1962 (1) TMI 53 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the amendment to Section 8-B(2) of the Madras General Sales Tax Act, introduced by Madras Act I of 1957.
2. Legislative competence of the State to enact such an amendment.
3. Applicability of Section 8-B(2) to various factual scenarios involving tax collection and payment.

Issue-wise Detailed Analysis:

1. Validity of the Amendment to Section 8-B(2):
The amendment to Section 8-B(2) of the Madras General Sales Tax Act was challenged, with the primary contention being that it was ultra vires. The original Section 8-B(2) required that any amount collected by way of tax, in excess of the tax paid, be paid over to the State Government. The amendment changed the wording to "any amount purporting to be by way of tax," making it obligatory for anyone collecting such amounts to pay them to the State, regardless of whether the collection was lawful or whether the collector was liable to be assessed under the Act. The Court found that the amendment was intended to counteract the decision in Tata Iron and Steel Co. Ltd. v. State of Madras, which had provided immunity to those who collected tax amounts unlawfully.

2. Legislative Competence of the State:
The petitioners argued that the State lacked the legislative competence to enact the amendment under Entry 54, List II, Schedule VII of the Constitution, which pertains to "taxes on the sale or purchase of goods other than newspapers." They contended that the State could not collect amounts not lawfully levied as tax. The Court, however, upheld the amendment, stating that the power to legislate on taxes on sales and purchases included the power to enact measures incidental and ancillary to the main power. The Court cited several precedents, including Edward Mills v. State of Ajmer and Orient Paper Mills v. State of Orissa, to support its conclusion that the amendment was within the State's legislative competence. The Court emphasized that the amendment aimed to prevent misuse of the tax law and was a necessary measure to ensure the effectiveness of the legislation.

3. Applicability of Section 8-B(2) to Various Factual Scenarios:

a. T.C. Nos. 196 to 198 of 1959:
The petitioner, a company dealing in aluminum, contended that its transactions were inter-State sales not liable to be taxed by the Madras State. The Court held that the sales were within the ambit of Section 22 of the Madras General Sales Tax Act, as the goods were delivered for consumption inside the State. The Court noted that for the assessment year 1954-55, the tax collected by the company exceeded the tax due, and the excess amount fell within the scope of Section 8-B(2). The Court upheld the Tribunal's decision to demand the excess amount.

b. W.P. No. 589 of 1959:
The petitioner, a firm of publishers, collected sales tax on inter-State sales of books, which were exempt from tax. The Court held that Section 8-B(2) was intra vires and that the petitioner was liable to pay the collected amount to the State. The Court dismissed the petition, stating that the claim fell squarely within the provisions of Section 8-B(2).

c. W.P. No. 1067 of 1959:
The petitioner, a building contractor, collected tax on building contracts, which were later held to be outside the scope of the Act. The Court held that the petitioner was liable to pay the collected amount under Section 8-B(2) and that the taxing authorities were justified in revising the assessment to recover the amount.

d. W.P. Nos. 817 and 818 of 1959:
The petitioner, another building contractor, collected tax on building contracts and sought a refund after the contracts were held to be outside the Act's scope. The Court held that the proceedings under Section 8-B(2) were independent of assessment proceedings and that the State's right to recover the collected amounts was not defeated by the finality of the assessment.

e. W.P. Nos. 1213, 1214, and 1215 of 1959:
The petitioner, a private limited company, collected tax on building contracts and sought a refund after the contracts were held to be outside the Act's scope. The Court held that the petitioner was liable to pay the excess amounts collected under Section 8-B(2) and that the State was entitled to withhold the amounts from the refund due.

Conclusion:
The Court upheld the validity of the amendment to Section 8-B(2) of the Madras General Sales Tax Act, finding it within the legislative competence of the State. The Court also held that the amendment was necessary to prevent misuse of the tax law and to ensure the effectiveness of the legislation. The Court applied Section 8-B(2) to various factual scenarios, consistently upholding the State's right to recover amounts collected as tax, regardless of whether the collections were lawful or whether the collector was liable to be assessed under the Act.