1985 (9) TMI 321 - SC - VAT and Sales Tax

Whether a provision directing the trader to cough up collections wrongly made by him from the purchasers otherwise than in accordance with the provisions of the Act and to make over the same to the Government as also the further provisions obliging the State to refund the amounts so collected to the person or persons from whom these had been collected would fall within the incidental and ancillary powers of the State Legislature while enacting a taxing statute under entry 54 of List II of the Seventh Schedule? Held that - Appeal allowed. In the instant case, before us, there is not merely a provision for making over such collections by the trader to the State but also a provision for refunding it by the State to the persons from whom such collections have been made. The impugned provisions will have, therefore, to be upheld as falling within the doctrine of ancillary or incidental legislative powers.

Summary

Issues:
Challenge to legislative competence of provisions of Orissa Sales Tax Act, 1947 - Validity of sections 9-B(3) and 14-A - Ancillary or incidental legislative powers of State Legislature - Refund of wrongly collected tax amounts - Forfeiture to State - Prohibition and penalty in the enactment.

Analysis:
The judgment by the Supreme Court, delivered by Justice Tulzapurkar, addressed the challenge to the legislative competence of sections 9-B(3) and 14-A of the Orissa Sales Tax Act, 1947. The High Court had considered these provisions in light of the lack of legislative competence by the State Legislature. The crux of the matter was whether these provisions, related to the refund of wrongly collected tax amounts and forfeiture to the State, fell within the ancillary or incidental legislative powers of the State Legislature under entry 54 of List II of the Seventh Schedule. The High Court, following its previous decision in Rameswar Prasad's case, had allowed the writ petition challenging the validity of these provisions. However, the Supreme Court referred to the decision in R.S. Joshi's case, which upheld similar provisions of the Maharashtra Sales Tax Act as applied to Gujarat State, thereby setting a precedent for the validity of such provisions.

The Supreme Court emphasized that the key question in all these decisions was whether the provisions directing traders to surrender wrongly collected amounts and the obligation of the State to refund such collections were within the incidental and ancillary powers of the State Legislature while enacting a taxing statute. The Constitution Bench's decision in R.S. Joshi's case validated such provisions, disagreeing with the view taken in Ashoka Marketing Co.'s case. The Court highlighted the distinction between penalizing illegal collections and merely collecting tax amounts wrongly obtained, emphasizing the constitutional significance of preventing harm to the public through penal measures.

Justice Tulzapurkar also cited the observation by Justice Krishna Iyer regarding the forfeiture of money to the State and the voluntary obligation to refund it to the purchaser, reflecting on the welfare orientation and constitutional considerations. The Court noted that in the present case, the provisions not only required traders to surrender illegal collections to the State but also mandated the State to refund such amounts to the affected parties, further solidifying the validity of the provisions under ancillary or incidental legislative powers.

Moreover, the Court rejected the contention that there was no prohibition or penalty in the enactment at the relevant time, emphasizing that the requirement for traders to surrender illegal collections implied a prohibition against such actions. The rationale behind the provision indicated an inherent prohibition, supporting the validity of the forfeiture and refund provisions. Ultimately, based on the precedent set by R.S. Joshi's case, the Supreme Court allowed the appeal, set aside the High Court's judgment, and dismissed the writ petition, with no order as to costs.