1975 (7) TMI 124 - SC - VAT and Sales Tax

Whether the State Legislature is competent to enact a law under entry 54 for recovery by the State of an amount, which though not exigible under the State law as sales tax or purchase tax was wrongly realised as such by a dealer? Held that - Appeal dismissed. The amount which was realised by the respondent in excess of what was due as tax cannot 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 transactions not liable to tax under the Act, it would likewise be incompetent to make a law 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 leviable 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.

Issues Involved:
1. Legislative Competence of State Legislature regarding Section 22(3) of the Kerala General Sales Tax Act, 1963.
2. Validity of collecting and paying excess tax or tax on non-taxable transactions to the State.

Detailed Analysis:

1. Legislative Competence of State Legislature regarding Section 22(3) of the Kerala General Sales Tax Act, 1963

The core issue revolves around whether the State Legislature had the authority to enact sub-section (3) of section 22 of the Kerala General Sales Tax Act, 1963. The Kerala High Court had previously held that it was beyond the competence of the State Legislature to enact this provision, which required the payment of amounts collected as tax on non-taxable transactions or in excess of the tax leviable under the Act.

The Supreme Court affirmed the High Court's decision, emphasizing that a State Legislature is competent to make laws under entry 54 of List II in the Seventh Schedule to the Constitution, which pertains to "taxes on the sale or purchase of goods other than newspapers." However, the Court clarified that this competence does not extend to enacting laws for the recovery of amounts wrongly realized as sales tax or purchase tax. Such a law would not be related to taxes on the sale or purchase of goods but would pertain to amounts wrongly collected as tax, which is outside the purview of entry 54.

2. Validity of Collecting and Paying Excess Tax or Tax on Non-Taxable Transactions to the State

The respondent, a company engaged in the manufacture and sale of soaps and other goods, had collected Rs. 30,591.71 as sales tax in excess of the tax payable under the Act. The Sales Tax Officer held that the respondent was liable to pay this excess amount to the Government under section 22(3) of the Act. The respondent challenged this liability, arguing that the provision was unconstitutional.

The Supreme Court referred to previous decisions, notably R. Abdul Quader & Co. v. Sales Tax Officer, Hyderabad and Ashoka Marketing Ltd. v. State of Bihar, to support its conclusion. In these cases, the Court had held that State Legislatures could not enact provisions for the recovery of amounts collected as tax but not due as tax under the law. The Court reiterated that any amount realized in excess of the tax leviable under the Act stands on the same footing as an amount not due as tax under the Act for the purpose of determining legislative competence under entry 54.

The Court dismissed the argument that the present case was distinguishable because it involved an amount realized in excess of the tax leviable, rather than an amount not payable at all. It concluded that the excess amount collected could not be considered "tax" as defined by the Act, and thus, the State Legislature was not competent to enact a law for its recovery.

Conclusion:
The Supreme Court dismissed the appeals, upholding the Kerala High Court's judgment that sub-section (3) of section 22 of the Kerala General Sales Tax Act, 1963, was beyond the legislative competence of the State Legislature. The Court emphasized that the State Legislature could not enact laws for the recovery of amounts wrongly realized as tax, whether in excess or on non-taxable transactions, under entry 54 of List II in the Seventh Schedule to the Constitution. The appeals were dismissed with costs.

← Previous Next →