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PETITIONER: STATE OF U.P. AND ANR.

       Vs.

RESPONDENT: ANNAPURNA BISCUIT MFG. CO.

DATE OF JUDGMENT16/04/1973

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ HEGDE, K.S.

CITATION:  1973 AIR 1333            1973 SCR  (3) 987  1974 SCC  (3) 121  CITATOR INFO :  RF         1975 SC 198  (10)  RF         1977 SC2279  (37)

ACT: U.P.  Sales Tax Act 1947 s. 29-A--Validity--U.P.  Sales  Tax (Amendment  & Validation Act 1971 Ss. 15 and 17--section  15 inserting  s.  29-A  into  parent  Act--Section  17   making consequential  provisions--Validity of Ss. 15 and  17--State Legislature  whether hat competence to enact  law  enforcing deposit   of   money   wrongly   realised   by   dealer   as sales-tax--Such  law  whether  covered  by  Constitution  of India,  Seventh Schedule, entry 54 List II or entries 7  and 10 List Ill.

HEADNOTE: By s. 29-A of the U.P. Sales Tax Act 1948 inserted by s.  15 of  the  U.P. Sales Tax (Amending and Validation)  Act  1971 sales_tax wrongly realised by a dealer ’from any person  had to  be  deposited in the Government Treasury.  It  would  be field  in trust by the Government on behalf of  such  person and refunded to him if application for that purpose was maid within a period laid down in the section.  Section 17 of the Amending   Act   contained  consequential   and   validating provisions.  The High Court of Allahabad in petitions  filed by the respondents held that the therefore   enactment   was unconstitutional.  Consequently s. 17 of the Amending  Act was also unconstitutional. Dismissing the appeal filed by the State. HELD:     (i) The argument that provision like section  29-A is  ancillary  or  incidental  to  the  collection  of   tax legitimately  due  under a law made under entry  54  has  no force  in  view of this Court’s derision in  Abdul  Quader’s case  and  in  Ashoka  Marketing  Ltd.,  wherein  provisions similar  to s. 29-A were held not to fall under entry 54  of List II. [991 D] (ii) The  impugned law could not also be held to fall  under entry  7  List III which relates to  contracts.   A  similar argument was rejected by this Court in Ashoka Marketing Ltd. [992 G] (iii)     The  impugned law could not be said to  relate  to Mats  so  as  to  fill under entry 10 of  List  HI.   A  law compelling  deposit of money wrongly realised as  sales,-tax

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cannot  in  pith  and substance be considered to  be  a  law relating to trusts. [993 B] (iv) S.  17  was  linked  with s. 15  and  could  not  exist independently of that section.  The High Court rightly  held it to be unconstitutional. Abdul  Quarder  and  Co. v. Sales  Tax  Officer,  Hyderabad, [1970]  25 S.T.C. 155 and Ashoka Marketing Ltd. v. State  of Bihar and Another, [1970] 26 I.T.R. 254, applied.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1716  of 1972. Appeal  by  certificate from the judgment  and  order  dated November 11, 1971 of the Allahabad High Court in Civil Misc. Writ Nos. 3716 of 1970. 988 S.   N.  Kachar  N. D. Karkhanis, K. C. Agarwala and  O.  P. Rana, for the appellants. Yogeshwar  Prasad,  S.  K.  Bagga  and  S.  Bagga,  for  the respondents. The Judgment of the Court was delivered by KHANNA,  J. This appeal by certificate is  directed  against the judgment of Allahabad High Court whereby that court held the provisions of section 29-A of the U.P. Sales Tax (Act 15 of  1948)  (hereinafter referred to as  the  principal  Act) inserted by section 15 of the U.P. Sales Tax (Amendment  and Validation)  Act, 1971 (Amendment Act of  1971)  hereinafter referred  to as the Amending Act) as well as section  17  of the Amending Act to be unconstitutional. This Court in the case of Commissioner of Sales Tax v. Ganga Sugar  Corporation Ltd.(1) held that section 8-A (4) of  the principal  Act  was  ultra vires  the  State  Legislature  : Section 8-A (4)     read as under :               "8-A(4).  Without prejudice to the  provisions               of  clause (g) of sub-section (2)  of  section               14,  the amount realised by any person as  tax               on  sale of any goods shall, not  withstanding               anything  contained in any other provision  of               this Act, be deposited by him in a  Government               treasury   within  such  period  as   may   be               prescribed, if the amount so realised  exceeds               the  amount payable as tax in respect of  that               sale  or  if  no tax  is  payable  in  respect               thereof." The Court in that context relied upon the decision in Abdul Quader  and Co. v.Sales  Tax Officer, Hyderabad.(2)  it  was held  in Abdul Quader’s case that the State  Legislature  in making  a  similar  provision, viz., section  11(2)  in  the Hyderabad  General Sales Tax Act, could not be  regarded  as having  directly legislated for the imposition of sales  and purchase tax under entry 54 List 11 in the Seventh  Schedule to  the Constitution because the amount though collected  by way  of tax was not exigible as tax under the law.   It  was observed               "We  do not think that the ambit of  ancillary               or  incidental  power goes to  the  extent  of               permitting 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."               (1) [1970] 25 S. T. C. 155.

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             (2) [1964] 15 S. T. C. 403. 989 In 1969 the Uttar Pradesh Taxation Amendment Act, 1969 (U.P. Act 11 of 1969) was passed.  Section 17 of that Act inserted section 29-A which read as under:               "29-A.-Refund in special cases.               Not  withstanding 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 subsection (4) or sub-section (5)               of  section  8-A,  such  amount  or  any  part               thereof  shall on a claim being made  in  that               behalf in such form and within such period  as               may  be prescribed, be refunded to the  person               from  whom  such  dealer  or  the  person  had                             actually  realised such amount or part , and  to               no other person." On August 22, 1971 the Amending Act was published.  A number of amendments were made by the Amending Act in the principal Act.  By section 10 of the Amending Act, sub-section (4) and (5) of section 8-A were omitted.  Section 15 of the Amending Act was as under:               "15.   For section 29-A of the principal  Act,               the  following section shall  be  substituted,               namely :-               " 29-A. (1) Where any amount is realised  from               any  person by any dealer purporting to do  so               by  way of realisation of tax on the  sale  of               any  goods to such person, such  dealer  shall               deposit the entire amount so realised into the               Government Treasury, within such period as may               be prescribed notwithstanding that the  dealer               is  not  liable to pay such amount as  tax  or               that only a part of it is due from him as  tax               under this Act,               (2)   Any amount deposited by any dealer under               subsection (1) shall, to the extent it is  not               due as tax, be held by the State Government in               trust for the person from whom it was realised               by    the   dealer,   or   for    his    legal               representatives,   and   the   deposit   shall               discharge  such  dealer of  the  liability  in               respect thereof the extent of the deposit.               (3)   Where  any  amount is deposited  by  any               dealer  under sub-section (1), such amount  or               any part thereof shall, on a claim being  made               in  that  behalf  in  such  form  as  may   be               prescribed,  be refunded, in the manner  pres-               cribed,  to the person from whom  such  dealer               had actually realised such amount or part,  or               to his legal representatives, and to no  other               person.               990               Provided   that   no  such  claim   shall   be               entertained  after the expiry of  three  years               from  the date of the order of  assesment  or.               one  year from the date of the final order  on               appeal,  revision  or reference,  if  any,  in               respect thereof whichever is later.               Explanation-The  expression  ’final  order  on               appeal,  ’revision or reference’  includes  an               order  passed  by  the  Supreme  Court   under

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             Article 32, Article 132, Article 133,  Article               136 or Article 137, or by the High Court under               Article   226   or   Article   227   of    the               Constitution." Section 17 contains transitional provisions for deeming  and validation consequent upon the deletion of sub-sections  (4) and,(5) of Section 8-A and the substitution of section  29-A in the principal Act. The  dispute  relates to the amount which a  dealer  wrongly realises  as  sales tax from the customer and  the  question which   arises   for  consideration  is  whether   a   State Legislature has the legislative competence to pass a law for the  deposit of that amount in the Government Treasury.   In other  words, is there any entry in List 11 or List  III  of the  Seventh  Schedule to the Constitution under  which  the State Legislature could make such a law?  So far as  section 17 of the Amending Act is concerned, the High Court observed that  this section was dependent upon and  interrelate  with section  15 of the Amending Act.  Section 17  provides  that the  amount  already deposited under section 8-A(4)  of  the principal  Act shall be deemed to be under section  29-A  as substituted  by section 15 of the Amending Act.  Section  15 is the principal provision, while section 17 is an ancillary provision.   If section 15 was unconstitutional, section  17 would  also share the same fate and would have to be  struck down  as unconstitutional because it is linked with  section 15 and cannot exist independently of that section.   Learned Advocate General appearing for the appellant State has  not, and  in our opinion, rightly challenged the  correctness  of the view taken by the High Court in this respect. We  may  now deal with the provisions of section 15  of  the Amending  Act  as  a  result  of  which  section  29-A   was substituted in lieu of the old section 29-A in the principal Act.  Section 29-A deals with the amount wrongly realised by a dealer on sale of goods to any person.  Sub-section (1) of section 29-A of the Principal Act makes it obligatory on the part  of  the  dealer  to  deposit  such  amount  into   the Government Treasury "notwithstanding that the dealer is  not liable  to pay much amount as tax or that only a part of  it is  due  from  him as tax under this  Act."  Subsection  (2) provides  that the amount so deposited by a dealer shall  to the  extent  it is not due as tax from him be  held  by  the State 991 Government in trust for the person from whom it was realised by  the dealer or for his legal representatives. it  further provides  that when a dealer has deposited the  amount  into the  Treasury,  he shall no longer be liable to  the  person from  whom  he has realised the amount.  According  to  sub- section  (3) of the section, the amount deposited into-  the Government Treasury by the dealer or any part thereof shall, on a claim being made in that behalf in such manner and form as  may be prescribed, be refunded to the person  from  whom the  dealer had actually realised the amount or part, or  to his  legal  representatives.   Section 29-A  thus  seeks  to ensure  the  deposit  into the Government  Treasury  of  the amount  by a dealer as has been wrongly realised by  him  as sales  tax.   As the said amount does not  constitute  sales tax, it is not covered by entry 54 in List II of the Seventh Schedule to the Constitution which relates to taxes on  sale or  purchase of goods other than newspapers subject  to  the provision of entry 92-A of List I. The argument that provision like section 29A is ancillary or incidental to the collection of tax legitimately due under a law made under entry 54 has no force.  Such an argument  was

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rejected by this Court in Abdul Quader’s case (supra) in the following words :               "  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 II  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-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  a               provision  can be ancillary or  incidental  to               the collection of tax legitimately due under a               law made under the relevant taxing entry.". The  above observations were quoted with approval by a  six- Judge  Bench of this Court in the case of  Ashoka  Marketing Ltd  v.  State of Bihar-and Another(1).  In  that  case  the provisions of section 20 A of the Bihar Sales Tax Act  which were substantially (1) [1970] 26 I. T. R. 254. 992 similar  to  those of section 29-A now impugned  before  us, were  assailed.  Shah J. (as he then was) speaking  for  the Court observers:               "A provision which enables the dealer to  pass               on  the  liability  for  payment  of  tax   is               incidental to legislation for sales tax.   But               we are unable to hold that a provision,  under               which  a dealer is called upon to pay  to  the               State  an amount which has been  collected  by               him  on a representation-express  or  implied-               that  an equal amount is payable by him  under               the  Bihar  Sales  Tax  Act,  is  a  provision               incidental  to the power to levy ’tax on  sale               or  purchase of goods’ within the  meaning  of               entry  54  List 11 of  the  Seventh  Schedule.               Entry  54,  List 11, of the  Seventh  Schedule               comprehends  the  power  to  impose  tax,   to               prescribe  machinery’ for collecting the  tax,               to  designate officers, by whom the  liability               may be imposed and to prescribe the authority,               obligation and indemnity of the officers.  The               State Legislature may under entry 54, List II,               be  competent  to enact a law  in  respect  of                             matters  necessarily incidental to ’ta x on  the               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

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             lavying  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 claim 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." In  view  of  the above decision, the  contention  that  the impugned  Act  would be covered by entry 54 in List  11  can plainly be not accepted. Argument  has  been  advanced before us  on  behalf  of  the appellant that the impugned law would be covered by entry  7 in  List  III which relates, inter alia,  to  contracts.   A similar  argument  was  advanced  in  the  case  of   Ashoka Marketing  Ltd.  (supra) and was rejected in  the  following words               "We fail to appreciate how power to  legislate               in  respect  of  entries 6,  7  and  13  would               authorise the State’, Legislature to legislate               in  respect of recovery from the dealer of  an               amount which the dealer was in law not               993,               entitled   to,  collect,  but  Which  he   has               collected.The power to legislate in respect of               sub-section’(3),(4)  and  (5) of  section  20A               does not fall under entries6, 7 and 13  of               List  III expressly , nor can it be said  that               the   power   to  legislate   is   necessarily               incidental  to the power contained in  entries               6, 7 and 13 of List III." Lastly, it has been argued that the law in question  relates to  trust and can be justified under entry 10 in  List  111. We, however, fail to see as to how such a law can be said to relate  to trusts.  A trust is an obligation annexed to  the ownership  of property and arises out of confidence  reposed in and accepted by the owner or declared and accepted by him for  the benefit of another or of another and the  owner(see section 3 of the Indian Trusts Act, 1882).  It is plain that a law compelling deposit-of money wrongly realised as  sales tax  cannot in pith and substance be considered to be a  law relating  to  trusts.  The mere use of the word  "trust"  in sub-section (2) of section 29-A would not make the  impugned law to be one relating to trusts. The appeal consequently fails and is dismissed with costs. G.C.                         Appeal dismissed. 994