1964 (11) TMI 90 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Construction of Section 12A(4) of the Bombay Sales Tax Act, 1946.
2. Legislative competence of the State to enact Section 12A(4).
3. Validity of the forfeiture of Rs. 10,361-5-6 and the notice to forfeit Rs. 4,000-1-3.

Detailed Analysis:

1. Construction of Section 12A(4) of the Bombay Sales Tax Act, 1946:
The petitioners, dealers in cloth, paid tax on sales outside the State of Bombay, which were exempt under Article 286(1) of the Constitution. They sought a refund, and partial refunds were granted. Subsequently, the Sales Tax Officer issued notices for forfeiture under Section 21(4) of the Bombay Sales Tax Act, 1953, and withheld further refunds. The petitioners challenged the applicability of Section 12A(4) of the 1946 Act, arguing that it only applied to collections of tax lawfully leviable under the Act. The court referred to a previous decision in Kantilal Babulal & Bros. v. H.C. Patel, which held that Section 12A(4) applies to all collections by way of tax, irrespective of whether the sales were taxable under the Act. The court rejected the petitioners' contention that Section 12A could not apply to outside State sales due to Section 30 of the Act, as this was also addressed in the Kantilal Babulal case.

2. Legislative Competence of the State to Enact Section 12A(4):
The petitioners argued that Section 12A(4) was beyond the legislative competence of the Provincial Legislature under Entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935. They contended that the Legislature could not enact a law providing for the forfeiture of amounts not exigible as tax. The court examined the scope of legislative power under Entry 48, emphasizing that it includes ancillary or subsidiary matters necessary for effective legislation. The court noted that Section 12A(4) was introduced to prevent dealers from exploiting consumers by collecting amounts under the guise of tax when no tax was payable. The provision was deemed ancillary to the main subject of tax on sales of goods and necessary for preventing misuse of the Act. The court distinguished this case from the Supreme Court's decision in A. Abdul Quader and Co. v. Sales Tax Officer, where the provision in question did not impose a penalty but merely required amounts collected as tax to be paid to the government.

3. Validity of the Forfeiture of Rs. 10,361-5-6 and the Notice to Forfeit Rs. 4,000-1-3:
The court held that Section 12A(4) imposed a penalty of forfeiture for collecting amounts by way of tax in contravention of the Act. This penalty was necessary to prevent misuse of the Act and was within the legislative competence of the Provincial Legislature. The court referred to the Supreme Court's decision in State of Bihar v. Rai Bahadur Hurdut Roy Moti Lall Jute Mills, which characterized a similar provision as imposing a penalty of forfeiture. The court concluded that Section 12A(4) was a valid exercise of incidental or ancillary power of legislation under Entry 48 and upheld the validity of the forfeiture and the notice for forfeiture.

Conclusion:
The petition was dismissed with costs, affirming the validity of the forfeiture of Rs. 10,361-5-6 and the notice to forfeit Rs. 4,000-1-3 under Section 12A(4) of the Bombay Sales Tax Act, 1946. The court held that Section 12A(4) was within the legislative competence of the Provincial Legislature and necessary to prevent misuse of the Act by dealers.