1970 (1) TMI 62 - SC - VAT and Sales Tax

Whether section 20A of the Bihar Sales Tax Act, 1959, is within the competence of the State Legislature? Whether an order may be made under section 20A for depositing with the State Government an amount collected by a registered dealer from his constituent to recoup himself for payment of sales tax under the Bihar Sales Tax Act, 1947, which amount according to law then in force, the constituent was not liable to pay? Held that - Appeal must be allowed and the petition of the assessee must be granted. It is declared that sub-section (3), (4) and (5) of section 20A are ultra vires the State Legislature. As a corollary thereto sub-sections (6) and (8) shall be deemed invalid. The assessee will be entitled to its costs in this court and the High Court

Issues Involved:
1. Competence of the State Legislature to enact Section 20A of the Bihar Sales Tax Act, 1959.
2. Validity of an order under Section 20A for depositing amounts collected by a dealer from constituents for sales tax purposes.

Issue-Wise Detailed Analysis:

1. Competence of the State Legislature to Enact Section 20A of the Bihar Sales Tax Act, 1959:
The primary issue was whether Section 20A of the Bihar Sales Tax Act, 1959, was within the legislative competence of the State Legislature. The court examined the provisions of Section 20A, which allowed the State to demand amounts collected by dealers as sales tax, even if the amounts were not legally due as tax. The court referenced the precedent set in R. Abdul Quader and Co. v. Sales Tax Officer, Hyderabad, where it was held that a state legislature could not enact laws authorizing the state to recover amounts collected as tax if those amounts were not legally exigible as tax. The court noted that such a provision could not be considered ancillary or incidental to the power to levy and collect taxes under Entry 54, List II of the Seventh Schedule of the Constitution.

The court further distinguished the case from Orient Paper Mills Ltd. v. State of Orissa, where the legislation was upheld as it dealt with refund mechanisms for amounts improperly collected. The court clarified that the Bihar Sales Tax Act's scheme did not impose a direct or indirect liability on the purchaser to pay tax to the State; rather, the liability lay upon the dealer. Therefore, the provision in question could not be justified as incidental to the power to levy sales tax.

The court concluded that Section 20A, which compelled dealers to deposit amounts collected from purchasers under the misrepresentation that they were due as tax, was not within the legislative competence of the State Legislature under Entry 54, List II. It was essentially a provision for levying an amount as tax, which the State was not entitled to levy.

2. Validity of an Order Under Section 20A for Depositing Amounts Collected by a Dealer:
The second issue was whether an order could be validly made under Section 20A for depositing amounts collected by a dealer from his constituents to recoup himself for sales tax payments. The court examined the nature of such orders and the legislative intent behind Section 20A. It was argued that the provision aimed to compel dealers to deposit amounts collected unlawfully, which could then be refunded to the purchasers. However, the court found that the provision effectively allowed the State to appropriate amounts not due as tax, which was beyond its legislative competence.

The court noted that the scheme of the Bihar Sales Tax Act did not support the assumption that the dealer collected tax on behalf of the State. Instead, the dealer's liability was to pay tax on his turnover, and any amount collected from purchasers was part of the sale price. The court held that a provision requiring dealers to deposit such amounts with the State could not be considered incidental to the power to levy sales tax.

The court also addressed the argument that the provision could be justified under entries 6, 7, and 13 of List III (Concurrent List), which relate to contracts, transfer of property, and civil procedure. The court rejected this argument, stating that the power to legislate for recovery of amounts improperly collected as tax did not fall under these entries.

The court declared sub-sections (3), (4), and (5) of Section 20A ultra vires the State Legislature. Consequently, sub-sections (6) and (8) were also deemed invalid as they were corollaries to the invalid provisions.

Conclusion:
The Supreme Court allowed the appeal, declaring sub-sections (3), (4), and (5) of Section 20A of the Bihar Sales Tax Act, 1959, ultra vires the State Legislature. As a result, sub-sections (6) and (8) were also invalidated. The assessee was entitled to costs in both the Supreme Court and the High Court. The appeal was allowed.

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