(1) In these petitions, the validity of Section 18(3) of the Mysore Sales Tax Act, 1957 as amended by Mysore Act No. 9 of 1964, is challenged as being beyond the Legislative competence of the State Legislature. The amendments effected to that section read:
'In sub-section (3) of Section 18 of the principal Act,--
(i) for the words 'by way of the tax' wherever they occur, the words 'by way of tax or purporting to be by way of tax' shall be and shall always be deemed to have been substituted;
(ii) after the words 'payable by him', the words whether or not any tax is due from such person or dealer under this Act in respect of the transaction in which he collects such amount' shall be and shall always be deemed, to have been inserted.'
This amendment came to be made in view of the decision of this Court in M. Kuppuswamy Naicker v. Commercial Tax Officer, First Circle, Bangalore, (1963) 14 STC 894 (Mys) wherein this Court held, that under sub-section (3) of S. 18 of the Mysore Sales Tax Act, 1957 as then in force, only when any collection 'by way of the tax' in contravention of the provisions of sub-section (1) or (2) is made, that a dealer is liable to pay over that amount to the State and not otherwise. Collections of certain sums of money as sales tax by a registered dealer from his customers in respect of transactions of sale not eligible to tax, fall wholly outside the scope of the Act. Section 18(3) therefore does no apply to such collections and the Revenue is not entitled to take action under that sub-section.
The validity of a section similar to the amended Section 18(3) of the Mysore Sales Tax Act, 1957, came up for consideration before the Supreme Court in R. Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad, : 6SCR867 . Therein the Supreme Court had to consider the correctness of the decision of the Madras High Court in Indian Aluminium Co. Ltd. v. State of Madras : AIR1963Mad116 which decision had upheld a provision similar to the one that we are now considering. Dealing with that decision, this is what the Supreme Court held :
'The respondent further relies on a decision of the Madras High Court in : AIR1963Mad116 . That decision was with respect to Section 8-B of the Madras General Sales Tax Act of 1939 as amended by Madras Act I of 1957. Though the words in Section 8-B(2) were not exactly the same as the words in S. 11(2). In view of what we have said above, that decision must be held to be incorrect.'
The Supreme Court came to the conclusion that the State Legislatures have no legislative competence to convert into tax what is not really a 'tax'.
(2) In view of that decision, these petitions have to be allowed. We hold that the amended Section 18(3) of the Act is unconstitutional as the Legislature had no competence to enact the same. As a consequence of that decision, we have to further hold that the impost made in pursuance of that provision is also invalid. Further, the demands made in that connection are also illegal demands. The impost made if any under S. 18(3) or the demands made under that provision (this will not include any sales tax validly levied) and impugned in these proceedings are hereby quashed. If any of the petitioners have paid any money in pursuance of any demand made under amended Section 18(3), and challenged in these proceedings the State shall refund the same. The petitioners are entitled to their costs. Advocate's fee Rs. 100/-.
(3) Petition allowed.