1964 (11) TMI 95 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of forfeiture under Section 21(4) of the Bombay Sales Tax Act, 1953.
2. Legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution.
3. Interpretation of Section 21(4) concerning transactions that are not sales.

Issue-wise Detailed Analysis:

1. Validity of forfeiture under Section 21(4) of the Bombay Sales Tax Act, 1953:

The petitioners, coal merchants and burning contractors, challenged the forfeiture of amounts collected by them from purchasers by way of sales tax for the periods 1st April 1954 to 31st March 1955, and 1st April 1955 to 31st March 1956. The Supreme Court had previously ruled in State of Bombay v. Ratilal Vadilal & Bros. that dealers like the petitioners were merely agents arranging sales and were not liable to pay sales tax. Despite this, the Sales Tax Officer forfeited the amounts collected by the petitioners as sales tax under Section 21(4) of the Bombay Sales Tax Act, 1953. The petitioners contended that since no sales tax was payable by them, the forfeiture was invalid. However, the court held that Section 21(4) applied to any excess amount collected by way of tax, regardless of whether the transactions were sales. Therefore, the amounts collected were rightly forfeited.

2. Legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution:

The petitioners argued that Section 21(4) did not fall within the subject of legislation under Entry 54 of List II of the Seventh Schedule to the Constitution, which pertains to taxes on the sale or purchase of goods. They claimed it was beyond the legislative competence of the State Legislature. The learned Advocate-General contended that Section 21(4) was within the ancillary or incidental power of legislation under Entry 54. The court, referencing previous decisions, concluded that Section 21(4) was within the legislative competence of the State Legislature as it was an incidental provision related to the collection of sales tax.

3. Interpretation of Section 21(4) concerning transactions that are not sales:

The petitioners contended that Section 21(4) applied only to cases where a registered dealer collected an amount by way of tax in excess of the amount payable on actual sales. Since the amounts in question were collected in respect of transactions that were not sales, Section 21(4) should not apply. The court analyzed the language of Section 21(4) and found that it was intended to cover any amount collected by way of tax in excess of the amount payable under the Act, not just amounts related to sales. The court emphasized that the legislative intent was to prevent dealers from collecting amounts by way of tax that they were not liable to pay to the State. Therefore, the amounts collected by the petitioners, even though not related to sales, were subject to forfeiture under Section 21(4).

Conclusion:

The petition was dismissed with costs. The court upheld the validity of the forfeiture under Section 21(4) of the Bombay Sales Tax Act, 1953, and affirmed the legislative competence of the State Legislature to enact such a provision. The interpretation of Section 21(4) was broadened to include amounts collected by way of tax in respect of transactions that were not sales, thereby justifying the forfeiture of the amounts collected by the petitioners.