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PETITIONER: SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM & ANR.

       Vs.

RESPONDENT: TATA OIL MILLS CO. LTD.

DATE OF JUDGMENT29/07/1975

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ BEG, M. HAMEEDULLAH GUPTA, A.C.

CITATION:  1975 AIR 1991            1976 SCR  (1) 152  1975 SCC  (2) 304

ACT:      Kerala Genera  Sales Tax  Act (15 of 1963) s. 22(3) and Kerala General  Sales Tax Rules, 1963,  9(1) Constitution of India    1950,  VII  Schedule,  List  II,  Entry  54-Section providing for  payment to  Govt. of tax wrongly collected-if ultra vires.

HEADNOTE:      According to  r. 9(1)  of the  Kerala General Sales-tax Rules framed  under. the Kerala General Sales-tax Act, 1963, in determining  the taxable  turnover of a dealer the excise duty, if any, paid by the dealer to the Government of Kerala or to the Central Government in respect of the goods sold by him shall  be deducted.  Section ,22(3)  of the Act provides that if  any dealer  or person  collects tax on transactions not liable  to tax  under the  Act or  in excess  of the tax leviable under  the Act  such dealer  or person shall pay to the Government.  in addition  to the tax payable, the amount so collected  unless it was refunded to the person from whom it was collected.      The respondent  deducted the  sum paid  by it as excise duty from  its total turnover for the purpose of determining the taxable  turnover. The respondent, however, when it sold the goods.  had collected,  sales-tax from the purchasers on the invoice  prices without  deducting therefrom  the excise duty paid in respect of the said goods. This resulted in the respondent realising  a  sum  in  excess  of  the  sales-tax payable in  respect of  the goods  sold by it. The Sales-tax officer held  that the  respondent was  liable to  pay  that amount to  the Government  under s. 22(3). The writ petition filed by the respondent was allowed by the High Court on the ground that  s. 22(3)  was not  covered by  Entry 54  of the State List  in the  VII Schedule  to the  Constitution,  and hence, beyond the competence of the Slate Legislature.      Dismissing the appeal to this Court. ^      HELD: (1)  Entry 54  empowers the State Legislatures to make laws,  except in  certain cases, in respect of taxes on the sale or purchase of goods. As long as the law relates to taxes on  the sale  or purchase of goods, it would be within their-  legislative   competence.  But,   it  would  not  be

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permissible for.  the State legislature to enact a law under Entry 54  for recovery by the State of an amount which could not be  recovered as sales-tax or purchase-tax in accordance with the  law on  the subject and which was wrongly realised by a  dealer as  sales-tax or purchase-tax. Such a l.. would not be  a law  relating to  tax of  the sale  or purchase of goods but  would be  one in  respect of  an  amount  wrongly realised by a dealer as sales-tax or purchase-tax. [1 55A-C]      (2) The  ambit of  ancillary or  incidental power would not go  to the  extent  of  permitting  the  Legislature  to provide that.  though the  amount collected, may be wrongly, be way  of tax,, was not tax, it shall still be paid over to the Government as if it were a tax. [156D-E]      (3) The  fact that  the amount realised is in excess of the tax  leviable and  not as  amount which  was not  at all payable as  tax, would  not make  any difference. Any amount realised by  a dealer in excess of the tax leviable, stands, for the  purpose of  determining the  legislative competence under Entry  54, on the same footing as an amount not due as tax under  the Act. Tax, according to s. 2(xxiv) of the Act, means tax payable under the Act. This necessarily means that everything outside  it, collected by the dealer. would be an exaction not  authorised by  the Act.  The amount  which was realised by  the respondent in excess of what was due as tax cannot be  held to  be tax,  because, such excess amount was not tax  payable under  the Act.  If the  State  Legislature cannot make  a law  under Entry  54 directing payment to the State of  any amount  collected as  tax on  transactions not liable  to   lax  under   the  Act,  it  would  likewise  be incompetent to  make a law directing payment to the State of an amount  realised by a dealer in excess of the tax payable under the Act. [157G-158C] 153      R. Abdul  Quader & co. v. Sales Tax Officer , Hyderabad [1964] SCR 867 and Ashoka Marketing Ltd. v. State of Bihar & Anr. [1970] SCR 455 followed.

JUDGMENT:      CIVIL. APPELLATE  JURISDICTION: Civil Appeal Nos. 1988- 1989 of 1970.      From the  Judgment and  order dated  the  29th  day  of October, 1968  of the  Kerala High  Court in W.P. No. 156 of 1967.      V. A.  Seiyed Muhamad  and  K.  M.  K.  Nair,  for  the appellant (In C.A.No. 1988/70.      K. M. K. Nair, for the appellant (In C.A. No. 1989/70)      G. B. Pai, A. G. Meneses, for the respondent.      The Judgment of the Court was delivered by      KHANNA, J.-This judgment would dispose of civil appeals No. 1989  and 1989 of 1970, Filed on certificate against the judgment of  the Kerala  High Court, whereby that court held that it  was beyond  the competence of the State Legislature to enact  law contained  in sub section (3) of section 22 of the Kerala  General Sales  Tax Act,  1963 (Act  15 of  1963) (hereinafter referred  to as  the  Act)  in  so  far  as  it related  to  payment  of  an  amount  collected  as  tax  on transactions not liable to tax under the Act or in excess of the tax leviable under the. Act.      We may  now set out the facts giving rise to one of the appeals. Both  the  learned  counsel  are  agreed  that  the decision in that would also govern the other appeal.      Under section  5 of the Act, tax is payable by a dealer on his  tax able turnover. "Taxable turnover‘’ is defined in

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section 2(xxv)  of the Act as the turnover on which a dealer is liable  to  pay  tax  as  determined  after  making  such deductions from his total turnover and in such manner as may be prescribed  by the  rules under  the Act.  It  does  not, however, include  the turnover  of purchase  or sale  in the course of  inter-State trade or commerce or in the course of export or  import   of goods.  The Kerala  General Sales Tax Rules have  been framed  be the State Government in exercise of the  powers conferred by section 57 of the Act. According to clause  (i) of  rule 9  of the sail rules. in determining the taxable  turnover the following amount shall be deducted from the  total turnover of the dealer: "the excise duty, if any paid  by the  dealer to  the Government of Kerala or the Central Government  in respect of the goods sold by him". It may be  stated that  clause (i) was omitted subsequently but we are  concerned with  the period  when that  clause was an integral part of the rule.      The respondent  is an  incorporated company  engaged in the manufacture  and sale of soaps, toilets and other goods. The respondent’s  accounts disclosed  that it  had collected from the  persons to  whom  it  sold  goods  a  sum  of  Rs. 30,591.71 as  sales tax  in excess  of  the  tax  which  the respondent was  liable to pay under the Act. The respondent, it would  appear, paid  Rs.  6,62,958  as  excise  duty  and deducted the same from its total turnover for the purpose of determining  the   taxable  turnover.   When,  however,  the respondent company sold the 154 goods it  collected sales  tax from  the purchasers  on  the invoice price  without deducting  there from the excise duty paid in  respect of  the said  goods. This  resulted in  the respondent company  realising Rs. 30,591.71 in excess of the sales tax  payable in  respect of  the goods sold by it: The sales tax officer held that the respondent was liable to pay the aforesaid  amount of  Rs. 30,591.71  to  the  Government under section  22(3) of  the Act.  The respondent then filed writ petition  in   the Kerala  High Court  to challenge its liability to pay the aforesaid amount on the ground that the provisions of  section 22  in  so  far  as  they  imposed  a liability on  a dealer  to pay  over to  the Government  any amount collected  by him  as sales  tax,  even  though  that amount was  not payable  as tax,  was unconstitutional.  The learned single  Judge dismissed  the petition  filed by  the respondent. On  appeal, however, the Division Bench held, as already mentioned  earlier, that  the impugned provision was beyond the legislative competence of the State Legislature.      Sub-section (3)  of section  22 of  the  Act  reads  as under:      "(3)  If   any  dealer   or  person   collects  tax  on      transactions not  liable to  tax under  this Act  or in      excess of  the tax  leviable to  under this  Act,  such      dealer or person shall, unless it is established to the      satisfaction of the assessing authority that the tax so      collected has  been refunded  to  the  person  who  had      originally paid  tax, pay  over to  the Government,  in      addition to  the tax  payable the  amount so  collected      within  such   time  and  in  such  manner  as  may  be      prescribed." The learned  Judges of  the High  Court in holding the above provision. in  so far  as it related to payment of an amount collected as tax on transactions not liable to tax under the Act or  in excess  of the  tax leviable  under the Act to he beyond the  legislative competence of the State Legislature, referred to  entry 54  of the  State  List  in  the  Seventh Schedule to  the Constitution  upon which  reliance had been

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placed on  behalf of  the State.  It was held that the State Legislature was incompetent to enact the impugned provisions contained in  sub-section (3) of section 22 of the Act under the above entry.      In appeal  before us  Dr. Seiyed  Muhammad on behalf of the appellants  has assailed  the judgment  of the  Division Bench of  the High Court. As against that, Mr. Pai on behalf of the  respondent has  canvassed for the correctness of the said judgment.  After hearing the learned counsel, we are of the opinion that there is no merit in these two appeals.      A State  Legislature is  competent to  make a law under entry 54  of List II in Seventh Schedule to the Constitution in respect  of "taxes on the sale or purchase of goods other than newspapers  subject to  the provisions  of entry 92A of List I". Entry 92A of List I relates to taxes on the sale or purchase of  goods other than newspapers, where such sale or purchase takes  place in  the course of inter-State trade or commerce, and we are not concerned with this entry. 155      Entry 54  enpowers  State  Legislatures  to  make  law, except i  certain cases  with which we are not concerned, in respect of  taxes on  the sale or purchase of goods. As long as the  law relates  to taxes  on the  sale or  purchase  of goods, it  would be  within  the  competence  of  the  State Legislature to  enact such  a law.  It would not, however, b permissible for  the State  Legislature to enact a law under entry 54  for recovery by the State of an amount which could not be  recovered as sales tax or purchase tax in accordance with the  law on  the subject and which was wrongly realised by a dealer as sales tax or purchase tax. Such a law plainly would not  be a  law relating to tax on the sale or purchase of goods  but would  be one  in respect of an amount wrongly realised by  a dealer as sales tax or purchase tax. It looks perhaps odd  that a  dealer should  recover in the course of business transactions  certain sums of money as sales tax or purchase tax  payable  to  the  State  and  that  he  should subsequently decline  to pay  it to  the State on the ground that the  same amount  is  not  exigible  as  sales  tax  or purchase tax.  Whatever might  be the  propriety of  such  a course, the  question with which we are concerned is whether the State  Legislature is  competent to  enact a  law  under entry 54  for recovery  by the  State of  an  amount,  which though not  exigibie under  the State  law as  sales tax  or purchase tax  was wrongly  realised as such by a dealer. The answer to  such a  question has  to be  in the negative. The matter indeed  is not  res integra  and is  concluded by two decisions of this Court.      A Constitution Bench of this Court examined in the case of R.  Abdul Quader & Co. v. Sales Tax officer, Hyderabad(1) the validity  of section  l l (2) of the Hyderabad Sales Tax Act, 1950 which reads as under:      "(2) Notwithstanding anything to the contrary contained      in any  order of  an officer  or tribunal  or judgment,      decree or  order of  a  Court,  every  person  who  has      collected or  collects on  or before 1st May, 1950, any      amount by  way of tax otherwise than in accordance with      the provisions  of this  Act  shall  pay  over  to  the      Government within  such time  and in such manner as may      be prescribed  the amount  so collected lay him, and in      default of  such  payment  the  said  amount  shall  be      recovered from  him as  if  it  were  arrears  of  land      revenue." The appellant  in that  case collected  sales tax  from  the purchasers of betel leaves in connection with the sales made by it.  The  appellant  however,  did  not  pay  the  amount

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collected to  the government.  The Government  directed  the appellant to pay the amount to the Government. The appellant thereupon  filed   a  writ   petition  in   the  High  Court questioning  the   validity  of   section  11(2).  The  main contention of  the appellant  before the High Court was that section 11(2)  which authorised  the Government to recover a tax collected  without the  authority of  law was beyond the competence of  the State Legislature because a tax collected without the authority of law would not be a tax levied under the law  and it  would therefore not be open to the State to collect (1) [1964] 6 S.C.R. 867. 156 under the  authority of a law enacted under entry 54 of List II of  the Seventh  Schedule to  the Constitution  any  such amount. The High Court upheld the validity of section 11(2). On appeal  to this Court it was observed by the Constitution Bench as under:      "The  first   question   therefore   that   falls   for      consideration is  whether it  was  open  to  the  State      legislature under  its powers under entry 54 of List II      to make  a provision to the effect that money collected      by way of tax, even though it is not due as a tax under      the Act,  shall be  made over  to Government. Now it is      clear that  the sums so collected by way of tax arc not      in fact  tax exigible  under the  Act. So  it cannot be      said  that   the   State   legislature   was   directly      legislating for the imposition of sales or purchase tax      under  entry  54  of  List  II  when  it  made  such  a      provision, for  on  the  face  of  the  provision.  the      amount,  though  collected  by  way  of  tax,  was  not      exigible as tax under the law." An attempt  was made  on behalf of the State in that case to sustain the  validity of  section 11(2) of the Hyderabad Act on the  ground that  the Legislature had enacted that law as part of the incidental and ancillary power to make provision for the  levy and  collection of sales or purchase tax. This contention was  repelled and  it was observed that the ambit of ancillary or incidental power did not go to the extent of permitting the legislature to provide that though the amount collected-may be wrongly-by way of tax is not exigible under the law.  as made  under the relevant taxing entry, it shall still be paid over to Government, as if it were a tax.      The question  again arose  in this Court before a Bench consisting of  six Judges  in the  case of  Ashoka Marketing Ltd.  v.   State  of  Bihar  &  Anr.(1).  In  that  case  in determining the appellant’s turnover for assessment to sales tax for  the year  1956-57, the  Superintendent of Sales Tax included an  amount  representing  Railway  freight  in  the appellant’s sales  of cement.  The appellate  authority  set aside the  orders directing  the inclusion  of  the  Railway freight in  the turnover.  After the introduction of section 20-A of  the Bihar  Sales Tax Act the Assistant Commissioner issued a  notice under  section 20-A(3) of the Act requiring the appellant to show cause why an amount representing sales tax on the Railway freight which became refundable under the orders of  assessment  be  not  forfeited.  The  appellant’s contention that  section 20-A  was  ultra  vires  the  State Legislature was  rejected by  the Assistant  Commissioner as well as  by the  High Court in a writ petition under article 226 of  the Constitution.  On appeal  filed by  the assessee this Court  held that  sub-sections  (3),  (4)  and  (5)  of section 20-A  were ultra  vires the  State legislature. As a corollary thereto,  sub-sections (6) and (7) of that section were also held to be invalid. Subsection (3) of section 20-A

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of the Bihar Sales Tax Act read as under:      "(3)(a)  Notwithstanding   anything  to   the  contrary      contained in  any law  or  contract  or  any  judgment,      decree or order of      (1) [1970] 1 S. C. R. 455. 157      any Tribunal,  Court or  authority, if  the  prescribed      authority has  reason to believe that any dealer has or      had,  at   any  time,   whether  before  or  after  the      commencement of this Act, collected any such amount, in      a case  in which  or to  an extent  to which  the  said      dealer was  or is  not liable  to pay  such amount,  it      shall serve  on such  dealer a notice in the prescribed      manner requiring  him on a date and at a time and place      to be  specified therein neither to attend in person or      through authorised  representative to show cause why he      should not  deposit into  the Government  treasury  the      amount so collected by him.           (b) On  the day  specified  in  the  notice  under      clause (a)  or  as  soon  thereafter  as  may  be,  the      prescribed authority  may. after  giving the  dealer or      his authorised representative a reason able opportunity      of being  heard and  examining such  accounts and other      evidence as  may be  produced by  or on  behalf of  the      dealer and  making such  further enquiry as it may deem      necessary,  order   that  the   dealer  shall   deposit      forthwith into  the  Government  treasury,  the  amount      found to  have been  so collected by the dealer and not      refunded prior  to the receipt of the, notice aforesaid      to the person from whom it had been collected." In holding  sub-section (3) and other impugned provisions of section 20-A  to be beyond the legislative competence of the State  Legislature,   this  Court  in  the  case  of  Ashoka Marketing Ltd.  (supra) relied  upon the  decision  of  this Court in Abdul Qadar’s case (supra).      Dr. Muhammad  has, however,  tried to  distinguish  the above two  cases on the ground that the present case relates to an  amount realised  in excess  of the tax leviable under the Act and not to an amount which was not payable at all as tax under  the Act.  This fact,  in our  opinion, would  not prevent the  applicability of the principle laid down in the cases of  Abdul Qadar and Ashoka Marketing Ltd. (supra). Any amount realised  by a  dealer in  excess of the tax leviable under the  Act stands,  for the  purpose of  determining the legislative competence  under entry  54, on the same footing as an  amount not  due as  tax under the Act. Dr. Muhammad’s argument involves  inventing a  category of  a "deemed  tax" which is  not there  in the  Act. The  provisions of the Act contain a  definition of  "tax". This necessarily means that every thing  outside it  collected by the dealer would be an exaction not  authorised by  the Act.  "Tax",  according  to section 2(xxiv)  of the Act, means the tax payable under the Act. The  amount which  was realised  by the  respondent  in excess of what was due as tax cannot 158 be held  to be "tax", because such excess amount was not tax payable  under the Act. If the State Legislature cannot make a law  under entry  54 of List II of the Seventh Schedule to the Constitution  directing the  payment to the State of any amount collected  as tax  on transactions  not liable to tax under the  Act, it  would likewise  be incompetent to make a law directing  payment to the State of an amount realised be a dealer  in excess  of the  tax payable  under the Act. The amount realised  in excess of the tax leviable under the Act would not stand for this purpose on a footing different from

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that of  the amount  realised as  tax, even  though the same could not be recovered as tax under the Act.      We would,  therefore,  dismiss  the  two  appeals  with costs. One hearing fee. V.P.S.                                    Appeals dismissed. 159