Sales Tax Officer, Special Circle, Ernakulam & Anr. v. Tata Oil Mills Co. Ltd.

152 SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM & ANR. A _v._ TATA OIL MILLS CO. LTD. _July_ 29, 1975 [H. R. KHANNA, M. H. BEG AND A. C. GUPTA, JJ.] _Kcroila_ _General Sales 'Tax_ _Act_ (15 _of_ 1963) _s._ 22(3) _and Kerala_ _G'enl:ral_ B _Sales Tax Rules,_ 1963, _r._ _9(1)-Constitutioi' df India_ 1950, _VII Schedule, List_ _fl,_ _Entry 54--Section providing_ _for_ _pay111ent_ _tQ_ _Q_ovt._ _of_ _tax wrongly_ _collected-_ _lf_ ultra vires. According tor. 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 hin1 shall be deducted. Section Z2(3) uf the /\lt provides that if any dealer or person collects C tax.on transactions not liable to f[,x under the Act or in excess of the tax leviable under the Act such dealer or person shall Pay to the Goverment, in adidtion to the tax payable, the amount s0 collected unless it was refunded to the person from whom it v1as collected. The respondent deducted the sum paid by it as excise duty fro1n its total turnover for the purpose of delerm:ning the taxable turnover. The respondent, ho\Vever, when it sold the goods, had collectec\ sales-tax from the purchasers on the invoice prices \vithout deductinf, therefrom the excise duty paid in respect of the D said goods. 1his re-suited in the respondent realising a sum in ex:ess of the salestax payable in respect of the goods sold by it. The Sales-tax Officer held that th;! respondent \Va<> liable to pay that amount to the Government under s. _22_ (3). The writ petition filed by the respondent \Vas allowed by the High Court on the ground thats. 22(3) was not covered by Entry 54 of the State List in the VII Sche~lule to the Constitui.ion, and hence, beyond the competence of the State 1-egislature. ## Dismiss:.ng the appeal to this Court. E HELD : ( 1) Entry 54 empowers the State Legislatures to n1ake laws, except in certain cases, in respect of taxes on the sale or purchase of goods. As Ion~ as the law relates to taxes on the sale or purchase of goods, it would be within their legislative con1petence. Bt:t, it would not be permissible fo;_· 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 acconhtnce with the Jaw on the subject and which was wrongly realised by a dealer as sale'l-tax _+_ or purchase-tax. Such a J::-,,v would not be a law relating to tax on the sale or purchase of goods but would be one i-n respect of an a1nount wrongly realised by a dealer as sales-tax or purchase-tax. [155A-C] (2) The ambit of ancillary or incidental power would not go to the extent of pern1ittinp; the Legislature to provide that. thou.~h the an1ount collected, n1ay be· \1/TOngly, by way of tax,, was not tax, it shall still be paid over to the Government as if it were a tax. [156D-EJ (3) The fact that the nmount realised is in excess of the tax lev.:able and riot an amount \\'htch was not at all payable as tax, would not n1ake any difference. Any amount realised by a dealer in excess of the tax leviable, stands, for the rur·pose of determining the legislative competence under Entry 54, on the sa111e footing ns 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 necessarUy rn~ans that e\·crything outside it, collected by the dealer. would be an exaction not authorised by the _1-\ct._ The <i.mount which \Yas realised by the respondent in excess of what \Vas due as tax cannot be held 10 he tax, because, such excess amount \Vas not tax payable under the Act. If the State Legislature cannot make a law under Entry 54 directing payn1ent to the State of any amount collected as tax f)n transactions not liable to iax under the Act, it would likewise be incompetent to make a hl\V directing payn1ent to the State ol' an amount realised by a dealer in excess of the !ax payable under the Act. [157G-158C]. F G H S.T.O. _V._ TATA OIL MILLS LTD. _(Khanna,_ _J.)_ 15 3 _**R.**_ _**A hdul Quader**_ **&** _**Co.**_ **v.** _**Sale::;**_ _**Tax Officer, Hydercibad**_ **[1964} SCR 867** **and** _**A.sl1aka**_ l1farlit'!it1"~· _**Ltd.**_ **v.** _**Sia!.:**_ _**of**_ _**Bihar**_ **&** _**A nr.**_ **[1970] 3 SCR 455,** **follov1ed.** CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1988·198.9 of 1970. firom the Judgment and order dated the 29th day of October, 19Ci8 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. 1988 and 1989 of 1970, tiled 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 subsection (3) of section 22 of the Kerala General Sales Tax Act, l 963 (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 unckr 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 taxable turnover. "Taxable turnover" is defined in section 2(xxv) of the Act as the turnover on which a dealer is liable to pay lax 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 by the State Government in exercise of the powers conferred by section 57 of the Act. According to clause (i) of rule 9 of the said 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 statl".d 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 pav under ihe 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 **B** **!E** **!i** "" **G** ##### ' _**i,**_ I **H** 154 SUPREME COURT REPORTS (1976] **1** S.C.R, goods it· collected sales tax from the purchasers on the invoice price without deducting therefrom the excise duty paid in respect of the said good_;. This . resulted in the respo11-dent company realising Rs. ~0,591.71 m 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. 30,591.7 J to the Government under section 22 ( 3) of the Act. The respondent then filed wnt pcuuon in the Kerala High Court to challenge its liability to pay the aforesaid amount 011 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 Judcre dismissed the petition filed by the respondent. On appeal, howev~r, 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 colJ.ects tax on transactions not liable to tax under this Act or in excess of the tax leviablc under this Act, such dealer or person shall, unless it is established to the satisfaction of the assessing authority that the tax so coll-ected has been refunded to the person who bad originally paid tax, pay over to the Government, in addition to the tax payable, the amount so collected within such time **and** **in such** **n1anncr** **as** **n1ay** **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 Ieviable under the Act to be 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 bad been placed on behalf of the State. It was held that the State Legislature was incom petent to enact the impugned provisions contained in sub-section (3) of section 22 of the Act under the above entry. Tn 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 bearing the learned **counsel,** w~ **are** **of** **the opinion that there is no** **inerit** **in these** **t\VO** appeals. A State Legislature is competent to make a law under entry 54 of List TI in Seventh Schedule to the Constitution in respect of "taxes on the sale or purchase of goods other than newspaoers. 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 newsoapers, where such sale or purchase takes place in the ~ours~ of inter-State trade or commerce, anc1 we are not concerned with this entry. # \'' _c_ E [. ] . ,_ F. ### " G; #### ' ~ ' **H** S.T.O. _v._ TATA OIL MILLS LTD. _(Khanna,!.)_ **tso** Entry 54 empowers State Legislatures to make law, except in 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, 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 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 cxigible 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 exigiblc 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 K _Abdnl Quader_ _&_ _Co._ v. _Sales Tax Officer, Hyderabad(!)_ the validity of section 11 (2) of the Hyderabad Sales Tax Act, 1950 which mads 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 collectsc on or before !st 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." 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 Govern• ment. 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 th,e 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 (I) [196416 S.C.R. 867. _j_ **A** **B** **c** **D** **E** **F** **G** **H** !Si SUPREME COURT REPORTS (1976] 1 s.e.R. 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 O>urt upheld the validity of section 11(2). On appeal to this Court it was 0bserved by the Constitution Bench as under : "The first question therefore that falls for consideration is whether it was open to the State legislature nnder 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 dne 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 aRcillary 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 exigiblc 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 thci case of _Ashoka Marketing Ltd._ v. _State_ _of Bihar_ _&_ _Anr.(')._ 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 A B c D E appellant's sales of cement. The appellate authority set aside the orders directing the inclusion of the Ra!lway freight in the turnover. F 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 _1_ Assistant Commissioner as well as by the High Court in a writ petition G 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-see- I tions (6) and (7) of that section were also held to be invalid. Sub- --\ section (3) of section 20-A of the Bihar Sales Tax Act read as under: "(3) (a) Notwithstanding anything to the contrary contained H in any law or contract.or any judgment, decree or order of (t) ~~[1970]~~ ~~I~~ ~~S.~~ ~~C.R. 4~~ 55. y t _s:r.o._ _v._ TATA OIL MILLS LTD. _(Khanna,_ _!.)_ 15 _7_ A 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 B 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. C (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 bis 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 D necessary, orddr 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." E 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_ cas~ (supra). Dr. Muhammad has, however, tried to distinguish the above two F cases on the ground that the present case relates to an amount realised in excess of the tax leviable under thei 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 G 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 H 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 SUPREME COURT REPORTS **[1976]** I S.C.R. '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 transaction" not liable to tax under the Act, it would likewise be incompetent to make a Jaw directing payment to the State of an amount realised by a .dealer in excess of the tax payable under the Act. The amount realised in excess of the tax leviablc 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 hear•ing fee. **'\l.P.S.** _Appeals dismissed._ **A** **B**