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Moolchand Purushottam Patel Vs. Sales Tax Officer - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSpecial Civil Application No. 818 of 1971 and Original Side Miscellaneous Petition No. 135 of 1969
Judge
Reported in[1977]40STC475(Bom)
ActsBombay Sales Tax Act, 1959 - Sections 2(28), 2(33), 3, 4, 5, 6, 7, 8, 9, 11, 12A(4), 22, 37, 37(2), 37(4), 46, 46(2), 48 and 63(3); Tamil Nadu General Sales Tax Act, 1959 - Sections 42(3)
AppellantMoolchand Purushottam Patel;cinematographic Exhibitors Association
RespondentSales Tax Officer;sales Tax Officer
Excerpt:
(i) sales tax - collection of tax - sections 2 (28), 2 (33), 3, 4, 5, 6, 7, 8, 9, 11, 12 (4), 22, 37, 37 (2), 37 (4), 46 and 63 (3) of bombay sales tax act, 1959 - section 3 says every dealer is liable to pay tax on his turnover of sales and purchase made on or after appointed day - section 2 (28) means sale of goods within state - as per section 2 (33) taxable goods means goods other than those on sale or purchase of which no tax is payable under section 5. (ii) claim of refund - petitioner claimed refund of amount he had paid to government by way of tax in contravention of section 46 during earlier period of assessment - when once section 37 is found to be valid question of refund cannot arise - assessment order has also become valid - held, petitioner not entitled for refund of.....deshpande, j.1. the petitioner in special civil application no. 818 of 1971 carries on business under the name and style of empico traders. he has registered himself as a dealer under the bombay sales tax act, 1959 (hereinafter referred to as the 'bombay act'). he had submitted his return for the assessment period from 1st april, 1968, to 31st march, 1969, and in the course of the assessment proceedings he claimed deduction of a total sum of rs. 4,72,840 from his total taxable turnover as the amount pertained to the sales of urea, which is exempted from sales tax under section 5 read with schedule a to the said act. the sales tax officer accepted this contention, but called upon him under section 37 of the act to explain as to why the amount of rs. 21,023 collected by him from the.....
Judgment:

Deshpande, J.

1. The petitioner in Special Civil Application No. 818 of 1971 carries on business under the name and style of Empico Traders. He has registered himself as a dealer under the Bombay Sales Tax Act, 1959 (hereinafter referred to as the 'Bombay Act'). He had submitted his return for the assessment period from 1st April, 1968, to 31st March, 1969, and in the course of the assessment proceedings he claimed deduction of a total sum of Rs. 4,72,840 from his total taxable turnover as the amount pertained to the sales of urea, which is exempted from sales tax under section 5 read with Schedule A to the said Act. The Sales Tax Officer accepted this contention, but called upon him under section 37 of the Act to explain as to why the amount of Rs. 21,023 collected by him from the purchasers of the said urea by way of tax should not be forfeited and why penalty also should not be imposed upon him for such contravention of section 46 of the Act. After hearing the petition the Sales Tax Officer forfeited the amount of Rs. 20,200 and also imposed a penalty of Rs. 2,000 by order dated 28th October, 1970. He challenges the validity of the said order in this special civil application under articles 226 and 227 of the Constitution on the ground that section 37 of the Bombay Sales tax Act, 1959, is ultra vires of the power of the legislature. He also claims refund of in all Rs. 19,108.90, which he had paid by mistake for the amounts similarly collected by him during the earlier period from 1960 to 1968.

2. Miscellaneous Petition No. 135 of 1969 filed on the original side of this court also raises the same question. The said petition has been referred to this Bench. The petitioner in this miscellaneous petition is an Association of Cinematograph Exhibitors. The said association also has registered itself as a registered dealer. In the normal course of its business, the petitioner has to purchase cinema carbons on the strength of import licences and distribute the same to its members charging 10 per cent of its gross price as the handling charges. The petitioner entertained some doubt whether such carbons were liable to sales tax under entry 22 of the Schedule E or entry 51 of Schedule C of the Act. On his application to the sales Tax Commissioner, it was ultimately held on 6th July, 1967, that the said cinema carbons were liable to sales tax at the rate of 3 per cent under the Bombay Act and 2 per cent under the Central Sales Tax Act, under entry 22 of Schedule E of the said act. Before this order, however, the petitioner seems to have collected sales tax at the rate of 10 per cent. It also appears that some amount was collected by him not as tax but by way of deposit, presumably pending the final decision of the point by the Commissioner. The Sales Tax Officer passed an order on 19th August, 1968, for the period of 1st April, 1964, to 31st December, 1964. A sum of Rs. 8,125.29 has been forfeited under section 37 of the Act, out of which Rs. 5,902.86 was admittedly collected by the petitioner from its constituents by way of tax, while the remaining amount of Rs. 2,222.43 was collected by him by way of deposits. Under the order dated 18th November, 1968, for the period from 1st April, 1965, to 31st March, 1966, a sum of Rs. 1,656.74 had also been forfeited under section 37. According to the petitioner, those orders of forfeiture are invalid inasmuch as section 37 of the Act is ultra vires. Both the petitions raise the same point and can be disposed of by this common judgment.

3. Now, under section 3 of the Act, every dealer is liable to pay tax on his turnover of sales and purchases made on or after the appointed day. Sale has been defined under section 2(28) of the Act and means 'sale of goods made within the State'. Taxable goods, according to section 2(33), means 'goods other than those on the sale or purchase of which no tax is payable under section 5'. It is unnecessary to refer to the provisions dealing with the exemptions and those dealing with the deductions of certain sales from the total turnover of sales of every dealer. Section 22 provides for registration of a dealer. Section 46 of the Act prohibits all persons and registered or unregistered dealers from collecting taxes excepting in the manner provided under the Act or in excess of the amount payable by them to the State as tax. Section 37 provides for the consequences of contravening certain provisions including section 46 of the Act. By Maharashtra Act No. 40 of 1969, the said section has been amended in some material particulars though section 46 remains as it was. We are, however, not concerned with the amended section 37 in these two cases, as admittedly, the transactions in dispute have taken place long before the Maharashtra Act No. 40 of 1969 was brought into force. The sales tax authorities have proceeded to forfeit the amounts in both these cases under section 37 of the Act on the ground that the petitioners collected the amounts in contravention of section 46 of the Act. Sub-section (2) of section 46, which alone is relevant, consists of two parts. Second part provides that no registered dealer shall collect any amount by way of tax in excess of the amount of tax payable by him under the provisions of this Act. It needs mentioned that the words 'collect ............... in excess of the amount of tax payable by him under the provisions of this Act' shall have to be construed by reference to sections 3 to 9 of the Act and also cover collecting on the exempted goods.

4. Mr. V. H. Patil, the learned Advocate appearing for the petitioner in Special Civil Application No. 818 of 1971, does not dispute that the amount of Rs. 21,023 was collected by him from the purchasers of 'urea'. The petitioner's contention that the said amount was collected by him by way of deposit and not by way of tax is rejected by the Sales Tax Officer. This act of the petitioner obviously is in contravention of section 46(2) of the Act. Similarly, Mr. D. D. Shah, the learned Advocate appearing for the petitioner in Miscellaneous Petition No. 135 of 1969, did not dispute that a sum of Rs. 5,902.86 during the period from 1st April, 1964, to 31st December, 1964, and a sum of Rs. 1,656.74 during the period from 1st April, 1965, to 31st March, 1966, were collected by him by way of tax in excess of the tax chargeable on the cinema carbons when sold by him to his constituents. In view of this, this act of the petitioner also constitutes a contravention of section 46 of the Act. Objection to the forfeiture of the amount of Rs. 2,222.43 collected by way of deposit stands on a different footing. It will be convenient at this stage to quote the relevant part of section 37 of the Act, as it then stood :

'If any person -

(a) not being a dealer liable to pay tax under this Act, collects any sum by way of tax, or being a registered dealer collects any amount by way of tax in excess of the tax payable by him, or otherwise collect tax in contravention of the provisions of section 46, or

(b) being a dealer liable to pay tax under this Act, or being a dealer who was required to do so by the Commissioner by a notice served on him fails in contravention of sub-section (1) of section 48 to keep a true account of the value of the goods purchased or sold by him, or fails when directed so to do under that section to keep any accounts or records in accordance with the direction.

he shall be liable to pay, in addition to any tax for which he may be liable, a penalty of an amount not exceeding two thousand rupees, or double the amount of tax which would have been payable had there been no such failure, whichever is less; and in addition, in the case of a contravention referred to in [clause (a)], any sum collected by the person by way of tax in contravention of section 46 shall be forfeited to the State Government.'

5. Mr. Patil and Mr. Shah contend that the legislature was not competent to invest the Sales Tax Officer with power to call upon the dealers to pay the amount collected by them from their purchasers or constituents by way of tax, when the amount admittedly is not exigible as tax. The amount so collected belonged to the petitioners, being the part of their sale proceeds. Even assuming that the amount was collected by them by causing some legal wrong to their constituents, the State Legislature is not competent to authorise collection or forfeiture of the said amount to itself as part of the power to tax possessed under entry 54 of List II of Seventh Schedule of the Constitution. Reliance is placed on the two judgments of the Supreme Court in R. Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad : [1964]6SCR867 , and Ashoka Marketing Ltd. v. State of Bihar : [1970]3SCR455 . It is necessary to examine closely the precise ratio of these two judgments as Mr. P. P. Khambatta, the learned Advocate appearing for the respondent, stoutly contested the relevancy of the ratio of these cases for the construction of differently worded section 37 of the the Bombay Act.

6. The assessee-appellant in Abdul Quader's case : [1964]6SCR867 had sold betel leaves to several customers, acting as agent in the then State of Hyderabad and under the Hyderabad General Sales Tax Act No. 14 of 1950, such betel leaves were taxable at the purchase point by virtue of a notification in that behalf. The appellant collected sales tax from the purchasers during the period after 1st May, 1950, but did not pay the same to the Government and kept the same with himself in the suspense account of its principals, namely, the purchasers. In the course of the assessment proceedings for the period from 1st May, 1953, to 31st March, 1954, the appellant was called upon to pay the said amount so realised by him to the Government under section 11(2) of the Hyderabad Act. He, however, contested the liability to pay on the ground that the purchaser and not the appellant-seller was liable to pay the tax under the Act. It seems to have been common ground that the appellant was not liable to pay the amount by way of tax. However, the amount was sought to be collected under section 11(2) of the said Hyderabad Act. Sub-section (2) of section 11 of the said Hyderabad Act in as follows :

'(2) Notwithstanding anything to the contrary contained in any order of an officer or tribunal or the judgment, decree or order of a court, every person who has collected or collects on or after 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.'

7. It will at once be seen that all that this sub-section required a dealer like the appellant was to 'pay over to the Government' the amount collected by him by way of tax otherwise than in accordance with the provisions of the said Act. In default, such amount was liable to be recovered as if it were arrears of land revenue. The Act did not prohibit collection of such amounts nor there was any provision for penalty or forfeiture. It is in this context that the question arose whether the State Legislature was competent to enforce the recovery of such amount which admittedly was not exigible as tax, but was collected unauthorisedly by way of tax. This is how the legislative competence to enact section 11(2) of the Act fell to be considered. It was held that entry 54 of List II of the Seventh Schedule authorised the State Legislature to legislate in regard to 'taxes on the sale or purchase of goods other than newspapers subject to entry 92A of List I' and that such power given under section 11(2) of the Hyderabad Act to compel payment to the State any amount collected by the dealer otherwise than as tax was not covered by the said entry 54. It was also secondly held that such direction and recovery was outside the ambit of ancillary on incidental power to tax. It was thirdly held that the said section 11(2) did not amount to a penal provision so as to be covered by incidental powers.

8. Mr. P. P. Khambatta contends that the ratio in Abdul Quader's decision : [1964]6SCR867 on the wording of section 11(2) of the Hyderabad Act cannot have any application to the differently worded section 37 of the Bombay Act. Close comparison of the scheme of section 11 of the Hyderabad Act with the scheme and wording of sections 37 and 46 of the Bombay Act amply bears out this contention. In the first place, it is essential to note that the Supreme Court judgment proceeded on the basis that section 11 did not contain any prohibition against the dealer like the appellant from recovering any amount which he was not liable to pay as tax under the said Act. It is true that sub-section (1) of section 11 did contain some prohibition, but their Lordships of the Supreme Court have taken pains to note that the two kinds of prohibitions incorporated in sub-section (1) of section 11 did not apply to the registered dealer who had collected the amount in dispute after 1st May, 1950. As against that, section 46(2) of the Bombay Act in terms prohibits registered dealers from collecting 'any amount by way of tax in excess of the amount of tax payable by him under the provisions of this Act'. The said prohibition is again repeated under sub-clause (a) of clause (1) of section 37 of the Act. Secondly, sub-section (2) of section 11 of the Hyderabad Act merely directed any person collecting 'any amount by way of tax otherwise than in accordance with the provisions of this Act, to pay over to the Government .... the amount so collected by him' and enabled the recovery of such amount as arrears of land revenue in the event of default. As against that, the Bombay Act provides, firstly, for a penalty in the event of the registered dealer contravening the prohibition of section 46 of the Act and, secondly, for the forfeiture of any such sum collected by him in such contravention. Thirdly, section 63(1)(h) of the Bombay Act renders the contravention of any of the provisions of section 46 penal, if the same is without reasonable excuse. Sub-section (3) of section 63 and sub-section (4) of section 37 prohibit prosecution in the event of penalty and the forfeiture under section 37 to save the the dealer from double punishment. Such provisions were conspicuously absent in the Hyderabad Act for the period under assessment. Non-payment of the amount by the assessee, in breach of sub-section (2) of section 11, however, was specifically made liable to prosecution, under section 20(c), which has been held to be ultra vires along with section 11(2) of the Act itself, as there was no prohibition against the recovery of such amount by the registered dealer after 1st May, 1950. Fourthly, sub-sections (2) and (3) of section 37 of the Bombay Act provide for show cause notice and inquiry before the order of penalty or forfeiture is passed against any such registered dealer.

9. These provisions in the Bombay Act obviously make all the different to the ratio of the judgment of the Supreme Court in Abdul Quader's case : [1964]6SCR867 . Section 37(2) of the Bombay Act really is in terms a penal provision to meet cases wherever an amount by way of tax is found to have been collected by any registered dealer in breach of the statutory prohibition. One plain implication of section 46 of the Bombay Act is that a registered dealer is enabled to pass on the burden of the sales tax to his purchaser though the incidence of the tax under the scheme of the Act is directly on him. By the prohibitive provision of this section, the legislature has tried to ensure that this right is not abused by the dealer by collecting an excess amount from their constituents under the the guise of the tax. The scheme underlying these three sections 3, 37 and 46 of the Bombay Act is firstly to charge the dealer with liability to sales tax in respect of his total turnover, secondly, to enable him to recover the same from his purchaser by passing on the burden to his shoulders, thirdly, to prohibit him from collecting amount in excess, in this process by abusing his position, and fourthly, to forfeit the amount so collected by him in abuse of such enabling power and finally to enforce recovery of the said amount from the dealer so unauthorisedly collected. This entire machinery evolved is directed towards the enforcement of the tax sought to be charged under the Act. Considered in this manner, it is difficult to hold either that provisions in sections 37 and 46 of the Bombay Act and powers conferred on sales tax authorities hereunder are not essential for the enforcement of the scheme of the Act or that power to enact sections 37 and 46 is not incidental and ancillary to the power to tax under entry 54 of List II. It will be useful to quote the following passage from the judgment of the Supreme Court at this stage in the case of Khyerbari Tea Co. Ltd. v. State of Assam : [1964]5SCR975 with regard to the ambit of incidental and subsidiary powers :

'Besides it is well-settled that when a power is conferred on the legislature to levy a tax, that power itself must be widely construed; it must include the power to impose a tax and select the articles or commodities for the exercise of such power; it must likewise include the power to fix the rate and prescribe the machinery for the recovery of the tax. This power also gives jurisdiction to the legislature to make such provisions as, in its opinion, would be necessary to prevent the evasion of the tax. In imposition taxes, the legislature can also appoint authorities for collecting taxes and may prescribe the procedure for determining the amount of taxes payable by any individual; all these provisions are subsidiary to the main power to levy a tax and, therefore, once it is shown that the tax in question has been levied on goods carried, it would be open to the legislature to prescribe the machinery for recovering the said tax.'

10. It is difficult to hold that section 37 of the Bombay Act does not fall under the category of powers envisaged in the above passage. Now, it is true that power conferred on the State under sub-section (2) of section 11 of the Hyderabad Act was in terms held as not being such incidental and ancillary power. Mr. Khambatta, however, contends that it was so held because section 11(2) therein merely required the dealer 'to pay over to the Government the amount', which such dealer had collected by way of tax otherwise than in accordance with the provisions of the Act, when such amount had already become a part of his sale proceeds. The said enactment did not further prohibit such dealer from collecting such amount by way of tax nor did it provide either for imposing any penalty therefor, nor did it provide for forfeiture of such amount for having so collected the money in breach of any provision. The following passage from Abdul Quader's : [1964]6SCR867 demonstrates the effect of the absence of such penal provisions in the Hyderabad Act :

'An attempt was made to justify the provision as providing for a penalty. But as we read section 11(2) we cannot find anything in it to justify that it is a penalty for breach of any prohibition in the Act.'

11. A little later their Lordships have further observed :

'It is remarkable that this provision makes the person punishable for his failure to pay the amount, which is not authorised as a tax at all under the law, to Government. It does not provides for a penalty for collecting the amount wrongly by way of tax from purchasers which may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation.'

12. The Bombay Act on the contrary does provide for such a penalty for collecting the amount wrongly from the purchasers as envisaged by their Lordships in the above passage, and section 37 and section 63(1)(h) read with section 46 of the Act can therefore be justified as penal provisions for the purpose of carrying out the objects of the taxing legislation as contemplated in the above passage. It is true that the word 'penalty' in the above passage refers to the penalty on conviction of any offence. But there is no warrant to exclude the penalty and forfeiture, otherwise than on conviction, from the purview of the penal provisions, and penalties covered by section 37 of the Bombay Act cannot be said to have been excluded from the purview of the above passage. It is thus clear that the judgment of the Supreme Court in Abdul Quader's case : [1964]6SCR867 is based on the peculiar wording of sub-section (2) of section 11 of the Hyderabad Act and if the said provision was not treated as being ancillary and incidental to the power of taxation under entry 54 of List II, it was because in the words of their Lordships, there was no provision 'for a penalty for collecting the amount wrongly by way of tax from purchasers which may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation'.

13. This view finds some support in the Division Bench judgment of the Gujarat High Court in Ramgopal and Sons v. Sales Tax Officer, Surat [1956] 16 S.T.C. 1005. The Gujarat High Court was considering the vires of section 12A(4) of the Bombay Sales Tax Act, 1946, which also provided for the forfeiture of the amount collected by any registered dealer in excess of the amount payable by him as tax under the Act. The learned Judges distinguished Abdul Quader's case : [1964]6SCR867 on the ground that the Hyderabad enactment did not provide for any penal provisions of forfeiture as provided in the Bombay enactment of 1946. The Gujarat High Court referred to a passage from the judgment of the Supreme Court in the case of State of Bihar v. Rai Bahadur Hurdut Roy Moti Lall Jute Mills : [1960]2SCR331 characterising analogous provision in section 14A of the Bihar Sales Tax Act, 1947, authorising forfeiture of the amount collected by the dealer unauthorisedly, as a penal provision. Mr. Patil and Mr. Shah, however, contend that this judgment has been overruled by the Supreme Court in the case of Kantilal Babulal and Bros. v. H. C. Patel, Sales Tax Officer, Surat : [1968]1SCR735 . It is, however, clear from the discussion at page 178 of the Reports that the judgment was set aside on quite a different ground and the point under consideration in this case was left open.

14. Mr. Shah and Mr. Patil, however, contend that forfeiture part of section 37 of the Act cannot be said to be a penal provision so as to be covered by ancillary and incidental powers. It is urged that section 37 itself provides penalty for collecting tax in contravention of the provisions of section 46 of the Act and the legislature could not have intended the forfeiture of the amount so collected also to be by way of penalty. It was secondly contended that such forfeited amount is now made liable to be refunded to the purchasers from whom the same was collected wrongly and the dealer is discharged from his liability to them. This is no doubt the effect of sub-sections (6) and (7) of section 37 of the Act now introduced and made retrospectively effective. It was thirdly contended that the forfeiture contemplated under section 37 is not made consequent upon the conviction of the registered dealer but it is imposed only when no prosecution is instituted against him. We do not think that any of these factors militate against section 37 or any part thereof being a penal provision. As stated earlier, penalty and forfeiture are provided in section 37 of the Act for the act of collecting any money by way of tax, in breach of the prohibition under section 46. The dealer exposes himself to suffer penalty and also the loss of the money so collected as a result of the action under section 37 of the Act. Action envisaged is clearly punitive. It is difficult to accept the contention that it does not amount to penalty for the reasons cited by the learned Advocates.

15. But Mr. Patil and Mr. Shah contend that any any rate the judgment of the Supreme Court in Ashoka Marketing Ltd. v. State of Bihar : [1970]3SCR455 is conclusive of this controversy and, as such, section 37 shall have to be declared as ultra vires of the powers of the legislature. The Supreme Court in this case was considering the validity of section 20A of the Bihar Sales Tax Act, 1959. The section has been quoted in extenso at pages 255 and 256 of the Reports. Sub-section (2) of the said section 20A prohibited any registered dealer from collecting from any person any amount, except in a case in which and to the extent to which such dealer is liable to pay tax under this Act. There was no such prohibitive provision in the Hyderabad Act. Secondly, in the event of the dealer collecting money in breach of sub-section (2), he was made liable to deposit such amount in the Government treasury under sub-section (3) of the said section 20A. This provision substantially corresponds with the first part of section 11(2) of the Hyderabad Act. Following its earlier judgment in Abdul Quader's case : [1964]6SCR867 , the Supreme Court held section 20A of the Bihar Sales Tax Act to be invalid.

16. At page 257 of the Reports, their Lordships referred to the decision in Abdul Quader's case : [1964]6SCR867 and observed :

'An attempt to sustain the validity of the provision as one imposing a penalty was also negatived, and the court held that section 11(2) of the Hyderabad General Sales Tax Act was not within the competence of the State Legislature.'

17. We have already quoted in extenso the relevant observations from Abdul Quader's case : [1964]6SCR867 on this point and discussed why the Supreme Court declined to treat section 11(2) as penal provision. The above passage cannot be pressed into service for holding either that section 37 is not a penal provision, or its validity cannot be sustained on that basis. Any reference to the refund provisions in the Bihar Act or in the Bombay Act (as amended) is unnecessary as validity of the section is not sought to be defended by Mr. Khambatta on the basis of such provision as was done before the Supreme Court by the counsel for the State of Bihar. The validity of the Act was also not defended by reference to the prohibitory provision of section 20A(2), the absence of which in the Hyderabad Act is commented in Abdul Quader's case : [1964]6SCR867 as mere prohibition without providing for penal consequences could not have made any difference. The following passage at page 261 represents the true ratio of this case :

'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 which the State is incompetent to levy.'

18. This ratio is wholly inapplicable to the scheme of section 37 of the Bombay enactment which contemplates recovery of the amount unauthorisedly collected by the dealer, as penalty on forfeiture thereof. The money so collected by the dealer as part of his sale proceeds changes its character on forfeiture thereof and gets liquidated into the amount of penalty. The dealer loses title to the same in favour of the sales tax authority. The provision is part of a well-knit scheme which cannot be understood or explained except as incidental to the power of taxation.

19. Mr. Patil also relied on the judgments of the Supreme Court in Commissioner of Sales Tax, U.P. v. Ganga Sugar Corporation Ltd. [1970] 25 S.T.C. 155 SC, Check Post Officer, Coimbatore v. K. P. Abdulla and Bros. : [1971]2SCR817 and Hansraj Bagrecha v. State of Bihar : [1971]2SCR412 . It is not necessary to make any detailed reference to these cases, as in none of these cases, the Supreme Court was called upon to consider any penal provisions involving forfeiture for doing any act in contravention of any prohibitory provisions. Challenge to the validity of section 37 of the Act on the ground of legislative incompetency, therefore, fails. Mr. Khambatta also relied on entry 64 of List II and contended that the power to forfeit any amount found to have been collected by the dealer in contravention of the prohibition can also be traced to this entry. Entry 64 reads :

'Offences against laws with respect to any of the matters in this list.'

Provisions in section 37 are no doubt penal. But prima facie it is difficult to hold that they deal with any offences. It is, however, not necessary to express any opinion on this point in the present case.

20. In Special Civil Application No. 818 of 1971, the petitioner has also claimed refund of the amounts that he had paid to the Government on account of having collected the same by way of tax in contravention of section 46 during the earlier periods of assessments. The details of such amounts are given in para 2 of his petition. The total amount is Rs. 19,108.90 and the period covered is from 1960 to 1968. When once section 37 is found to be valid, question of the refund really cannot arise. In fact, relevant assessment order have become now final and many of the claims have also become time-barred even otherwise. It was, however, argued that the amounts were recovered without show cause notice and enquiry as required under section 37 of the Act. It is, however, not disputed that the petitioner paid the said amounts without arising any objection to his liability to pay. There was thus no occasion to give any show cause notice or hold an enquiry. Rule in Special Civil Application No. 818 of 1971, therefore, shall have to be discharged. There will be, however, no order as to costs in the circumstances of the case.

21. In Miscellaneous Petition No. 135 of 1969, the petitioner's grievance against the forfeiture of Rs. 5,902.86 and Rs. 1,656.74 cannot now be entertained when challenge to the validity of section 37 of the Act has failed. However, admittedly, a sum of Rs. 2,222.43 was recovered by the petitioner by way of deposit. Section 46 of the Act only prevents the registered dealers from recovering any amount by way of tax. It does not prevent them from collecting any amount by way of deposit. In the order itself, this amount is found and shown to have been collected by way of deposit. Forfeiture of this amount cannot, therefore, be sustained on any ground whatsoever. The petition to that extent shall have to be allowed. Rule in Miscellaneous Petition No. 135 of 1969 is, therefore, partly made absolute and the forfeiture of Rs. 2,222.43 is set aside. Rule to the extent of the remaining amount shall stand discharged. In the circumstances of the case, there will be no order as to costs.

Vaidya, J.

22. While agreeing with the orders proposed to be made in these two petitions and generally with the reasoning adopted by my learned brother, I wish to add that the vires of section 37 is challenged before us not merely on the basis of the nature of the powers conferred on the sales tax authorities by way of imposing penalty or forfeiture, but on the basis that the amount which is sought to be forfeited is an amount unconnected with the tax on sales and/or purchases of goods other than newspapers within the meaning of entry 54 of List II of the Seventh Schedule to the Constitution. The real question, therefore, germane to the vires of section 37 of the Bombay Sales Tax Act, 1959, is as to whether the amount, which can be forfeited under that section as an amount collected by the dealer in contravention of the provisions of the Bombay Sales Tax Act, 1959, can be such as can be legislated upon by the State in exercise of its powers under entry 54 of List II.

23. The mere fact that the provisions contained in section 37 are by way of penalty and forfeiture, though relevant, is not decisive of the question as to whether the amount which is being forfeited is an amount in respect of which the legislature has power to legislate. Therefore, it is necessary to consider the real nature of the amount to forfeited under the provisions in the light of the nature and limits of the powers of the State Legislature to levy taxes on the sale or purchases of goods other than newspapers subject to entry 92A of List I. Penalty and forfeiture are often provided in taxing enactments. There can be no doubt that such provisions will be within the purview of the taxing power of the State making the law provided they are connected with the tax in respect of which the statute in question is passed. It is no doubt true that the amount which is collected by the dealer contrary to the provisions of the statute cannot be a tax on the sale or purchase of goods; but, if the collection is prohibited and penalised, it can still be an amount which can be recovered by the sales tax authorities by way of penalty or forfeiture for collecting the same in contravention of the provisions of the taxing statute. In other words, it is open to the State Legislature to provide :

'This is the tax which can be recovered on the sale or purchase of certain goods. No dealer shall collect the tax on tax-free goods or in excess of the tax dues. If any dealer collects tax in excess of such tax or on tax-free goods, he will be liable to be punished and the amount which he collects will be liable to be forfeited and he shall also be liable to pay a penalty.'

24. In my opinion, such provisions are incidental to the power of taxation, as they provide for recovery of amounts reasonably connected with the objects of the taxing statute. It is open to the legislature to prohibit a dealer or any other person within its territorial jurisdiction from collecting tax except to the extent or in the manner provided by the legislature. But it is not open to the State Legislature to say : 'I do not prohibit a dealer from collecting an amount as tax on tax-free goods or in excess of the tax due. I do not punish such collection. Yet I direct the forfeiture or recovery of any amount so recovered under the sales tax law.' Such an amount though collected by a dealer 'otherwise than in accordance with the provision of law' will be manifestly unconnected with the tax in the absence of prohibition and penalty and will have no rational nexus with the objects of the statute or the sales and purchase of goods. I find noting in the decisions cited on behalf of the petitioners which is contrary to this view. In R. Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad : [1964]6SCR867 , the amount in respect of which powers of recovery were conferred on the taxing authorities under the Hyderabad General Sales Tax Act, 1950, was an amount collected by way of tax by any person 'otherwise than in accordance with the provisions of the Act'. There was no provision in the Hyderabad Act, which was the subject-matter of the decision, which prohibited the collection. The reference in that judgment to the word 'penalty' is in answer to the argument that a penalty was imposed under section 20(c) of that Act on a person who failed 'to pay the amounts specified in sub-section (2) of section 11 within the prescribed time'. The Supreme Court in terms says :

'It is remarkable that this provision makes the person punishable for his failure to pay the amount, which is not authorised as a tax at all under the law, to Government. It does not provide for a penalty for collecting the amount wrongly by way of tax from purchasers which may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation.'

25. This reasoning referring to penalty is in answer to the argument that section 11(2) and section 20(c) of the Hyderabad Act provided for a penalty in respect of the tax. The Supreme Court further remarked in the said judgment :

'But unless the money so collected is due as a tax, the State cannot by law make it recoverable simply because it has been wrongly collected by the dealer.'

26. This remark with greatest respect is also in the context of the discussion of the above argument. There was no provision in that Act prohibiting the collection of tax which was followed by penalty. In the absence of such prohibition the penalty was unconnected with the objects of taxing law or tax. It was clear that the Hyderabad General Sales Tax Act wanted to confer powers on the sales tax authorities to collect from a dealer the amount which was collected 'otherwise than in accordance with the provisions of the Act', although the Act itself did not prohibit any person from so collecting the amount. Similarly, in Commissioner of Sales Tax v. Ganga Sugar Corporation Ltd. [1970] 25 S.T.C. 155 (S.C.), the above decision of the Supreme Court in R. Abdul Quader's case : [1964]6SCR867 was held applicable to the facts of that case, which arose under the U.P. Sales Tax Act, as the amount which was being collected under the provisions of the U.P. Sales Tax Act in that case, was also not an amount the collection of which was prohibited and penalised under the Act. In Ashoka Marketing Ltd. v. State of Bihar : [1970]3SCR455 , the Supreme Court found that the amount in question consisted of the railway freight and the case fell within the ratio of R. Abdul Quader's case : [1964]6SCR867 , as the legislature was incompetent to enact a law authorising the State Government to call upon a dealer to pay an amount which he had collected from the purchaser of goods under a sale of recoup himself for payment of tax which he was not liable to pay in respect of that transaction. Here again, it was not a case where the amount was collected in contravention of the provisions of the Act, which prohibited collection of that amount. In Check Post Officer, Coimbatore v. K. P. Abdulla and Bros. : [1971]2SCR817 , the question arose about the vires of section 42(3) of the Madras General Sales Tax Act, 1959, under which the Check Post Officer was empowered to confiscate goods and levy penalty in lieu of confiscation when in respect of the goods found in a vehicle the driver of the vehicle was not carrying with him the documents of sale or purchase specified in the section. It was held that the provision laying down the said power to confiscate was not a provision which was ancillary or incidental to the power to tax sale of goods under entry 54 of List II of Schedule VII of the Constitution of India. It was pointed out by the Supreme Court that the provision was so enacted on the assumption that goods carried in a vehicle from one State to another must be presumed to be transported after sale within the State and the assumption was unwarranted. In any event, power conferred by sub-section (3) to seize and confiscate and to levy penalty in respect of all goods which were carried in a vehicle whether the goods were sold or not was not incidental or ancillary to the power to levy sales tax.

27. In my judgment, therefore, the decision upon the question of the validity of the provisions of section 37 providing for penalty and forfeiture in intimately connected with the nature of the amount which is sought to be collected by the sales tax authorities from the dealer under that section. If the amount is reasonably connected with the object sought to be achieved by the State Legislature in collecting taxes on sale or purchase of goods other than newspapers subject to the provisions under entry 92A of List I, the legislature is competent to enact the said provisions laying down the penalty or forfeiture of the said amount. Though the amount is not a tax, in view of its nexus with the object of the legislation, the legislature can provide that the amount can be collected by the State, in exercise of its ancillary or incidental powers. It is well-settled that the diverse heads of legislation in the Schedule to the Constitution demarcate the periphery of legislative competence and include all matters which were ancillary or subsidiary to the primary head. Thus, in Orient Paper Mills Ltd. v. State of Orissa : [1962]1SCR549 , the Supreme Court held in the context of the Orissa Sales Tax Act, 1947, that the legislature of the Orissa State was competent to enact in exercise of its power under Schedule VII, List II, entry 54, provisions for granting refund of tax improperly or illegally collected. The amount so collected would not be in the nature of tax on sale or purchase, while the refund of amount was considered to be within the competence of the legislature. Similarly, in Burmah Construction Co. v. State of Orissa : AIR1962SC1320 , the Supreme Court held that the legislative provisions providing for power of granting refund of tax improperly or illegally collected and laying down restrictions on the exercise of that power are both ancillary or subsidiary mater relating to power under the primary head of tax on sale of goods. If the legislature finds it necessary to prescribe or prohibit collection of any amount as tax in excess of what is due or when it is not due and provides for its forfeiture followed by penalty, it cannot be said that it is exercising power which is not ancillary or incidental to the power conferred by entry 54 of List II.

28. For these additional reasons, I concur with the judgment delivered by my learned brother.


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