1978 (12) TMI 161 - HC - VAT and Sales Tax

Issues Involved:
1. Legislative competence of the State Legislature under entries 54 and 64 of List II of the Seventh Schedule to the Constitution of India.
2. Interpretation of section 46(2) of the Bombay Sales Tax Act, 1959.
3. Validity of forfeiture under section 37(1)(a) of the Act.
4. Application of section 38(6) of the Act.

Detailed Analysis:

1. Legislative Competence of the State Legislature:
The primary issue revolves around whether the State Legislature, under entries 54 and 64 of List II of the Seventh Schedule to the Constitution of India, has the competence to legislate on transactions that are not sales or purchases of goods. The court examined the legislative powers conferred by these entries and concluded that the State Legislature can only legislate on matters related to the sale or purchase of goods. The court emphasized that any attempt to legislate beyond this scope would be unconstitutional. The court cited the Supreme Court's decisions in *Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash* and *State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.*, which held that the expressions "sale of goods" and "sale or purchase of goods" must be interpreted in their legal sense as defined in the Sale of Goods Act, 1930.

2. Interpretation of Section 46(2) of the Bombay Sales Tax Act, 1959:
The court analyzed section 46(2) of the Act, which prohibits the collection of tax by persons not liable to pay tax and by registered dealers in excess of the tax payable. The court rejected the department's interpretation that section 46(2) applies to both sales and non-sales transactions. The court held that section 46(2) should be read as an integral whole, dealing with the prohibition against collecting tax on transactions of sales of goods. The court emphasized that interpreting section 46(2) to include non-sales transactions would lead to absurd results and defeat the legislative intent. The court stated, "The prohibitions imposed by section 46(1) and (2) are complete," and identified three prohibitions: (1) against collecting tax on tax-free goods, (2) against non-registered dealers collecting tax on any sale, and (3) against registered dealers collecting tax in excess of the amount payable.

3. Validity of Forfeiture under Section 37(1)(a) of the Act:
The court examined the validity of forfeiture under section 37(1)(a) of the Act, which provides for the forfeiture of amounts collected in contravention of section 46. The court referred to the Supreme Court's decision in *R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited*, which upheld the constitutionality of section 37(1) when read down to apply only to amounts collected as tax on sales transactions. The court reiterated that the State Legislature's power under entries 54 and 64 does not extend to non-sales transactions and that any legislative provision attempting to do so would be unconstitutional. The court concluded that the forfeiture provision in section 37(1) must be interpreted narrowly to apply only to amounts collected on sales transactions.

4. Application of Section 38(6) of the Act:
The court addressed the department's argument that section 38(6) of the Act, which provides for the refund of forfeited amounts to purchasers, supports a broader interpretation of section 46(2). The court rejected this argument, stating that section 38(6) cannot be used to enlarge the scope of section 46(2) or the legislative competence of the State under entries 54 and 64. The court noted that the department had not effectively implemented the refund provision, as no refunds had been made to purchasers. The court concluded that section 38(6) does not justify a broader interpretation of section 46(2).

Conclusion:
The court answered the question in the negative, holding that section 46(2) of the Bombay Sales Tax Act, 1959, does not apply to transactions that are not sales. The court emphasized that the State Legislature's power is limited to legislating on sales and purchases of goods and that any provision extending beyond this scope would be unconstitutional. The court ordered the respondent to pay the costs of the references and refund the fee paid by the applicants.

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