Kanti Lal Babulal Vs. H. C. Patel
 INSC 226 (29 September 1967)
29/09/1967 HEGDE, K.S.
WANCHOO, K.N. (CJ) BACHAWAT, R.S.
CITATION: 1968 AIR 445 1968 SCR (1) 735
CITATOR INFO :
E 1970 SC 898 (20) RF 1975 SC 813 (14) F 1977
SC2279 (31) F 1990 SC 772 (8)
Bombay Sales Tax Act (Bom. 5 of 1946) S.
12A(4)-If infringes Art. 19(1)(f), Constitution.
In view of Art. 286 (1) (a) of the
Constitution, as it stood at the relevant time, the sales by the appellants(registered
dealers) outside the State of Bombay were not exigible to tax. The
appellants.were directed to refund amounts collected by them from their
purchasers in respect of these sales by way of tax, failing which the amounts
would be forfeited under s. 12A(4) of the Bombay Sales Tax Act. The appellants
filed a writ petition in the High Court to restrain the respondents from taking
action against them under s. 12A(4), The High Court dismissed the petition. In
appeal, this Court, Held: S. 12A(4) of the Bombay Sales Tax Act was void being
violative of Art. 19(1)(f) of the Constitution.
Prima facie the appellants were entitled to
get the amount ordered. to be refunded to them. It was for the respondents to
establish that the same was liable to be forfeited. Even according to the
respondents that amount could be forfeited only as a measure of penalty. Under
our jurisprudence no one can be penalised without a proper enquiry. [740 E-F].
The impugned provision which provided
forfeiture of the amount in the hands of the dealers, did not lay down any
procedure for ascertaining whether in fact the dealer concerned hid collected
any amount by way of tax from his purchasers outside the State and if so what
that amount was.
Neither S. 12A(4) nor any rule framed under
the Act contemplated any enquiry,, much less a reasonable enquiry in which the
person complained of could plead and prove his case or satisfy authorities that
their assumptions were either wholly or wholly wrong. This section did not
contemplate adjudication nor provide for making any order.
Hence, it was doubtful whether any appeal
could be filed against a demand made under that section under S. 21 (740 GH;
Abdul Quadar and Co. v. Sales Tax Officer,
Hyderabad  S.C.R 867, Dr. N. B. Khare v. State of 'Delhi.  S.C.R.
519. State of Madras v. V. G. Rao, (19521 S.C.R.
Ram Gopal v. Sales Tax Officer, Surat and
another, 16 S.T.C.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 126 of 1966.
Appeal from the judgment and order dated
November 29, and December 2, 1963 of the Gujarat High Court in Special Civil
Application No. 641 of 1962.
736 K. R. Chaudhuri, for the appellant.
R. M. Hazarnavis, K. L. Hathi and S. P.
Nayar, for the respondents.
S. T. Desai and I. N. Shroff, for the
The Judgment of the Court was delivered by
Hegde, J.--The main controversy in this appeal by certificate is as to the
constitutional validity of S. 12A(4) of the Bombay Sales Tax 1946, to be
hereinafter referred to as the Act. As in our judgment that provision is void,
the same being violative of Art. 19(1)(f) of the Constitution, we have not
thought it necessary to examine the other contentions raised' in the appeal.
The facts material for the purpose of
deciding the question formulated above, are these: The appellants are dealers
registered tinder the Act carrying on business in art silk, cotton and hand
loom cloth. During the period January 26, 1950 to March 31, 1950, the
appellants effected various sales outside the State of Bombay. As those sales
were protected by Art. 286(1)(a) of the Constitution, they were outside the
reach of the Act. But yet the sales tax officer assessed the turnover relating
to those sales. The tax levied in respect of that turnover was Rs. 4,494/3/9.
In appeal, the order of the sales tax officer was affirmed by the Assistant
Collector of sales,tax. But the Additional Collector of sales tax in revision
revised the levy to some extent and, ordered a refund of Rs. 2,238/0/6. That amount
was paid to the assessees. Not being satisfied with the order of the Additional
Collector of sales tax, the appellants took up the matter in revision to the
Sales Tax Appellate Tribunal. But even before they moved the Tribunal in
revision, the Additional Collector of sales tax by his letter dated May 17,
1958, informed the appellants that unless they furnished to the sales tax
officer proof of their having refunded the amount paid to them in pursuance of
his order to the purchasers within a period of three months from the date of
that notice, the same would be liable to be forfeited under s. 12A(4) The
Tribunal by its 'order dated November 26, 1958, allowed the claim of the
appellants in full and directed' the refund of an additional sum of Rs. 2,256/2/6.
During the period April 1, 1950 to March 31,
1951 the appellants effected various sales outside the State of Bombay.
The turn, over relating to those sales was
also brought to tax by the sales tax officer and in that connection a tax of
Rs. 23,806/3/6 was levied on the appellants. In appeal, the Assistant Collector
of sale tax allowed the appellants' claim in part and ordered a refund or. Rs.
12,154/15/but at the same time he informed them that that amount would be
forfeited to the State Government if not refunded to the purchasers from whom
the same had been collected. No being satisfied with the relief obtained, the
appellants went up in revision to the Additional Collector of sales tax. That
officer by 737 his order dated November 1, 1958 granted further relief by
ordering refund of an additional sum of Rs. 3,588/1/9. But the sales tax
officer did not give effect to that order. As the Additional Collector did not
accept the appellants' claim in full, they went up in revision to the Tribunal.
The Tribunal allowed their claim in full. The
Revenue took up the matter in reference to the High Court but that reference
was rejected. From the foregoing it is seen that in respect of the period April
1, 1950 to March 31, 1951the appellants are entitled to get a refund of Rs. 23,806/3/6.
Despite the aforementioned orders, the sales tax officer did not pay the
amounts ordered to be refunded.
On the other hand, he threatened to take
steps to forfeit the same by having recourse to s. 12A(4).
On June 27, 1962, the sales tax officer
called upon the assessees to remain present in their office on July 2, 1962
with particulars of the amount collected by them by way of sales tax from the
purchasers in 'other States during the period January 26, 1950 to March 31,
1951. At that stage, the appellants approached the High Court of Gujarat by
special civil application No. 641 of 1962 under Art. 226 of the Constitution.
In that application, they prayed for several reliefs, the most important of
which was to direct the respondents to comply with the orders of refund and to
refrain from taking any action against them under s. 12A(4).
The High Court dismissed that application.
Hence. this appeal.
The Act provides for the levy of tax on the
sale of goods in the then State of Bombay. It came into force on March 8, 1946.
Any person who carries on business of selling or supplying goods in the State
of Bombay whether for commission, remuneration or otherwise, is defined as a
dealer in s. 2(c). Section 8 and s. 8(a) of the Act provide for the
registration of dealers. As mentioned earlier the appellants are registered'
dealers. Under s. 2(k) of the Act, the assessment year is the financial year.
Section 5 prescribes the incidence of taxation. Section 10 prescribes the
returns to be made by the dealers. The assessment is made under s. 11. Section
11 (a) provides for taxing the turnover escaping assessment. Section 12
provides for the payment and recovery of tax. Section 12A is the one with which
we are concerned in this appeal. It reads:
"(1) No person shall collect any amount
by way of tax under this Act in respect of sales or supplies of any goods which
are declared, from time to time, under section 7 as sales or supplies on which
the tax is not payable.
(2) No person selling or supplying any goods
shall collect from the purchaser any amount by way of sales tax unless he is a
registered dealer and is liable to pay tax under this Act in respect of such
sale or supply:
Provided that this sub-section shall not
apply in cases where a person is required to collect such amount of tax
separately in order to comply with the conditions 738 and restrictions imposed
on him under the provisions of any law for the time being in force.
(3) Every registered dealer whose gross
turnover exceeds Rs. 60,000 a year shall issue a bill or cash memorandum signed
and dated by him or his servant, manager or agent to the purchaser in respect
of the goods sold or supplied by him showing the particulars of the goods and
the price at which the goods are sold or supplied shall keep the counterfoil or
duplicate of such bill or cash memorandum duly signed and dated and preserve it
for a period of not less than two years from such date.
(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 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." In view of Art.
286(1)(a) of the Constitution as it stood at the relevant time, the appellants'
sales outside the State of Bombay were not exigible to tax. Therefore if the
appellants had collected any amount from their purchasers in respect of those
sales by way of tax they had undoubtedly contravened sub-s. 2 of s. 12A. Sub-s.
4 of s. 12A provides for the forfeiture to State government any amount
collected by a dealer by way of tax in excess of the amount payable by him
under the Act. For the purpose of deciding the point in issue it is not
necessary to find out the scope of the expression "collects any amount by
way of tax" in s. 12A(4).
We shall assume, without deciding, the
collection made by the appellants, if any, was by way of tax.
It was not contended nor could it have been
contended that the impugned provision is a taxation measure bringing to tax
directly or indirectly the sales effected outside the State of Bombay. In Abdul
Quadar and Co. v. Sales Tax Officer, Hyderabad,(1) interpreting s. 11(2) of,
the Hyderabad General Sales Tax Act 1952, a provision somewhat similar to, the
impugned provision, this Court observed that legislation under Entry 54 of List
II of the Constitution (similar to Entry 48 of List 11 of the Government of
India Act, 1935, the entry with which we are concerned in this case) proceeds
on 'the basis that the amount concerned is not a tax exigible under the law
made under that entry, but (1)  6 S.C.R. 867.
739 even so lays down that though it is not
exigible under the law, it shall be paid over to the government merely because
some dealers by mistake or otherwise have collected it as tax; hence, 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. Therein it was held that it cannot be said that the State legislature
was directly legislating for the imposition of sales or purchase tax under
Entry 54 of List 11 when it made the provisions of s. 11 (2), for on the basis
of the provision the amount that was collected by way of tax was not exigible
as tax under the law.
According to the Revenue s. 12A(4) is a penal
provision; and it provides for the imposition of penalty on those who
contravene s. 12A(1) and (2). It was said on its behalf that power to enact
such a provision is incidental to the power to tax sales. In support of that
contention reliance was placed on the decision of the Gujarat High Court in Ram
Gopal v. Sales Tax Officer, Surat and Another(1). That decision upheld the
validity of s. 12A(4). If that decision lays down the law correctly, then the
appellants are out of court. But we think that the said decision cannot be
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. Prima facie the appellants are entitled to get
the amount ordered to be refunded to them. It is for the respondents to
establish that the same is liable to be forfeited. Even according to the
respondents that amount can be forfeited only as a measure of penalty for the
contravention of s. 12A(1) and (2). Under our jurisprudence no one can be
penalised without a proper enquiry. Penalising a person without an enquiry is
abhorrent to our sense of justice. It is a violation of the principles of
natural justice, which we value so much.
The impugned provision which provides for the
forfeiture of the amount in the hands of the dealers, does not lay down any
procedure for ascertaining whether in fact the dealer concerned bad collected
any amount by way of tax from his purchasers outside the State and if so what
that amount is.
Neither s. 12A(4) nor any rule framed under
the Act contemplates any enquiry much less a reasonable enquiry in which the
person complained of can plead and prove his case or satisfy the authorities
that their assumptions are either wholly or partly wrong.
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 ss. 12A(1) and (2), and if so, to what extent.
(1) 16 S.T.C. 1005.
L/P(N)7SCI-8 740 Hence it would be open to
the department to evolve all the requisite machinery and procedure which means
that the whole thing, from the beginning to end, is treated as of a purely
administrative character, completely ignoring the legal position. The
imposition of a penalty on a person is at least of a quasi-judicial character.
The impugned provision does not concern
itself only with the amount admittedly collected by a person in contravention
of sub ss. 1 and 2 of s. 12A. Even if there is any dispute either as to the
facturn of collection or as to the amount collected, such a case also comes
within the scope of s.
12A(4). Yet that section does not provide for
any enquiry on disputed questions of facts or law. The forfeiture provided for
in S. 12A(4) prima facie infringes Art.
19(1)(f). Therefore it is for the respondents
to satisfy the Court that the impugned provision is a reasonable restriction
imposed in the interest of the general public.
Section 12A(4) does not contemplate the
making of any order.
As mentioned earlier, that section prescribes
that if any registered dealer collects any amount by way of tax in excess of
the amount payable by him under the Act, the amount so collected shall, without
prejudice to any prosecution that may be instituted against him for an offence
under the Act, be forfeited to the State government and he shall within the
prescribed period pay such amount into a government treasury and in default of
such payment the amount shall be recovered as arrears of land revenue.
This section does not contemplate
adjudication. Nor does it, provide for making any order. Hence, it is doubtful
whether any appeal can be filed against a demand made under that section under
The question whether appellants in the
instant case had been afforded a reasonable opportunity to establish their case
or riot is besides the point. The constitutional validity of a provision has to
be determined on construing it reasonably.
If it passes the test of reasonableness, the
possibility of powers conferred being improperly used, is no ground for
pronouncing it as invalid, and conversely if the same properly interpreted and
tested in the light of the requirements set out in Part III of the
Constitution, does not pass the test, it cannot be pronounced valid merely
because it is being administered in the manner which might not conflict with
the constitutional requirements. On a reasonable interpretation of the impugned
provision, we have no doubt that the power conferred under S. 12A(4) is
unguided, uncanalised and uncontrolled. It is an arbitrary power. As held by
this Court in Dr. N.B. Khare v. State of Delhi(1), whether the restrictions
imposed by a. legislative enactment upon a fundamental right guaranteed by Art.
19(1) are reasonable within the meaning of Art. 19(5) would depend as much on
the procedural portion of the law as the substantive part of it.
(1)  S.C.R. 519.
741 Rao(1) wherein it was observed that in
considering the reasonable That view was reiterated by this Court in State of
Madras v. V. G. ness of laws imposing restrictions on fundamental rights both
the substantive and procedural aspects of the impugned law should be examined
from the point of view of reasonableness. This Court has taken that view
consistently. A provision like the one with which we are concerned in this case
can hardly be considered reasonable.
For the reasons mentioned above, this appeal
The order of the High Court is set aside and
a writ of mandamus will be issued to the respondents to comply with the refund
order set out in the petition filed before the High Court and to refrain from
proceeding against the appellants under s. 12A(4). The appellants are entitled
to their costs both in this Court and in the High Court.
Y.P. Appeal allowed.
(1)  S.C.R. 597.