1954 (4) TMI 40 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of the assessee under Section 8-B(2) of the Madras General Sales Tax Act.
2. Interpretation of the term "by way of tax" under Sections 8-B(1) and 8-B(2).
3. Obligation of the registered dealer to pay over collections to the State Government.
4. Applicability of fiduciary principles to collections made by registered dealers.

Issue-Wise Detailed Analysis:

1. Liability of the assessee under Section 8-B(2) of the Madras General Sales Tax Act:

The petitioner, Tata Iron and Steel Company Ltd., argued that it was exempt from paying sales tax on a turnover of Rs. 52,59,112-15-0 as the sales were effected outside the taxable territory of Madras. Although these sales were not liable to tax, the company had collected amounts equivalent to the sales tax from purchasers in Madras, which were shown in monthly returns. The Appellate Tribunal upheld that such collections were payable to the Government under Section 8-B(2) and were not refundable to the assessee. The High Court had to determine if the company was liable to pay over to the Government what it had collected under a mistaken belief.

2. Interpretation of the term "by way of tax" under Sections 8-B(1) and 8-B(2):

The court examined whether the collections made by the assessee on the disputed turnover were "by way of tax under this Act" within the meaning of Section 8-B(1). The amounts collected were not part of the sale price but were collected under a mistaken conception of tax liability. The court held that the amounts collected were not "by way of tax" as they were not lawfully leviable under the Act. Section 8-B(1) empowers registered dealers to collect only what is lawfully leviable as tax under the Act, and the expression "by way of tax" does not enlarge this right.

3. Obligation of the registered dealer to pay over collections to the State Government:

Section 8-B(2) directs that every person who has collected any amount by way of tax under the Act shall pay over to the State Government all amounts so collected. The court held that this obligation applies only to amounts lawfully collected under Section 8-B(1). The court emphasized that Section 8-B(2) does not impose an obligation on a registered dealer to pay over to the Government any amount not lawfully collected. This interpretation was supported by the statutory requirement that what can be collected is only what is lawfully leviable as tax under the Act.

4. Applicability of fiduciary principles to collections made by registered dealers:

The court considered the argument that collections made in excess of authority should be paid over to the Government based on fiduciary principles, as discussed in the case of Reading v. Attorney-General. However, the court distinguished the position of registered dealers from that of fiduciaries. It held that neither registered nor unregistered dealers occupy a fiduciary position in relation to the State. The statutory obligation under Section 8-B(2) applies equally to both, and there is no room to engraft fiduciary principles into this statutory obligation.

Conclusion:

The court concluded that the collections made by the assessee were not lawfully leviable as tax under the Act and thus were not subject to the obligation under Section 8-B(2) to be paid over to the Government. The assessee was entitled to a refund of the amounts collected under the mistaken belief of tax liability. The assessment was ordered to be revised, and the petitioner was entitled to a refund order and costs of Rs. 250 from the respondent State.

Petition allowed.