Sales Tax Officer, Special Circle,
Ernakulam & ANR Vs. Tata Oil Mills Co. Ltd. [1975] INSC 145 (29 July 1975)
KHANNA, HANS RAJ 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 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.
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
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 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 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 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 they 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 everything
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 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.
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