Ashoka Marketing Ltd. Vs. State of
Bihar & ANR [1970] INSC 9 (30 January 1970)
30/01/1970 SHAH, J.C.
SHAH, J.C.
HIDAYATULLAH, M. (CJ) HEGDE, K.S.
GROVER, A.N.
RAY, A.N.
DUA, I.D.
CITATION: 1971 AIR 946 1970 SCR (3) 455 1970
SCC (1) 354
CITATOR INFO :
F 1973 SC1333 (4,5) RF 1975 SC 198 (10) R
1975 SC1991 (10) RF 1977 SC2279 (57) RF 1985 SC 218 (20) RF 1986 SC 178 (2) O
1987 SC 27 (4)
ACT:
Constitution of India Schedule VII, Entry 54,
List II, Entries 6, 7 and 13, List III-Scope of. Bihar Sales Tax Act 1959,
section 20-A (3), (4) and (5)-Validity of.
HEADNOTE:
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 in the
Bihar Sales Tax Act 19 of 1959 by Act 20 of 1962, the Assistant Commissioner
issued a notice to the Appellant 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, and by the High
Court in a writ petition under Article 226 of the Constitution.
On appeal to this Court,
HELD : The appeal must be allowed and the
petition of the assessee must be granted. Sub sections (3), (4) and (5) of
section 20A are ultra vires the State Legislature. As a corollary thereto, sub
sections 6 and 7 must also be deemed invalid.
Sub-section (8) of s. 20A does not alter the
true nature of the demand or appropriation which can be made under sub-ss.
(3), (4) and (5) of s. 20-A. The intention
underlying sub-ss. (3), (4) and (5) is to enable the State to collect from the
dealer tax which the State is not entitled to levy and to appropriate it to
itself except in the very rare cases in which the purchaser may approach the
State and be able to satisfy it that he has a claim, that the claim is in
order, and that it is within limitation. Notwithstanding the addition of sub-s,
(8), the amount received by the State or appropriated by the State continues to
have the character of a tax collected which the State is not entitled to
collect. A provision which enables the dealer to pass on the liability for
payment of tax is incidental to legislation for sales-tax. But it cannot be
held 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 64, List II, of the Seventh Schedule.
In effect the provision is one for levying an amount as tax which the State is
incompetent to levy. 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
he was not entitled to collect. [464 F, 463 E, H] 456 The power to legislate in
respect of sub-ss. (3), (4) and (5) of s. 20A does not fall under Entries 6, 7
and 13 of List III expressly, nor is it necessarily incidental to the power
contained in Entries 6, 7 and 13 of List III. [465 EF] The Orient Paper Mills
Ltd. v. The State of Orissa and Ors.
[1962] 1 S.C.R. 549 distinguished.
R. Abdul Qader & Co. v. Sales Tax
Officer, Hyderabad [1964] 6 S.C.R. 867 followed.
State of Bombay v. United Motors (India) Ltd.
[1953] S.C.R.
1069 referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 2004 of 1966.
Appeal by special leave from the order dated
March 14, 1966 of the Patna High Court in C.W.J.C. No. 143 of 1966.
S. V. Gupte, H. K. Puri for K. K. Jain, for
the appellant.
Lal Narain Sinha, Advocate-General for the
State of Bihar and U. P. Singh, for the respondents.
The Judgment of the Court was delivered by
Shah, J. Ashoka Marketing Ltd.-hereinafter called 'the assessee'-returned for
the year 1956-57 under the Bihar Sales Tax Act, 1947, an amount of Rs.
2,46,67,517-1-6 as its turnover from sale of cement and other commodities. The
Superintendent of Sales Tax brought to tax an additional amount of Rs.
7,67,70213-0 being the railway freight paid in respect of the goods supplied by
the assessee. By order dated April 2, 1961 the Appellate Authority set aside
the order directing inclusion of the railway freight in the turnover, and
ordered that the assessment be revised.
In the meantime the Bihar Sales Tax Act,
1947, was repealed and was replaced by the Bihar Sales Tax Act, 19 of 1959.
By Act 20 of 1962 s. 20A was introduced in
the Bihar Sales Tax Act 19 of 1959. The relevant provisions of S. 20A were :
"(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 any judgment, 457 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) 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 reasonable 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.
(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 had 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.
(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)..............................................
(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 458 (5), to have been 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 collected.
(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) :
Provided further that no claim for such
refund shall be rejected without giving the applicant a reasonable opportunity
of being heard.
On July 31, 1963, the Assistant Commissioner
of Commercial Taxes. Shahabad Circle. issued a notice under s. 20A (3) of the
Bihar Sales Tax Act, 1959, requiring the assessee to show cause why an amount
of Rs. 23.990-11-0 being the sales tax on the railway freight which had become
refundable under the order of assessment be not forfeited. The assessee in
reply contended, inter alia, that s. 20A of the Bihar Sales Tax Act was ultra
vires the State Legislature and that in any case it had no application to his
case. The Assistant Commissioner of Commercial Taxes rejected the contention
and passed an order directing that the amount of Rs. 23,990-11-0 do stand
forfeited to the Government and further directed that the amount be deposited
in the Government treasury.
The assessee then moved a petition before the
High Court of Patna under Art. 226 of the Constitution for a writ quashing the
order of the Assistant Commissioner of Commercial Taxes and for consequential
orders restraining recovery of the amount. The High Court of Patna, relying
upon the judgment of this Court in The Orient Paper Mills Ltd. v. The State of
Orissa 459 and Ors. (1) rejected the petition. With special leave, this appeal
has been preferred.
Two questions fall to be determined in this
appeal (1) Whether s. 20A of the Bihar Sales Tax Act, 1959 is within the
competence of the State Legislature; and (2) Whether an order may be made under
s. 20A for depositing with the State Government an amount collected by a
registered dealer from his constituent to recoup himself for payment of
sales-tax under the Bihar Sales Tax Act, 1947 which amount, according to law
then in force, the constituent was not liable to pay.
Counsel for the assessee, relying upon the
judgment in R.
Abdul Quader & Co. v. Sales Tax Officer,
Hyderabad (2) , contended that an Act passed by a State Legislature authorising
the State Government to recover an amount collected under a sale, by a
registered dealer from the purchaser, to recoup himself for payment of
salestax, which was not liable to tax, is beyond the competence of the State
Legislature. In Abdul Quader's case (2) the Court was dealing with the
interpretation of s. 11(2) of the Hyderabad General Sales Tax Act 14. of 1950.
By s. 1(2) it was provided:
"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
the 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." This Court held that s. 11(2) of the
Hyderabad General Sales Tax Act provided for recovery of an amount collected by
way of tax, as arrears of land revenue though the amount was not due as tax
under the Act. In rejecting the contention that the provision fell within Entry
54 List II, the Court observed at (p. 872) "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 (1) [1962] 1 S.C.R.
549.
(2) [1964] 6 S.C.R. 867.
460 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 eligible 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 eligible 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." An attempt to
sustain the validity of the provision as one imposing a penalty was also.
negatived, and the Court held that s. 11 (2) of the Hyderabad General Sales Tax
Act was not within the competence of the State Legislature.
In Abdul Quader's case(1) this Court hold
that in exercise of the power under Entry 54 List II, the State Legislature is
incompetent to enact a law authorising the State Government to call upon a
dealer to pay an amount which he has collected from the purchaser of goods
under a sale, to recoup himself for payment of tax which he is not liable to
pay in respect of that transaction, for such a law authorises a levy of tax
which the State Legislature is incompetent to levy.
The learned Advocate General for the State of
Bihar, how' ever,, contended that the legislation impugned in this case is in
truth not for levy or collection of an amount as tax which the State is not
competent to levy or collect, but for compelling a registered dealer to pay
over the 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. He contends that
the legislation which is not of the nature which this Court was called upon to
interpret in Abdul Quader's case(1) falls within Entry 54 List II and that in
any event it falls within Entries 6, 7 and 13 of List III.
Counsel strongly relied upon the judgment of
this Court in The Orient Paper Mill's case, (2 But the principle of that case,
(1) [1964] 6 S.C.R. 867. (2) [1962] 1 S.C.R. 549.
461 in our judgment, has no bearing on the
question whether the State by statute was competent to enact s. 20A of the
Bihar Sales Tax Act in exercise of the power under Entry 54 List II of the
Seventh Schedule. In that case a registered dealer had collected, in respect of
sales-tax, from the purchasers amounts for recoupment of tax which he would
have to pay to the State Government under the Orissa Sales Tax Act, 1947, in
the belief that the tax was payable. The dealer was assessed to and paid tax on
the turn.over which included inter-State sales. After the decision of this
Court in State of Bombay v. United Motors (India) Ltd.(1) the dealer applied
under s. 14 of the Act for refund of tax paid on the plea that the turnover
from inter-State sales was not taxable. The High Court of Orissa issued writs
directing the amount of tax collected by the State to be refunded. Thereafter
by an amendment of the Act, the State Legislature incorporated s. 14A providing
that refund of tax may be claimed only by the person from. whom the dealer had
realised the amount by way of sales tax or otherwise. At the hearing of the
petition, the tax-payer challenged the levy on the ground that it infringed his
fundamental right under Art. 19 (1) (f ) and did not press the contention that
the State Legislature was incompetent to enact s. 14A of the Orissa Sales Tax
Act. This Court observed that the power to legislate with respect to a tax
comprehends the power to imp se 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, obligation and indemnity of those officers. It was
then observed :
"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 Court then rejected the contention that s. 14A was invalid.
because it impaired the fundamental right under Art. 19(1)(f) of the
Constitution. That case does not support the plea that the State Legislature is
competent to legislate for demanding payment of or retaining amounts recovered,
by a registered dealer but which are not due as sales-tax to the State.
(1) [1953] S.C.R. 106.
462 The learned Advocate-General contended
that in any event the impugned provision is not of the nature which this Court
was concerned to interpret in Abdul Quader's case(1). He said, that whereas in
Abdul Quader's case(2) the Court dealing with a case in which the State
Legislature enacted a law authorising the State to recover and appropriate to
itself amounts collected by a dealer on the representation that he the
dealer-was entitled to recoup himself for payment of sales-tax which he was not
liable to pay, in the present case the, amount either collected or retained by
the State from the dealer is to be held for the benefit of the person from whom
it has been improperly collected. On that account, the Advocate-General
contended, the Legislature exercised its power for setting up machinery for
compelling refund of amounts collected by the dealer under the authority of the
Legislature which he could not in law collect. Counsel, argued that Entry 54
List II authorises the State Legislature to legislate for collection of an
amount which -has been improperly collected by a registered dealer as tax on
behalf of ,he State and for refunding the amount to the person from whom it has
been improperly collected.
This argument proceeds upon two assumptions :
(1) that under the Bihar Sales Tax Act the purchaser of goods is liable to pay
sales-tax to the State, and the registered dealer collects the tax from the
purchaser as an agent of the State; and (2) that tile amount recovered from the
registered dealer under s. 20A is intended only to be refunded to the person
from whom it has been collected by the registered dealer, and the State is
merely an agency for enforcing the obligation of the dealer.
The first assumption is plainly contrary to
the scheme of the Bihar Sales Tax Act, 1959. By s. 3 charge of tax lies upon
every dealer whose gross turnover during a period not exceeding twelve months
immediately preceding exceeds the specified amount. The expression "gross
turnover" is defined in S. 2(k) as meaning "the aggregate of the
amounts of sale-prices received and receivable by a dealer, during any given
period, in respect of sale of goods (.. ... .)","and the expression
"sale-price" is defined in S. 2(q) as meaning "the amount
payable to a dealer as valuable consideration in respect of the sale of
goods". By sub-s. (2) of s. 3 tax is made payable by a dealer on sales
made inside the State, and when the dealer sells goods, the price received by
him for sale of goods forms a component of the gross turnover and the dealer is
liable to pay tax on the: turnover. The Act does not impose liability to pay
tax upon the purchaser either directly or indirectly. Under S. 7, it is true,
the taxable turnover of a dealer is determined to be that part of the gross
turnover which remains (1) [1964] 6 S.C.R 867.
463 after deducting several items including
the amount of sales tax actually "collected as such", along with the
sale-price received or receivable in respect of sale of goods. It is implicit
that the dealer may recover from the purchaser in addition to the value of the
goods a certain amount which he will have to pay as tax on that value. The
price payable by the purchaser on that account is the value of the goods and
the amount paid for recouping the dealer for payment of tax.
The Act enables the dealer to pass on the
liability of sales-tax to the purchaser and if by invoice or otherwise the
dealer charges in respect of the goods sold by him the value of the goods and
the tax which he may have to pay on the value, sales-tax will be computed on
the value of the goods and not on the total amount paid by the purchaser.
The amount payable by the purchaser is
however the consideration paid by him for purchasing the goods. The dealer may
apportion the value of the goods and the sales tax payable by him on the sale
to the State. If he does so, he is liable to pay sales-tax only on the value
and not on the amount of tax collected by him which he is payable as sales-tax
to the State. If he does not apportion the value and the tax, he is liable to
pay sales-tax on the total amount received by him, calculated at the
appropriate rate.
In either case the liability to pay tax under
the Act lies upon the dealer : he does not collect any tax for and on behalf of
the Government. The dealer may recover from the purchaser the tax payable by
him as part of the price, but on that account the purchaser is not the person
liable to pay tax on the sale to the State.
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
representationexpress 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 II of the Seventh Schedule.
Entry 54 List II, 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 "tax 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 Entry 54 List II. In effect the provision is one for levying an
amount as tax 464 which the State is incompetent to levy. 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 he was not entitled to collect.
The learned Advocate General contended that
sub-s. (8) of s. 20A authorises the person from whom the dealer has collected
the amount deposited in pursuance of an order under sub-ss.
(3), (4), or deemed to have been so deposited
under sub-s.
(5), to apply to the prescribed authority for
refund of the amount to him and the authority is obliged, if satisfied about
the claim, to make that refund. The power to demand an amount collected by the
dealer applies to transactions governed by the Bihar Sales Tax Act, 1959, as
well as to the pre-existing Acts. There is no period of limitation prescribed
within which the demand for payment of amounts collected by the dealer may be
made. But an application for refund is to be made before the expiry of the
period within which the purchaser could have claimed the amount from the dealer
by a civil suit. In the light of the scheme of the Act and the various
provisions made, it would be futile to expect that a purchaser would normally
be able to enforce .he liability of the State to pay the amount collected by
the dealer and which is deposited or deemed to be deposited with the
Government. The period of limitation does not commence to run from the date on
which the money is deposited or deemed to be deposited into the Government
treasury but from the date on which the purchaser may be entitled to file a
suit against the dealer in a civil court.
The State is in law under no obligation to
hold the amount as trustee for the purchaser. The amount to be recovered or
appropriated remains part of the Consolidated Fund of the State and becomes the
property of the State.
Sub-section (8) of s. 20A, in our judgment,
does not alter the true nature of the demand or appropriation which can be
-made under sub-ss. (3), (4) & (5) of s. 20A. The intention underlying
sub-ss. (3) (4) & (5 ) is to enable the State to collect from the dealer
tax which the State is not entitled to levy and to appropriate it to itself
except in the very rare cases in which the purchaser may approach the State and
be able to satisfy that he has a claim, that the claim is in order. and that it
is within limitation. Notwithstanding the addition of sub-s. (8), in our
judgment, the amount received by the State 'or appropriated by the State continues
to have the character I of a tax collected which the State is not entitled to
collect.
The learned Advocate-General contended that
assuming that the first proviso of sub-s. (8) of s 20A which prescribes the
period of limitation is indicative of the nature of the claim, that proviso 465
alone may be declared ultra vires, and the remaining provisions declared valid.
But the first proviso to sub-s. (8) does not invest the recovery with the
character of tax :
the provisions of sub-ss. (3), (4) and (5)
invest the recovery with the nature of a levy of tax which the State is not
entitled to collect, and sub-s. (8) is merely an attempt to disguise the true
nature of the claim. We are, therefore, unable to accede to -.the contention of
the learned Advocate-General.
It was then contended that the power to
legislate in respect of recovery of the amount collected by a dealer which in
law he is not entitled to collect, falls within Entries 6, 7 and 13 of List
III. These entries are in the Concurrent List and provide :
"6. Transfer of property other than
agricultural land;
registration of deeds and documents.
7. Contracts, including partnership, agency,
contracts of carriage, and other special forms of contracts, but not including
contracts relating to agricultural land.
13. Civil Procedure, including all matters
included in the Code of Civil Procedure at the commencement of this
Constitution, limitation and arbitration." 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 entitled to collect, but which he has
collected. The power to legislate in respect of sub-ss. (3), (4) and (5) of s.
20A does not fall under Entries 6, 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 List III. As already pointed out, this Court
in the judgment in Abdul Quader's case(1) has clearly held that the State has
no power to legislate for recovering amount which is collected by the tax-payer
in order to recoup himself for payment of tax which under the law he is not
bound to pay.
Even though the competence of the State to
legislate was not sought to be supported under Entries 6, 7 and 13 of List III,
the decision of the Court plainly implies that the State has no such power
under any Entry in the third List.
On the view we have expressed, we do not deem
it necessary to express any opinion on the second question. We may observe that
validity of sub-ss. (1) and (2) of s. 20A has not been challenged.
We are, of the view that the appeal must be
allowed, and the petition of the assessee must be granted. It is declared that
sub(1) [1964] 6 S.C.R. 867.
466 ss. (3), (4) and (5) of s. 20A are ultra
vires the State Legislature. As a corollary thereto sub-ss. (6) and (8) shall
be deemed invalid. The assessee will be entitled to its costs in this Court and
the High Court. There will be, one hearing fee in C.As. 2004 and 2005 of 1966.
R.K.P.S.
Appeal allowed.
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