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Commissioner of Sales Tax Vs. Toshniwal Brothers Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 20 of 1978 with Sales Tax Reference Nos. 4 to 8 of 1984
Judge
Reported in[1984]57STC198a(Bom)
Acts Bombay Sales Tax Act, 1959 - Sections 2, 3(1), 5, 5(1), 37, 37(1), 46, 46(1), 46(2), 61(1), 63, 63(1) and 75; Central Sales Tax Act, 1956 - Sections 3, 4, 4(2) and 5
AppellantCommissioner of Sales Tax
RespondentToshniwal Brothers Pvt. Ltd.
Excerpt:
sales tax - forfeiture - sections 2, 3, 5, 37, 46, 61, 63 and 75 of bombay sales tax act, 1959 and sections 3, 4 and 5 of central sales tax act, 1956 - assessee claimed deductions from total turnover as being sales of goods in course of import into territory of india and as such not exigible to tax - sales tax officer (sto) accepted same - subsequently assessee collected tax on these sales - sto passed order under section 37 directing forfeiture of amount recovered by assessee - whether forfeiture of amount in dispute valid - state government cannot impose tax on such sales - provisions of section 37 relating to forfeiture applicable to transactions of sale which are exigible to tax - court answered in negative and against department. - - 7 of 1984 as well as sales tax reference no......shah, j.1. these six references are under section 61(1) of the bombay sales tax act, 1959 (hereinafter referred to as 'the act'). sales tax reference no. 20 of 1978 has been referred to us at the instance of the revenue and the remaining five references have been made at the instance of the assessee. the parties to these references are the same and the material facts, which have given rise to these references and which are necessary for answering the questions referred to us, are also the same.2. sales tax reference no. 4 of 1984 relates to the period of assessment from 1st january, 1961, to 31st december, 1961. sales tax reference no. 5 of 1984 relates to the period of assessment from 1st january, 1962, to 31st december, 1962. sales tax reference no. 7 of 1984 as well as sales tax.....
Judgment:

Shah, J.

1. These six references are under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as 'the Act'). Sales Tax Reference No. 20 of 1978 has been referred to us at the instance of the Revenue and the remaining five references have been made at the instance of the assessee. The parties to these references are the same and the material facts, which have given rise to these references and which are necessary for answering the questions referred to us, are also the same.

2. Sales Tax Reference No. 4 of 1984 relates to the period of assessment from 1st January, 1961, to 31st December, 1961. Sales Tax Reference No. 5 of 1984 relates to the period of assessment from 1st January, 1962, to 31st December, 1962. Sales Tax Reference No. 7 of 1984 as well as Sales Tax Reference No. 20 of 1978 relate to the period of assessment from 1st January, 1963, to 31st December, 1963. Sales Tax Reference No. 8 of 1984 relates to period of assessment from 1st January, 1964, to 31st December, 1964, and Sales Tax Reference No. 6 of 1984 relates to period of assessment from 1st January, 1965, to 31st January, 1965.

3. The assessees are a private limited company and are registered dealers under the Act. In the assessment proceedings the assessees had claimed deductions from total turnover certain sales of goods as being sales of goods in the course of import into the territory of India and as such not exigible to tax. The Sales Tax Officer accepted this claim of the assessees and allowed deduction of such transactions from total turnover on the count. The assessees, however, had collected tax on these sales. The Sales Tax Officer, therefore, passed orders under section 37 of the Act directing forfeiture of the said amounts recovered by the assessees from their customers, as being amounts by way of tax illegally collected by the assessees. The assessees preferred appeals before the Assistant Collector of Sales Tax. These appeals were dismissed. The assessees, therefore preferred second appeals to the Sales Tax Tribunal. The Tribunal confirmed the view taken by the Sales Tax Officer that the amount collected by the assessees by way of tax on import sales was liable to forfeiture. However, it was urged on behalf of the assessees before the Tribunal that in view of the decision of the Special Bench of the Tribunal in the case of Kasam Valimohamed Motiwala v. State of Maharashtra (Second Appeal No. 571 of 1971) decided on March 26, 1974, for purposes of forfeiture under section 46(2) later part, what is to be considered is the total amount of tax collected by the assessee against the total tax determined and since for the year 1963 the total tax determined payable was more than the tax collected, no amount was available for forfeiture. The Tribunal accepted this contention and allowed the assessees' appeal for the year 1963 and remanded the case back to the Assistant Commissioner for examination of the facts and to pass appropriate orders in the light of the view taken by the Tribunal in Kasam Valimohamed's case. As regards the orders relating to the other assessment years, the assessees' appeals were dismissed. It is against these orders of the Tribunal that the present references have been made.

4. In the five references at the instance of the assessees the question referred to us is as follows :

'Whether on the facts and in the circumstances of the case and on a proper construction of the provisions of the Bombay Sales Tax Act, 1959, the Tribunal was justified in holding that the forfeiture of the amount in dispute was valid and, consequently, confirming the same ?'

In the reference at the instance of the Revenue, the Tribunal has referred the following question for our determination :

'Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the excess collection of tax on sales should be determined after comparing the total collection of tax with the tax assessed on sales in the light of the decision of the Special Bench of the Tribunal in the case of Kasam Valimohamed Motiwala v. State of Maharashtra (Second Appeal No. 571 of 1971 decided on 26th March, 1974) ?'

5. At the outset it may be mentioned that Mr. Jetly stated before us that in the event of the first question being answered in favour of the assessees, the second question would not survive and need not be answered. Before us, Mr. Patil, the learned counsel for the assessees, contended that the Act was passed by the State Legislature in pursuance of the legislative powers conferred upon it by entries 54 and 64 in List II of Seventh Schedule to the Constitution of India and that under such powers the State Legislature could not validly enact a law which dealt with or related to a transaction which was not of a sale or purchase of goods in the State of Bombay. Since admittedly the transactions were in the course of import into the territory of India in respect of which the legislature had no power to enact a law, to construe section 3(1) as authorising the State Government to forfeit the amount of tax illegally collected by the dealer would render the provision constitutional as being beyond the competence of the State Legislature. He submitted that section 37(1) should be so construed as to render the provision constitutional. Reliance was placed also on article 286(1) of the Constitution which expressly takes away the power of the State Legislature to impose tax on sales in the course of import of goods into the territory of India, which position is also made expressly clear by the provisions contained in section 75 of the Act. In support of his submissions Mr. Patil relied on a decision of a Division Bench of this Court in Ramkrishan Kulwantrai v. Commissioner of Sales Tax[1979] 44 STC 117. Mr. Jetly, the learned counsel appearing for the department, on the other hand contended that although the State Legislature was not competent to make a provision for levy of tax in respect of some sales, such as sales in the course of import into the territory of India, the power to bring within the ambit of section 37 read with section 46 of the Act the amounts collected by registered dealer by way of tax in respect of transactions which were not transactions of sale, was a power which was incidental or ancillary to the taxing power of the State under the said entry 54 read with entry 64. He, therefore, submitted that both in exercise of the powers conferred by the said entries and particularly in exercise of ancillary and incidental powers the forfeiture of tax collected by the registered dealer on the sale in the course of import was legally justified. It was further submitted by Mr. Jetly that the question posed for determination before the Division Bench in Kulwantrai's case [1979] 44 STC 117 was entirely different and therefore, the observation in the judgment which supported the assessees' contention are obiter and not binding on us.

6. In Kulwantrai's case [1979] 44 STC 117 there is elaborate discussion of the relevant provisions of the Constitution as also the provisions and the scheme of the Act which has a direct bearing on the first question referred to us and it would be useful to restate of same here. 46(1), of the Act runs thus :

'46. Prohibition against collection of tax in certain cases. - (1) No person shall collect any sum by way of tax in respect of sales of any goods on which by virtue of section 5 no tax is payable.

(2) No person, who is not a registered dealer and liable to pay tax in respect of any sale or purchase, shall collect on the sale of any goods any sum by way of tax from any other person and 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 ........'

Section 37, inter alia, provides that if any person not being a dealer liable to pay tax under this Act collected any sum by way of tax, or being a registered dealer collected any amount by way of tax in excess of the tax payable by him, or otherwise collected tax in contravention of the provisions of section 46, he would not only be liable to pay a penalty, but also the sum collected by him by way of tax in contravention of section 46 was liable to be forfeited to the State Government.

7. List II of the Seventh Schedule to the Constitution enumerates the matters in respect of which the legislature of any State has the power to make laws. Entries 54 and 64 in the said List II run as under :

'54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.

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

List I in the Seventh Schedule enumerates the matters with respect to which the Parliament has the exclusive power to make laws. Entries 92, 92A, 93 and 97 of the said List I provide as under :

'92. Taxes on the sale or purchase of newspapers and on advertisements published therein.

92A. Taxes on the sale or purchase of goods other than newspapers, where such sales or purchase takes place in the course of inter-State trade or commerce.

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

97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.'

Article 286 of the Constitution provides that no law of a State can impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place either outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India. Parliament is given the power to make a law formulating principles for determining when a sale or purchase takes place in any of the above ways. Article 286 also provides that any law of a State which, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce is to be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. Clause (12) of article 366 defines 'goods' as including 'all materials, commodities and articles'. This would show that the State Legislature can pass an Act providing for taxes on sales or purchases of goods other than newspapers but only where such sales or purchases take place within the State. Clause (11) of section 2 defined the term 'dealer' to mean 'any person who whether for commission, remuneration or otherwise carries on the business of buying or selling goods in the State'. Clause (28) of section 2 defines 'sale' and runs as under :

'(28) 'sale' means a sale of goods made within the State, for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge; and the words 'sell', 'buy' and 'purchase', with all their grammatical variations and cognate expressions, shall be construed accordingly;

Explanation. - For the purposes of this clause, a sale within the State includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Sales Tax Act, 1956.'

We have already referred to article 286 of the Constitution which imposes a restriction on the powers of the State Legislature to impose tax on the sale or purchase of goods where such sale or purchase takes place either outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India. This constitutional prohibition is again emphasised in section 75 of the Act which runs thus :

'75. Certain sales and purchases not to be liable to tax. - Nothing in this Act or the rules made thereunder shall be deemed to impose or authorise the imposition of a tax on any sale or purchase of any goods, where such sale or purchase takes place -

(a) (i) outside the State; or

(ii) in the course of import of the goods into the territory of India, or the export of the goods out of such territory; or

(b) in the course of inter-State trade or commerce,

and the provisions of this Act and the said Rules shall be read and construed accordingly.

Explanation. - For the purpose of this section whether a sale or purchase takes place -

(i) outside the State, or

(ii) in the course of the import of the goods into the territory of India or export of the goods out of such territory, or

(iii) in the course of inter-State trade or commerce,

shall be determined in accordance with the principles specified in sections 3, 4 and 5 of the Central Sales Tax Act, 1956.'

8. On a consideration of the aforesaid and other provisions as also the scheme of the Act and the relevant provisions of the Constitution, this Court in Kulwantrai's case [1979] 44 STC 117, cited supra, observed :

'Thus, under the Act, tax is not imposed upon a dealer's total turnover of sales of goods but only upon that part of the turnover which is arrived at after deducting from the total turnover the turnover in respect of certain sales or resales with respect to which the dealer is entitled to a deduction, which turnover, we will, for the sake of brevity, refer to as 'the taxable turnover of sales'. Further, as the rates set out in different schedules are different for different types or classes of goods, in order to arrive at the amount of tax payable by a dealer, each taxable transaction of sale has to be looked at in order to ascertain the rate at which the tax is attracted to it. Thus, though sales tax or general sales tax is levied on the turnover of sales, for ascertaining the taxable turnover of sales, each particular transaction has to be looked at not only for determining whether any transaction in respect of which a deduction is claimed is in law deductible but also for ascertaining the quantum of the tax which is payable by the dealer. Section 36 and 37 of the Act deal with the imposition of penalties in certain cases. We have already referred earlier to the provisions of section 37. Section 63 makes certain acts a punishable offence. Clause (h) of section 63(1) makes it an offence for any person without reasonable excuse to contravene any of the provisions of section 46, which we have already reproduced earlier. That the Act has been enacted for the purpose of levying a tax on the sales or purchases of certain goods taking place within the State and in respect of matters incidental or ancillary thereto is further made clear by section 75 of the Act.'

It is clear that the legislative powers of the State Legislature to enact the Act are derived from entries 54 and 64 of List II in the Seventh Schedule to the Constitution. Accordingly the State Legislature has the power to legislate imposing taxes on sales and purchases of goods other than newspapers taking place within the State and to legislate with respect to offences against such sales tax law. This would include all powers incidental and ancillary to the exercise of the legislative power to impose this tax, but powers incidental and ancillary to the exercise of the legislative power under the said entries cannot be extended to matters not covered by these provisions. It has also been held in Kulwantrai's case [1979] 44 STC 117 that the State's power to legislate under entry 54 of List II in the Seventh Schedule to the Constitution does not extend to transactions which are not exigible to tax by the State under the said entry. Any attempt on the part of the State Legislature in the exercise of its legislative power under entries 54 and 64 to legislate with respect to a matter which does not fall within the field of sale or purchase of goods would be to exceed its legislative competence and would render the offending statutory provisions void. Therefore, a narrow interpretation should be placed upon the words used in the section in order to give the section on interpretation which would bring about its constitutional validity. In R. Abdul Quadar and Co. v. Sales Tax Officer, II Circle, Hyderabad : [1964]6SCR867 , which has been referred to and relied on in Kulwantrai's case [1979] 44 STC 117, section 11(2) of the Hyderabad General Sales Tax Act, 1950, was declared void by the Supreme Court on the ground that it did not have anything to do with the penalties and could not be justified as a penalty on the dealers. In that case the Supreme Court held :

'It [that is, section 11(2) of the Hyderabad Act] does not provide for a penalty for collecting the amount wrongly by way of tax from purchases which may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation. If a dealer has collected anything from a purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer. 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. This cannot be done directly for it is not a tax at all within the meaning of entry 54 of List II, nor can the State Legislature under the guise of incidental or ancillary power do indirectly what it cannot do directly.'

9. In Kulwantrai's case [1979] 44 STC 117, on behalf of the department reliance was placed upon two unreported judgments of Bhatt, J., in C.R. Wood & Co. Pvt. Ltd. v. S. B. Sidhwani (Misc. petition No. 667 of 1969 decided on 15the March, 1975 - Bombay High Court) and in Electric Construction & Equipment Co. Ltd. v. D. K. Vanjari, Sales Tax Officer (Misc. Petition No. 755 of 1969 decided on 15th March, 1975 - Bombay High Court). In the first case certain amounts collected by the petitioners on sales taking place in the course of import of goods into the territory of India were ordered to be forfeited by the Sales Tax Officer under section 37(1) of the Act. The validity of section 37(1) of the Act was challenged before Bhatt, J. He negatived that challenge. With respect to the amounts collected by the petitioners by way of tax from sales taking place in the course of import of goods into the territory of India, Bhatt, J., held that the expression 'tax' in section 37(1)(a) and (2) must be given its ordinary and legitimate meaning, namely, an amount of money whether authorised or not, recovered by registered dealer as and by way of tax and therefore, when a registered dealer collected any amount by way of tax, which, in fact, he was not entitled to collect by way of tax, he squarely fell within the ambit of section 37(1)(a) and (2). He further held that once a registered dealer had collected any amount by way of tax in excess of the tax payable by him, the provisions of section 37 of the Act must apply. In arriving at this conclusion, the learned Judge rejected the argument that, in view of section 75 of the Act, the provisions of section 37 could not be made applicable to the transactions in question. This view taken by the learned single Judge has been expressly disapproved by the Division Bench in Kulwantrai's case [1979] 44 STC 117 by making the following observations :

'With respect to the learned Judge, we are unable to agree with the conclusion reached by him or the reasoning which led him to reach this conclusion. The learned Judge has not considered the scope of the incidental and ancillary powers of the State under the said entry 54 read with the said entry 64 of List II. The learned Judge has further overlooked that, under article 286 of the Constitution, no State has the power to impose tax on the sales or purchases of goods, taking place in course of the import of goods into, or the export of goods out of, the territory of India and that, if at all any legislative body could legislate with respect thereto, it is the Parliament. The learned Judge has further overlooked the conflict which would arise if the Central Sales Tax Act, 1956, passed by the Parliament had made provisions for the forfeiture of such amounts. The learned Judge has not consider which Government would have the right to forfeit the amount in such an eventuality - the Central Government by virtue of a Central Act passed by Parliament, or an Act passed by a State Legislature, which legislative body has no power to legislate with respect to taxes on sales and purchases of goods taking place in the course of export out of or import into the territory of India, by reason of the constitutional prohibition enacted in clause (1) of article 286 of the Constitution. The learned Judge has failed to notice that section 75 of the Act embodies the constitutional prohibition contained in article 286(1) of the Constitution in order to eliminate the possibility of anyone arguing that the expressions 'sale' and 'purchase' used in the Act were wide enough to include such sales and purchases and therefore, the Act suffered from the taint of unconstitutionality. The case of Electric Construction & Equipment Co. Ltd. (Misc. Petition No. 755 of 1969 decided on 15th March, 1975 - Bombay High Court) decided by Bhatt, J., merely followed the earlier decision given by him in C.R. Wood & Co's case (Misc. Petition No. 667 of 1969 decided on 15th March, 1975 - Bombay High Court).'

The Division Bench in Kulwantrai's case [1979] 44 STC 117 has thus clearly held that where a dealer collects certain amounts by way of tax on sales taking place in the course of import of goods into the territory of India, such amount is not liable to forfeiture under section 37(1) of the Act, the reason being that under article 286 of the Constitution the State Legislature does not have the competence to enact a law for imposition of tax on the sale and purchase of goods where such sale or purchase takes place outside the State or in the course of import into or export out of the territory of India. This constitutional bar is further emphasised by section 75 of the Act. In view of the decision in Kulwantrai's case [1979] 44 STC 117 which is binding on us, the first question referred to us will have to be answered in the negative.

10. It was, however, urged by Mr. Jetly, that the observations of the Division of Bench in Kulwantrai's case [1979] 44 STC 117 while disapproving the view taken by Bhatt, J., in C.R. Wood & Co.'s case (Misc. Petition No. 667 of 1969 decided on 15th March, 1975 - Bombay High Court) are obiter and were not necessary for deciding the reference in that case. It was further submitted that the view indicated by the Division Bench in the abovementioned observations being in the nature of obiter is not binding on us, and the department is entitled to reagitate the question over again before us. In order to appreciate this contention it would be useful to note the facts of that case and the question referred to this Court for determination. The assessees in that case were registered dealers carrying on business in iron and steel and in other goods. The assessees delivered a part of their stock of iron and steel to certain persons under the directions and orders issued to them by the Iron and Steel Controller. Apprehending that the sales tax authorities might contend that these transactions were transactions of sale of these goods to the persons to whom these goods were delivered as aforesaid, the assessees asked such persons to pay to them the amounts which they would be liable to pay by way of sales tax to the Government if the department were to hold that these transactions were transactions of of sale and therefore, exigible to tax under the Act. In the course of their assessment proceedings, however, the Sales Tax Officer accepted the contention of the assessees that these transactions were not transactions of sale and were, therefore, not exigible to tax. However, the Sales Tax Officer by his orders under section 37 of the Act forfeited the said amounts paid to the assessees by the persons to whom the goods were delivered by them pursuant to the directions and orders of the Iron and Steel Controller as being amounts by way of tax wrongfully collected by the assessees. The assesses thereupon filed appeals before the Assistant Commissioner of Sales Tax. These appeals were dismissed. The assessees thereupon went in second appeal to the Sales Tax Tribunal. The Tribunal also dismissed the assessees' appeals. On a reference under section 61(1) of the Act, the Tribunal referred to this Court the following question for determination :

'Whether, in the facts and circumstances of the case and on a true and correct interpretation of section 46(2) of the Bombay Sales Tax Act, 1959, the Tribunal was correct in law in coming to the conclusion that the latter part of section 46(2) was wide enough to take within its fold even the transactions which did not amount to sales and in concluding that the amounts collected by way of tax on such transactions were liable to be forfeited under section 37(1)(a) of the said Act ?'

Now, it is true that in that case the question related to the amounts collected by way of tax on transactions which did not amount to sales, whereas in the case before us the question relates to the amounts collected by the assessees by way of tax on transactions of sales in respect of which the State Legislature has no power to impose a tax. Though apparently the facts giving rise to the reference in Kulwantrai's case [1979] 44 STC 117 and the facts in the present case are not identical, however, it is clear that the provision of law, which require consideration are identical in both the cases. It is clear from the judgment in Kulwantrai's case [1979] 44 STC 117 that the discussion in relation to the two cases decided by Bhatt, J., was treated to the Court as a necessary step in reaching the final conclusion having regard to the line of reasoning adopted by them. It is significant that it was the department which relied on the two decisions of Bhatt, J., in support of their contentions before the Court in that case.

11. It is further to be observed that both in Kulwantrai's case [1979] 44 STC 117 and the case before us, the scope and ambit of section 46 and 47 of the Act is involved. The interpretation of these provisions necessarily require consideration of the scheme of the Act as well as the other provisions of the case. The interpretation of these provisions is again circumscribed by the prohibition contained in article 286 of the Constitution and the consideration of the relevant entries in the schedules to the Constitution. On principles there is no difference in a case where the amount by way of tax is calculated on a transaction which is not a sale and on a sale in respect of which the State Legislature has no power to impose a tax. The answer to both these aspects obviously depend on the interpretation of the same provisions of law. We are, therefore, unable to accept the contention of Mr. Jetly that the ratio of Kulwantrai's case [1979] 44 STC 11 has to be confined to a case where the dealer has collected amounts by way of tax on transactions which are not sales. What constitutes the ratio of a decision is seen from the following passage from A. L. Goodhart, 'Determining the ratio decidendi of a case', 'Essays in Jurisprudence and the Common Law', page 1 :

'The ratio decidendi of a case is ascertained mainly by two methods. Firstly, it is determined by ascertaining the facts treated as material by the Court and the principle deprived from the application of law of these facts.'

(Passage quoted in Haji Mohammed Din v. Narain Dass : AIR1979Delhi186 .

To the same effect is a passage in Rupert Cross on 'Precedent in English Law', 3rd Edition, page 76, which runs as under :

'The ratio decidendi of a case is any rule of law expressly or impliedly treated by the judge as a necessary step in reaching his conclusion, having regard to the line of reasoning adopted by him ...........'

We are, therefore, unable to accept the contention of Mr. Jetly that the relevant observations in Kulwantrai's case [1979] 44 STC 117 are obiter and the case has no application to the facts of this case. In our opinion Kulwantrai's case [1979] 44 STC 117 clearly covers the question referred to us for determination and as such the decision is binding on us. Even otherwise having regard to the scheme of the Act read in the light of the constitutional prohibition against the State Government from imposing taxes to the transactions of sale in the course of import within the territory of India, it is clear that the State Government cannot impose tax on such sales and consequently the provisions of section 37(1) relating to forfeiture must also be read down confining its operation to transactions of sale which are exigible to tax.

12. We may mention that Mr. Jetly sought to rely on the decision of this Court (sic) in R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Ltd. : [1978]1SCR338 . This decision was cited before this Court in Kulwantrai's case and it has been considered.

13. Mr. Jetly also relied on a decision of the Supreme Court in Hoechst Pharmaceuticals Ltd. v. State of Bihar : [1985]154ITR64(SC) . The question that arose for determination in that case was entirely different as is clear from the following passage from the judgment of the Supreme Court :

'The decision in Fernandez's case : [1957]1SCR837 is therefore clearly an authority for the proposition that the State Legislature notwithstanding article 286 of the Constitution while making a law under entry 54 of List II of the Seventh Schedule can, for purposes of the registration of a dealer and submission of returns of sales tax, include the transactions covered by article 286 of the Constitution. That being so, the constitutional validity of sub-section (1) of section 5 of the Act which provides for the classification of dealers whose gross turnover during a year exceeds Rs. 5 lakhs for the purpose of levy of surcharge, in addition to the tax payable by him, is not assailable. So long as sales in the course of inter-State trade and commerce or sales outside the State and sales in the course of import into, or export out of the territory of India are not taxed, there is nothing to prevent the State Legislature while making a law for the levy of a surcharge under entry 54 of List II of the Seventh Schedule to take into account the total turnover of the dealer within the State and provide, as has been done by sub-section (1) of section 5 of the Act, that if the gross turnover of such dealer exceeds Rs. 5 lakhs in a year, he shall, in addition to the tax, also pay a surcharge at such rate not exceeding 10 per centum of the tax as may be provided. The liability to pay a surcharge is not on the gross turnover including the transactions covered by article 286 but is only on inside sales and the surcharge is sought to be levied on dealers who have a position of economic superiority. The definition of 'gross turnover' in section 2(j) of the Act is adopted not for the purpose of bringing to surcharge inter-State sales or outside sales or sales in the course of import into, or export of goods out of the territory of India, but is only for the purpose of classifying dealers within the State and to identify the class of dealers liable to pay such surcharge. The underlying object is to classify dealers into those who are economically superior and those who are not. That is to say, the imposition of surcharge is on those who have the capacity to bear the burden of additional tax. There is sufficient territorial nexus between the persons sought to be charged and the State seeking to tax them. Sufficiency of territorial nexus involves a consideration of two elements, viz. : (a) the connection must be real and not illusory and (b) the liability sought to be imposed must be pertinent to that territorial connection : State of Bombay v. R. M. D. Chamarbaugwala : [1957]1SCR874 , Tata Iron and Steel Co. Ltd. v. State of Bihar : [1958]1SCR1355 and International Tourist Corporation v. State of Haryana : [1981]2SCR364 . The gross turnover of a dealer is taken into account in sub-section (1) of section 5 of the Act for the purpose of identifying the class of dealers liable to pay a surcharge not on the gross turnover but on the tax payable by them.'

The above passage also shows that the liability to pay a surcharge is not on the gross turnover including the transactions covered by article 286 but is only on inside sales and the surcharge is sought to be levied on dealers who have a position of economic superiority. This decision therefore does not assist Mr. Jetly.

14. In the result the question referred to us for our determination, viz. :

'Whether on the facts and in the circumstances of the case and on a proper construction of the provisions of the Bombay Sales Tax Act, 1959, the Tribunal was justified in holding that the forfeiture of the amount in dispute was valid and consequently, confirming the same ?'

is answered in the nagative, and against the department. In view of the above, the second question does not arise for our consideration and we decline to answer the same.

15. In the circumstances of the case there shall be no order as to costs.


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