1977 (3) TMI 131 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Forfeiture of excess tax collected.
2. Necessity of mens rea for forfeiture under section 37.

Issue-wise Detailed Analysis:

1. Forfeiture of Excess Tax Collected:

The primary issue concerns the forfeiture of amounts collected by the assessees as general sales tax, which they were not entitled to collect. The assessees, manufacturers of glass bottles, collected sales tax and general sales tax based on an earlier determination by the Commissioner of Sales Tax that classified empty glass bottles under entry 22 of Schedule E to the Bombay Sales Tax Act, 1959. However, a subsequent determination on January 4, 1966, reclassified bottles sold below Re. 1 per piece under entry 14 of Schedule C, which did not attract general sales tax.

The Sales Tax Officer held that the general sales tax collected by the assessees in excess of the tax payable was liable to be forfeited under section 37 read with section 46 of the said Act. The Tribunal upheld this decision, leading to the reference of two questions to the High Court for determination.

The Court held that the correct law, as expounded in the determination of January 4, 1966, was that glass bottles sold below Re. 1 per piece were covered by entry 14 of Schedule C and not entry 22 of Schedule E. Therefore, the assessees were only entitled to collect sales tax, not general sales tax. The Court rejected the contention that the assessees' collections were lawful based on the earlier determination and bulletin.

The Court further clarified that the expression "any amount by way of tax" in section 46(2) includes any excess amount collected as tax, even if it was collected under a mistaken belief. This interpretation ensures that the provisions of section 37 relating to forfeiture are not rendered nugatory.

The Court supported its interpretation by referring to the decision in *Commissioner of Sales Tax v. Poona Municipal Corporation*, which emphasized that the scheme of the Act is to prevent dealers from retaining amounts wrongfully collected as tax. The Court also cited *Moolchand Purushottam Patel v. Sales Tax Officer*, which held that excess collections by dealers in contravention of section 46 are liable to forfeiture.

2. Necessity of Mens Rea for Forfeiture:

The second issue addressed whether the element of mens rea (guilty mind) is necessary for attracting the provisions of forfeiture under section 37. The assessees argued that they collected the general sales tax under a bona fide belief that it was payable, and hence, there was no deliberate wrongdoing or mens rea.

The Court rejected this contention, stating that the scheme of the Act is to prevent dealers from retaining amounts wrongfully collected as tax, irrespective of their intent. The forfeiture provision under section 37(1) is designed to ensure that excess amounts collected are refunded to the purchasers, not to impose an additional liability on the dealer. Therefore, the element of mens rea is not necessary for imposing the penalty of forfeiture.

The Court distinguished this case from *Hindustan Steel Ltd. v. State of Orissa*, where the penalty was for failure to register as a dealer, which imposed a distinct and separate liability. In contrast, the forfeiture under section 37(1) of the Bombay Sales Tax Act merely deprives the dealer of a gain wrongfully made.

Conclusion:

The Court answered question No. (1) in the affirmative, upholding the forfeiture of excess tax collected by the assessees, and question No. (2) in the negative, stating that mens rea is not necessary for forfeiture under section 37. The applicants were ordered to pay the costs of the references, fixed at Rs. 300.

Reference answered accordingly.