2005 (9) TMI 300 - SC - VAT and Sales Tax

Whether the State Legislature had legislative competence to make a provision directing a dealer to deposit the amount of tax collected by him from a customer in excess of the prescribed tax? Held that - Appeal allowed. It is only the amended section 29-A which might require re-enactment and in its absence the unamended section 29-A would continue to be valid and effective. In that event the amendments of 1971 would be deemed never to have taken place. Even under the unamended section 29-A the amount cannot be refunded to the respondent. It could only be refunded to the party from whom it was wrongly collected. No such party has made such a claim for refund. Therefore, directing this amount to be deposited in the Treasury was correct. We however clarify that we are not in agreement with the submission that amended section 29- A would require re-enactment.

Summary

Issues:
Constitutional validity of section 29-A of the U.P. Trade Tax Act - Legislative competence of the State Legislature - Effect of previous judgments on the validity of the provision - Requirement of re-enactment for amended section 29-A - Refund of excess tax collected by the dealer - Interpretation of the unamended section 29-A.

Analysis:

The case involved a challenge to the constitutional validity of section 29-A of the U.P. Trade Tax Act, which required a dealer to deposit any amount realized as tax into the Government treasury, even if not actually due as tax. The High Court had declared the amended section 29-A as unconstitutional, relying on previous judgments. The Supreme Court considered the legislative competence of the State Legislature to enact such a provision and the impact of earlier decisions on its validity.

The Court referred to the landmark judgment in Annapurna Biscuit Manufacturing Co.'s case, where the provision was held unconstitutional. However, subsequent judgments, including R.S. Joshi's case and Kasturi Lal Harlal's case, upheld the constitutionality of the unamended section 29-A. The Court noted the conflicting views in various decisions regarding the legislative competence to enforce such provisions for tax collection.

A critical aspect was the requirement of re-enactment for the amended section 29-A to be valid, as argued by the appellant's counsel. The Court disagreed with this submission, emphasizing that the unamended section 29-A remained valid and effective. It clarified that the refund of excess tax collected could only be made to the party from whom it was wrongly collected, and in this case, no such claim for refund was made.

Ultimately, the Court set aside the High Court's judgment and the decision of the Trade Tax Tribunal, reinstating the order of the Commissioner (Appeals). The appeal was allowed, with no order as to costs, based on the interpretation and application of the unamended section 29-A in the context of the case. The judgment provided a comprehensive analysis of the legal issues surrounding the constitutional validity and interpretation of the tax provision under scrutiny.