1964 (2) TMI 65 - SC - VAT and Sales Tax

Validity of section 11(2) of the Hyderabad General Sales Tax Act, No. XIV of 1950 questioned Held that - Appeal allowed. The State Legislature was incompetent to enact a provision like section 11(2). We may also add that the provision contained in section 20(c), being consequential to section 11(2), will fall along with it. In consequence it was not open to the Sales Tax Officer to ask the appellant to make over what he had collected from the purchasers wrongly as sales tax. It is not disputed, as appears from the final assessment order of the Sales Tax Officer, that the appellant was not liable to pay the amount as sales tax for the relevant period. We therefore allow the appeal and quash the assessment order dated September 27, 1956, in so far as it is based on section 11(2).

Summary

Issues Involved:
1. Validity of Section 11(2) of the Hyderabad General Sales Tax Act.
2. Legislative competence of the State Legislature under Entry 54 of List II.
3. Justification of Section 11(2) as a penalty provision.
4. Applicability of Entry 26 of List II for enacting Section 11(2).

Issue-Wise Detailed Analysis:

1. Validity of Section 11(2) of the Hyderabad General Sales Tax Act:
The appellant challenged the validity of Section 11(2) of the Hyderabad General Sales Tax Act, which mandates that any amount collected by way of tax, otherwise than in accordance with the provisions of the Act, must be paid over to the Government and can be recovered as arrears of land revenue. The appellant argued that this provision was beyond the legislative competence of the State Legislature.

2. Legislative Competence of the State Legislature under Entry 54 of List II:
The appellant contended that Entry 54 of List II of the Seventh Schedule to the Constitution permits the State Legislature to enact laws taxing transactions of the sale or purchase of goods. However, it does not empower the Legislature to enact a law requiring a dealer who collected tax without authority to hand over the amount to the Government. The Supreme Court agreed, stating, "The Legislature cannot under Entry 54 of List II make a provision to the effect that even though a certain amount collected is not a tax on the sale or purchase of goods as laid down by the law, it will still be collected as if it was such a tax."

3. Justification of Section 11(2) as a Penalty Provision:
The respondent attempted to justify Section 11(2) as a penalty for unauthorized tax collection. The Court, however, found no basis for this in the text of the section, noting, "Section 11(2) in our opinion has nothing to do with penalties and cannot be justified as a penalty on the dealer." The Court emphasized that penalties in taxing statutes typically address attempts at evasion or default in payment of properly levied taxes, which was not the case here.

4. Applicability of Entry 26 of List II for Enacting Section 11(2):
The respondent also argued that Section 11(2) could be justified under Entry 26 of List II, which deals with "trade and commerce within the State." The Court rejected this argument, stating, "Entry 26 of List II deals with trade and commerce and has nothing to do with taxing or recovering amounts realised wrongly as tax." The Court concluded that Section 11(2) could not be upheld as regulating trade and commerce under Entry 26.

Conclusion:
The Supreme Court held that Section 11(2) of the Hyderabad General Sales Tax Act was beyond the legislative competence of the State Legislature under Entry 54 of List II and could not be justified under Entry 26 of List II. Consequently, the Court quashed the assessment order based on Section 11(2) and allowed the appeal, stating, "We therefore allow the appeal and quash the assessment order dated September 27, 1956, in so far as it is based on section 11(2)."

Separate Judgments:
The judgment was delivered collectively by the Court, without separate opinions from individual judges.

Final Order:
The appeal was allowed, and the appellant was awarded costs in both the Supreme Court and the High Court.