so as neither to enhance or  to reduce  the  penalty.   In any  other  case,  the  appellate authority may confirm or cancel such order or vary it so as justand proper.  Similar powers are conferred on revisional authority. These  provisions would indicate that  it  is not obligatory on the    Commissioner  to  direct  that  the entire  amount collected by way of tax in  contravention  of the  provisions  of  the Act to be  forfeited.   It  is  not obligatory  on  the authorities to levy a penalty  which  is identically  the  same amount as the  amount  unauthorisedly collected,  as  the mount to be forfeited will  have  to  be determined    taking   into   account   11   the    relevant circumstances.   We reject the contention of Mr.  Kaji  that the  levy  of the forfeiture in the sub-section  is  only  a device  for recovering the amount inauthorisedly  collected. We  agree with the Bombay High Court that the contention  of Mr.  Kaji  that  ferfeiture  is  not  a  penalty  cannot  be accepted. Mr.  Kaji  next  submitted that forfeiture if it  is  to  be penalty  would be confined to acts where there is  a  guilty mind.  In other words he submitted that the penalty would be confined  only to wilful acts of omission and commission  in contravention of the provisions of the enactment.  This plea cannot  be accepted as penal consequences can be visited  on

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 35 of 36  

acts which are committed with or without a guilty mind. 373 For  proper enforcement of various provisions of law  it  is common knowledge that absolute liability is imposed and acts without mens rea are made punishable. Mr. Kaji as well as Mr. B. Sen, learned counsel for some  of the assessees further brought to our noticed cases in  which by  the  application  of the provisions  of  the  Sales  Tax enactment  considerable  hardship  and  injustice  has  been caused  to  the dealers.  It was submitted  that  where  the assessee innocently collected amounts on the impression that tax  was leviable, the amounts so collected  were  forfeited while his obligation to the purchasers to refund the amounts continued.   If the assessee by a mistake failed to  collect tax, from the purchasers, tax was levied and collected  from the  assesses making him suffer in any event.  When after  a costly  litigation, the assessee suceeded  in,  establishing that sales tax cannot be collected on the railway freight on cement bagsor inter-State sales, the Government promptly forfeited such amounts.   agree  these  are  instances   of hardship to the assessees anddeserve           Government’s attention.           But for that reason the  Courts  cannot say that the act is beyond the legislative competence.   The fact that in some cases the dealers are prejudiced would not affect  the  validity  of  the  legislation  ’which  is  the question  we  are  called  upon to  decide.   On  a  careful consideration of the points raised, I am satisfied that  the provisions of section 37(1) are within the competence of the State legislature. I  am unable to agree with the conclusion of the High  Court that  section 46(2) which prohibits any person who is not  a registered,’ dealer and liable to pay tax in of any sale  or purchase, from collecting on the sale of any goods any   sum by way of tax and any registered dealer from collecting  any amount by way of tax in excess of the amount of tax  payable by  him under the provisions of the Act is violative of  the Constitution.   I  see  no  unconstitutionality  in  such  a provision.  For enforcement of sales tax law, the  provision is   absolutely  necessary  for  without  such   prohibition unauthorised  collection of tax can never be  checked.   The sales  tax law will have to demarcate the articles on  which tax  can be collected and prohibit collection of tax in  any manner not authorised by law. Lastly,  it  was contended that  the  provisions  contravene Articles  14  and 19(1) (f) of the Constitution.   The  High Court  held that the provisions do not contravene either  of the  two  Articles.  The submission is  that  the  authority concerned  is  given a discretion either  to  proceed  under section 37 or under section 63(1) and as the Act provides no guidelines as to, how this discretion is to be exercised, an arbitrary  or  uncanalised power has been conferred  on  the authority to determine the question as to under which of the two  provisions he would take action.  Under section 37  the levy  of penalty and forfeiture is provided for while  under section  63  (1)  (h)  the  person  becomes  liable  to   be criminally  prosecuted  for contravening the  provisions  of section  46 without reasonable excuse.  In my view there  is no,  arbitrary or uncanalised power given to the  authority. While  the  proceedings are in the nature of a  penalty  and forfeiture  under section 37, it is, punishment by  criminal prosecution  under  section  63  (1)  (b).   Section   37(4) provides : "No prosecution for an 374 offence under this Act shall be instituted in respect of the same  facts on which a penalty has been imposed  under  this

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 36 of 36  

section".  As I have construed the word "penalty" to include "forfeiture"   also,   the  section  is  clear   that   when proceedings  are taken up under section 37,  no  prosecution can  be  instituted, under section 63 (1) (h)  on  the  same facts.   The  plea  as  to  contravention  of  Art.  14  has therefore to fail.  Equally untenable is the, plea that  the provisions  contravene  Article  19(1)  (f).   In   Kantilat Babulal’s  case the Supreme Court held that section  12-A(4) is not valid as forfeiture cannot be enforced without proper inquiry.   That plea is no more available for section  37(3) prescribes  the procedure which makes it obligatory  on  the part  of  the  Commissioner to give  notice  to  enable  the assessee   to  show  cause  against  levy  of   penalty   or forfeiture.   Further, there are provisions for  appeal  and revision  against any order made by the  Commissioner.   The plea based on Art. 19(1) (f) hag to fail. It  was  submitted by the learned counsel for  the  assesses that  apart from the question of legislative competence  and the  challenge  based on Articles 14 and 19(1)  (f)  certain questions of facts arise and they will have to be dealt with by  the  High  Court.   On  asertainment  of  such  cases  a direction will issue to the High Court to decide those cases on merits P.B.R. Appeals allowed. 3 75