http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: THE ORIENT PAPER MILLS LTD.

       Vs.

RESPONDENT: THE STATE OF ORISSA AND OTHERS(And Connected Appeal)

DATE OF JUDGMENT: 24/03/1961

BENCH: SHAH, J.C. BENCH: SHAH, J.C. AIYYAR, T.L. VENKATARAMA DAS, S.K. KAPUR, J.L. HIDAYATULLAH, M.

CITATION:  1961 AIR 1438            1962 SCR  (1) 549  CITATOR INFO :  R          1962 SC1230  (5)  D          1964 SC 922  (6)  R          1964 SC 925  (25)  D          1971 SC 946  (4,8)  RF         1973 SC1461  (218)  RF         1977 SC2279  (57)  R          1985 SC 218  (17,18,19,20)  D          1985 SC 901  (10)  F          1987 SC  27  (4)

ACT: Sales  Tax-Tax  imposed on sales outside  the  State-Refund, claimable  by  dealer  or  purchaser-Assessee’s  fundamental right-Reasonable restriction-Orissa Sales Tax Act, 1947 (XIV of  1947), ss. 9B. cl. (3), 14-Orissa Sales Tax  (Amendment) Act,  1958 (28 of 1958), s.14A-Constitution of  India,  Art, 19(1)(f).

HEADNOTE: The  appellants  who were registered as  dealers  under  the Orissa  Sales Tax Act, 1947, used to collect sales tax  from the purchasers on all sales effected by them including sales to dealers in other states.  They were assessed to and  paid tax  on  their 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.,  [1953] S.C.R. 1069, they applied under s. 14 of the Act for  refund of tax paid on the ground that sales outside the State  were not taxable under cl. (1)(a) of Art. 286 of the Constitution read with the Explanation.  Refund was refused by the  Sales Tax  Authorities  and the Board of  Revenue.   In  petitions moved by the appellants for writs of certiorari and Mandamus against  the orders of the Board of ,Revenue the High  Court ordered  refund of tax paid for certain periods and  refused it  in  regard to other periods.  The Orissa Sales  Tax  Act was,  however,  amended in 1958  with  retrospective  effect incorporating  S. 14-A which provided that refund  could  be claimed only by the person from whom the dealer had realised the amount by way of sales-tax or otherwise.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

550 Held, that under S. 14-A of the Orissa Sales Tax (Amendment) Act, 1958, refund of tax which the dealer was not liable  to pay  could  ’be claimed by the person from whom  the  dealer had actually realised it whether as sales tax or  otherwise, and not by the dealer. The legislature was competent to legislate for granting  )IS 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. Under s. 9B, cl. 3 of the Act, if the amount realised by the assessee exceeded the amount payable as tax such amount must be  deposited in the Government treasury, and  the  assessee having  no beneficial interest in such amount the  enactment that  the amount shall be claimable only by the persons  who paid the amounts to the dealers as sales-tax is a reasonable restriction  imposed on the right of the assessee to  obtain refund  in the interest of the general public, and does  not infringe   the   provisions   of  Art.   19(1)(f)   of   the Constitution.   If the assessees discharge  their  statutory obligation  to deposit the amount collected by them as  sale tax in the Government treasury they cannot be exposed to any claim  for  refund  by  the persons from  whom  the  tax  is collected,  even  though  such persons  were  in  the  first instance not liable to pay the tax.

JUDGMENT: CIVIL APPELLATE JURISDICTION:             Civil Appeals Nos. 273 to 277 of 1960. Appeals by special leave granted by the Supreme Court by its order  dated December 15, 1958, from the judgment and  order dated February 4, 1957, of the High Court of Orissa in O. J. C. Nos. 184 to 188 of 1955. H.   N. Sanyal, Additional Solicitor-General of India and B. P.  Maheshwari, for appellants (In C. As.  Nos. 273 and  274 of 1960) and respondents (In C. As.  Nos. 275-277 of 1960). C.   K.  Daphtary,  Solicitor-General  of India,  B.  R.  L. Iyengar  and T. M. Sen, for respondents (In (’J.  As.   Nos. 273 and 274 of 1960) and appellants (In C. As.  Nos. 275-277 of 1960). 1961.  March 24.  The Judgment of the Court was delivered by SHAH,  J.-The Orient Paper Mills Ltd.,  thereinafter  called the  assessees-are  a public limited  company  having  their registered office at Brajrajnagar in the                             551 district  of  Sambalpur, Orissa State.   The  assessees  are manufacturers  of paper and paper-boards and are  registered as dealers under the Orissa Sales Tax Act,  1947-hereinafter referred  to as the Act.  The assessees used to collect  tax from the purchasers on all sales effected by them  including sales  to dealers in other States.  For the quarters  ending March 31, 1950, June 30, 1950, September 30, 1950,  December 31,  1950 and March 31, 195 1, the assessees paid  Sales-tax which  they  were  assessed by the  Assistant  Collector  of Sales-tax  to  pay, on their turnover which  included  sales outside the State of Orissa. After  this  court delivered the judgment in  The  State  of Bombay  and  Another v. The United Motors (India)  Ltd.  and Others  (1) the assessees applied for refund under s. 14  of the  Act  of  tax paid in respect of  goods  despatched  for consumption  outside  the State of  Orissa  contending  that according   to  the  law  expounded  by  this   court,   the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

transactions  of  sales outside the State were  not  taxable under  the  Act because of the prohibition imposed  by  Art. 286(1)  (a) of the Constitution read with  the  Explanation. Refund  was refused by the Assistant Sales Tax  Officer  and the  order  was confirmed by the Board of Revenue.   In  the view of the taxing authorities, the orders of assessment  in respect of the five periods had become final on the  diverse dates  on  which they were made and were not  liable  to  be reopened   merely   because  the  law  applicable   to   the transactions  was  not correctly appreciated by  the  taxing authorities.  In petitions moved by the assessees for  writs of  certiorari and mandamus against the orders of the  Board of  Revenue,  the High Court of Orissa held  that  the  only restriction  upon the right of a dealer to apply for  refund which "is found within the four corners of s. 14 of the Act" being  the  law of limitation prescribed by the  proviso  to than  section, transactions in question not being liable  to tax as they were interstate transactions, the tax  collected must be refunded on applications submitted within the period prescribed.  The High Court then proceeded to hold that  the recovery of tax paid for the first two (1)  [1953] S.C.R. 1069. 552 quarters  was barred by limitation but not recovery  of  tax paid  for  the remaining three quarters, and issued  id.  an order  in the nature of mandamus directing refund of tax  in respect of the last three quarters.  The State of Orissa and the  assessees have appealed with special leave against  the judgment of the High Court by these five appeals. Counsel  for  the State of Orissa contends  that  no  refund could be granted because the orders of assessment had become final  and s. 14 of the Act applied only to cases of  refund in  which a superior taxing authority in appeal or  revision against the order of assessment directs or declares that the tax  has not been properly collected, and it does not  apply to cases of assessment which have become final, even if made on an erroneous view of the law.  The assessees support  the view of the High Court that s. 14 applies to all claims  for refund  and also contend that the recovery of tax  paid  for the  first  two  quarters  was not  barred  by  the  law  of limitation. It  is  unnecessary  for the purposes of  these  appeals  to consider the respective contentions of the parties.  In  our view  the  claim of the assesses must fail  because  of  the retrospective   amendment   of  the  Act   by   the   Orissa Legislature.  By s. 14A which was incorporated by the Orissa Sales Tax (Amendment) Act, 28 of 1958, it was provided:               "Notwithstanding  anything contained  in  this               Act  where any amount is either  deposited  by               any  person under sub-section (3) of s. 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." In terms, the section provides that refund of tax "id  which the dealer was not liable to pay can’ only be claimed by the person from whom the dealer has actually realised it whether as sales-tax or otherwise.                             553 The  section therefore deprives the assessees of the  common

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

law  right to claim refund of the amounts paid as tax  under an  error  of  law that it was  recoverable  by  the  taxing authority.  Counsel for the assessees does not dispute  that by the amending provision, the right to obtain refund of tax is  denied to him by the Legislature.  He contends that  the Act  is beyond the competence of the State Legislature,  and in any event, it is void because it imposes an  unreasonable restriction upon the assessees’ fundamental right guaranteed under Art. 19(1)(f) of the Constitution. By item 54 of List II of Schedule 7 to the Constitution, the State  Legislature was indisputably competent  to  legislate with  respect  to taxes on sale or purchase  of  papers  and paper-boards.  The power to legislate with respect to a  tax comprehends  the  power  to impose  the  tax,  to  prescribe machinery for collecting the tax, to designate the  officers by  whom the liability may be enforced and to prescribe  the authority, obligations and indemnity of those officers.  The diverse  heads  of  legislation  in  the  Schedule-  to  the Constitution   demarcate  the  periphery   of   legislative’ competence  and include all matters which are  ancillary  or subsidiary  to  the primary head.  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.  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  realised  the amounts  by way of sales-tax or otherwise We see none.   The question  is one of legislative competence and there  is  no restriction either express or implied imposed upon the power of the Legislature in that behalf. Art.  19(1)(f) of the Constitution prescribes the  right  to freedom  of  citizens  to  acquire,  hold  and  dispose   of property; but the right is by cl. (5) subject to tile 70 554 operation of any law, existing or prospective, in so far  as it  imposes reasonable restrictions on the exercise of  that right in the interest of the general public.  Assuming  that by  enacting  that refund of tax shall only be made  to  the purchasers  from  whom  the tax has been  collected  by  the dealers  and  not to the dealers who have paid the  tax  the fundamental right under Art. 19(1)(f) is restricted, we  are unable to hold that the restriction imposed by s. 14A of the Act  is  not  in the interest of the  general  public.   The Legislature  by  s. 9B(1) of the Act  authorised  registered dealers  to collect tax from the purchasers which  they  may have to pay on their turnover.  The amounts collected by the assessees therefore primarily belonged not to the assesssees but to the purchasers.  On an erroneous assumption that  tax was payable, tax was collected by the assessees and was paid over  to the State.  Under s. 9B, cl. (3) of the Act  as  it stood  at  the material time, the amounts  realised  by  any person  as tax on sale of any goods  shall,  notwithstanding anything  contained  in any other provision of the  Act,  be deposited by him in a Government treasury within such period as may be prescribed if the amount so realised exceeded  the amount  payable as tax in respect of that sale or if no  tax is payable in respect thereof.  As the tax collected by  the assessees was not exigible in respect of the sales from  the purchasers, a statutory obligation arose to deposit it  with the  State and by paying that tax under the assessment,  the

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

assessees  must  be  deemed  to  have  complied  with   this requirement.  But the amount of tax remained under s. 9B  of the Act with the Government of Orissa as a deposit.  If with a  view  to  prevent the assessees  who  had  no  beneficial interest  in those amounts from making a profit out  of  the tax  collected, the Legislature enacted that the  amount  so deposited  shall  be claimable only by the persons  who  had paid  the  amounts to the dealer and not by the  dealer,  it must  be  held  that the restriction on  the  right  of  the assessees to obtain refund was lawfully circumscribed in the interest of the general public. Counsel for the assessees contended that they stood 555 in  danger  of  being  compelled  at  the  instance  of  the purchasers  to repay the amount collected as tax even  after it  is  deposited  with  or  paid  by  them  to  the  State, Government, and a statutory provision which deprives them of their  right  to  claim refund amounts  to  an  unreasonable restriction, because they are under an obligation to pay the amount to purchasers but they cannot reimburse themselves by recourse  to the State which holds the amounts.  But  by  s. 9B,  the  assessees  were liable to deposit  the  amount  in excess of what was lawfully recoverable from the  purchasers as  tax’  When  under the orders  of  assessment  they  paid amounts  to the State, requirements of s. 9B  were  complied with  and  the amount remained with the  State  in  deposit, subject  to the obligation, if a demand was made within  the period  prescribed, to restore the same to the persons  from whom  the assessees had recovered it. We do not  think  that there  is  any reason to hold that the  assessees  would  be exposed  to  any enforceable claims at the instance  of  the purchasers to refund the tax collected by them if they  have deposited  it with the State in discharge of  the  statutory obligation incurred by them. Appeals Nos. 273 and 274 of 1960 will therefore be dismissed and Appeals Nos. 275 to 277 of 1960 will be allowed.  As the State  succeeds relying upon a statute enacted  after  the judgment  was pronounced by the High Court, we  direct  that there  shall be no order as to costs of the appeals in  this court.         Appeals Nos. 273 and 274 of 1960 dismissed.           Appeals Nos. 275 to 277 of 1960 allowed. 556