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TMI Blog1977 (1) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... rial times registered as a dealer under the said Act. During the period 1st January, 1962, to 31st March, 1967, the respondent made sales of scrap materials, skins, refuse, empty barrels, compost, etc., by calling for tenders and accepting the highest tender. In respect of the materials so sold, the respondent charged to the purchasers and collected from them certain amounts by way of sales tax and general sales tax which the respondent would have been liable to pay had the sales made by them been exigible to tax under the said Act. In the relevant assessment periods, these sales were held by the Sales Tax Officer as being casual sales and not part of the taxable turnover of the respondent. Accordingly, the Sales Tax Officer issued to the respondent notices under section 37(2) of the said Act. After giving an opportunity to the respondent, the Sales Tax Officer passed orders forfeiting the amounts collected by the respondent by way of taxes. The respondent filed appeals against the said orders. These appeals were dismissed by the Assistant Commissioner of Sales Tax. The respondent thereafter filed second appeals before the Sales Tax Tribunal and the Tribunal allowed the said appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls in contravention of sub-section (1) of section 48 to keep a true account of the value of the goods purchased or sold by him, or fails when directed so to do under that section to keep any accounts or record in accordance with the direction, he shall be liable to pay, in addition to any tax for which he may be liable, a penalty of an amount not exceeding two thousand rupees, or double the amount of tax which would have been payable had there been no such failure, whichever is less; and in addition, in the case of a contravention referred to in clause (a), any sum collected by the person by way of tax in contravention of section 46 shall be forfeited to the State Government." It may be mentioned by Maharashtra Act 40 of 1969, sub-sections (6) and (7) were inserted in section 38 of the said Act with retrospective effect. The said sub-sections provide as follows: "(6) Notwithstanding anything contained in this Act or in any other law for the time being in force, where any sum collected by a person by way of tax in contravention of section 46, is forfeited to the State Government under section 37 and is recovered from him, such payment or recovery shall discharge him of the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amount of tax payable by him under the provisions of this Act" were inserted with retrospective effect by Maharashtra Act 21 of 1962. The scheme of the said Act is that persons, who carry on business of selling or buying goods, once their turnover exceeds the limits prescribed by section 3 of the said Act, become liable to get themselves registered as dealers and pay the tax under the said Act. The said Act also permits them to recoup from the purchasers the amount which they would be liable to pay to the Government by way of tax provided their purchasers agree to so pay such amount to them. This is a facility given to a seller of goods, who is a dealer or, In other words, a permission or an authorisation granted to a seller to collect from his purchaser the amount of tax which the seller Is liable to pay to the Government. This follows from section 46 of the said Act, which prohibits collection of tax except by certain persons. Thus, sub-section (1) of section 46 prohibits all persons from collecting any sum by way of tax in respect of sales of goods which are declared as non-taxable goods under section 5 of the said Act. Sub-section (2) contains a dual restriction. Firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so liable, but to permit those who are not dealers to so collect the amount. According to us, the Intention of the legislature was to prohibit all persons other than those liable to pay tax, whether dealers or not, from recovering the amounts thereof from the other parties to the transaction. Mr. Joshi, the learned counsel for the respondent, however, submitted that since under the Act only a dealer could be registered and assessed to tax, the provisions of sections 37 and 46 must also be so read as to confine them to dealers. It is undoubtedly true that under the Act only a dealer can be registered as such and that It Is only on a dealer that an assessment could be made. But the machinery for registration and assessment is different from a provision penalising persons, who under the guise of being liable to pay tax, collect amounts from unwary purchasers. These are different provisions enacted to secure a different object. The machinery for registration and assessment is for collection of revenue for the Government. The provisions of forfeiture are by way of penalty for a person seeking to misuse the provisions of the Act. In support of his submission Mr. Joshi relied upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75] 36 S.T.C. 232 (S.C.). In that case, the vires of section 22(3) of the Kerala General Sales Tax Act, 1963, was in question. The provisions of that section were in pari materia with section 11(2) of the Hyderabad General Sales Tax Act, which had been declared ultra vires by the Supreme Court. Following its earlier decision, the Supreme Court held that section 22(3) of the said Kerala Act was also beyond the legislative competence of the State Legislature. The same observation, which we have made with respect to Abdul Quader's case[1964] 15 S.T.C. 403 (S.C.)., also applies to this case. We may also mention that a Division Bench of this Court bad occasion to consider the vires of section 37 of the Bombay Sales Tax Act, 1959, in Special Civil Application No. 818 of 1971 (Moolchand Purushottam Patel v. Sales Tax Officer) along with Original Side Miscellaneous Petition No. 135 of 1969 (Cinematographic Exhibitors Association v. Sales Tax Officer) decided on 25th November, 1971 Page 475 infra. The Division Bench consisting of Deshpande and Vaidya, JJ., after considering Abdul Quader's case(2) and other cases, has held that the provisions of section 37 of the Bombay Act were materially d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from sales tax under section 5 read with Schedule A to the said Act. The Sales Tax Officer accepted this contention, but called upon him under section 37 of the Act to explain as to why the amount of Rs. 21,023 collected by him from the purchasers of the said urea by way of tax should not be forfeited and why penalty also should not be imposed upon him for such contravention of section 46 of the Act. After hearing the petitioner the Sales Tax Officer forfeited the amount of Rs. 20,200 and also imposed a penalty of Rs. 2,000 by order dated 28th October, 1970. He challenges the validity of the said order in this special civil application under articles 226 and 227 of the Constitution on the ground that section 37 of the Bombay Sales Tax Act, 1959, is ultra vires of the power of the legislature. He also claims refund of in all Rs. 19,108.90, which he had paid by mistake for the amounts similarly collected by him during the earlier period from 1960 to 1968. Miscellaneous Petition No. 135 of 1969 filed on the original side of this court also raises the same question. The said petition has been referred to this Bench. The petitioner in this miscellaneous petition is an Association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act prohibits all persons and registered or unregistered dealers from collecting taxes excepting in the manner provided under the Act or in excess of the amount payable by them to the State as tax. Section 37 provides for the consequences of contravening certain provisions including section 46 of the Act. By Maharashtra Act No. 40 of 1969, the said section has been amended in some material particulars though section 46 remains as it was. We are, however, not concerned with the amended section 37 in these two cases, as admittedly, the transactions in dispute have taken place long before the Maharashtra Act No. 40 of 1969 was brought into force. The sales tax authorities have proceeded to forfeit the amounts in both these cases under section 37 of the Act on the ground that the petitioners collected the amounts in contravention of section 46 of the Act. Sub-section (2) of section 46, which alone is relevant, consists of two parts. Second part provides that no registered dealer shall collect any amount by way of tax in excess of the amount of tax payable by him under the provisions of this Act. It needs be mentioned that the words "collect............in excess of the amount of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted by the person by way of tax in contravention of section 46 shall be forfeited to the State Government." Mr. Patil and Mr. Shah contend that the legislature was not competent to invest the Sales Tax Officer with power to call upon the dealers to pay the amount collected by them from their purchasers or constituents by way of tax, when the amount admittedly is not exigible as tax. The amount so collected belonged to the petitioners, being the part of their sale proceeds. Even assuming that the amount was collected by them by causing some legal wrong to their constituents, the State Legislature is not competent to authorise collection or forfeiture of the said amount to itself as part of the power to tax possessed under entry 54 of List II of Seventh Schedule of the Constitution. Reliance is placed on the two judgments of the Supreme Court in R. Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad[1964] 15 S.T.C. 403 (S.C.)., and Ashoka Marketing Ltd. v. State of Bihar[1970] 26 S.T.C. 254 (S.C.). It is necessary to examine closely the precise ratio of these two judgments as Mr. P.P. Khambatta, the learned Advocate appearing for the respondent, stoutly contested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich admittedly was not exigible as tax, but was collected unauthorisedly by way of tax. This is how the legislative competence to enact section 11(2) of the Act fell to be considered. It was held that entry 54 of List II of the Seventh Schedule authorised the State Legislature to legislate in regard to "taxes on the sale or purchase of goods other than newspapers subject to entry 92A of List I" and that such power given under section 11(2) of the Hyderabad Act to compel payment to the State any amount collected by the dealer otherwise than as tax was not covered by the said entry 54. It was also secondly held that such direction and recovery was outside the ambit of ancillary or incidental power to tax. It was thirdly held that the said section 11(2) did not amount to a penal provision so as to be covered by incidental powers. Mr. P.P. Khambatta contends that the ratio in Abdul Quader's decision(1) on the wording of section 11(2) of the Hyderabad Act cannot have any application to the differently worded section 37 of the Bombay Act. Close comparison of the scheme of section 11 of the Hyderabad Act with the scheme and wording of sections 37 and 46 of the Bombay Act amply bears out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause notice and inquiry before the order of penalty or forfeiture is passed against any such registered dealer. These provisions in the Bombay Act obviously make all the difference to the ratio of the judgment of the Supreme Court in Abdul Quader's case[1964] 15 S.T.C. 403 (S.C.). Section 37(2) of the Bombay Act really is in terms a penal provision to meet cases wherever an amount by way of tax is found to have been collected by any registered dealer in breach of the statutory prohibition. One plain implication of section 46 of the Bombay Act is that a registered dealer is enabled to pass on the burden of the sales tax to his purchaser though the incidence of the tax under the scheme of the Act is directly on him. By the prohibitive provision of this section, the legislature has tried to ensure that this right is not abused by the dealer by collecting an excess amount from their constituents under the guise of the tax. The scheme underlying these three sections 3, 37 and 46 of the Bombay Act is firstly to charge the dealer with liability to sales tax in respect of his total turnover, secondly, to enable him to recover the same from his purchaser by passing on the burden to his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent the amount", which such dealer had collected by way of tax otherwise than in accordance with the provisions of the Act, when such amount had already become a part of his sale proceeds. The said enactment did not further prohibit such dealer from collecting such amount by way of tax nor did it provide either for imposing any penalty therefor, nor did it provide for forfeiture of such amount for having so collected the money in breach of any provision. The following passage from Abdul Quader's case[1964] 15 S.T.C. 403 at 408 (S.C.). demonstrates the effect of the absence of such penal provisions in the Hyderabad Act: "An attempt was made to justify the provision as providing for a penalty. But as we read section 11(2) we cannot find anything in it to justify that it is a penalty for breach of any prohibition in the Act." A little later their Lordships have further observed: "It is remarkable that this provision makes the person punishable for his failure to pay the amount, which is not authorised as a tax at all under the law, to Government. It does not provide for a penalty for collecting the amount wrongly by way of tax from purchasers which may have been justified as a pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer unauthorisedly, as a penal provision. Mr. Patil and Mr. Shah, however, contend that this judgment has been overruled by the Supreme Court in the case of Kantilal Babulal and Bros. v. H.C. Patel, Sales Tax Officer, Surat[1968] 21 S.T.C. 174 (S.C.). It is, however, clear from the discussion at page 178 of the Reports that the judgment was set aside on quite a different ground and the point under consideration in this case was left open. Mr. Shah and Mr. Patil, however, contend that forfeiture part of section 37 of the Act cannot be said to be a penal provision so as to be covered by ancillary and incidental powers. It is urged that section 37 itself provides penalty for collecting tax in contravention of the provisions of section 46 of the Act and the legislature could not have intended the forfeiture of the amount so collected also to be by way of penalty. It was secondly contended that such forfeited amount is now made liable to be refunded to the purchasers from whom the same was collected wrongly and the dealer is discharged from his liability to them. This is no doubt the effect of sub-sections (6) and (7) of section 37 of the Act now introduced and made retrospectively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature." We have already quoted in extenso the relevant observations from Abdul Quader's case[1964] 15 S.T.C. 403 (S.C.). on this point and discussed why the Supreme Court declined to treat section 11(2) as penal provision. The above passage cannot be pressed into service for holding either that section 37 is not a penal provision, or its validity cannot be sustained on that basis. Any reference to the refund provisions in the Bihar Act or in the Bombay Act (as amended) is unnecessary as validity of the section is not sought to be defended by Mr. Khambatta on the basis of such provision as was done before the Supreme Court by the counsel for the State of Bihar. The validity of the Act was also not defended by reference to the prohibitory provision of section 20A(2), the absence of which in the Hyderabad Act is commented in Abdul Quader's case[1964] 15 S.T.C. 403 (S.C.). as mere prohibition without providing for penal consequences could not have made any difference. The following passage at page 261 represents the true ratio of this case: "The State Legislature may under entry 54, List II, be competent to enact a law in respect of matters necessarily incidental to 'tax on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of section 46 during the earlier periods of assessments. The details of such amounts are given in para 2 of his petition. The total amount is Rs. 19,108.90 and the period covered is from 1960 to 1968. When once section 37 is found to be valid, question of the refund really cannot arise. In fact, relevant assessment orders have become now final and many of the claims have also become time-barred even otherwise. It was, however, argued that the amounts were recovered without show cause notice and enquiry as required under section 37 of the Act. It is, however, not disputed that the petitioner paid the said amounts without raising any objection to his liability to pay. There was thus no occasion to give any show cause notice or hold an enquiry. Rule in Special Civil Application No. 818 of 1971, therefore, shall have to be discharged. There will be, however, no order as to costs in the circumstances of the case. In Miscellaneous Petition No. 135 of 1969, the petitioner's grievance against the forfeiture of Rs. 5,902.86 and Rs. 1,656.74 cannot now be entertained when challenge to the validity of section 37 of the Act has failed. However, admittedly, a sum of Rs. 2,222.43 was reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power of the State making the law provided they are connected with the tax in respect of which the statute in question is passed. It is no doubt true that the amount which is collected by the dealer contrary to the provisions of the statute cannot be a tax on the sale or purchase of goods; but, if the collection is prohibited and penalised, it can still be an amount which can be recovered by the sales tax authorities by way of penalty or forfeiture for collecting the same in contravention of the provisions of the taxing statute. In other words, it is open to the State Legislature to provide: "This is the tax which can be recovered on the sale or purchase of certain goods. No dealer shall collect the tax on tax-free goods or in excess of the tax dues. If any dealer collects tax in excess of such tax or on tax-free goods, he will be liable to be punished and the amount which he collects will be liable to be forfeited and he shall also be liable to pay a penalty." In my opinion, such provisions are incidental to the power of taxation, as they provide for recovery of amounts reasonably connected with the objects of the taxing statute. It is open to the legislature to prohibit a dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also in the context of the discussion of the above argument. There was no provision in that Act prohibiting the collection of tax which was followed by penalty. In the absence of such prohibition the penalty was unconnected with the objects of taxing law or tax. It was clear that the Hyderabad General Sales Tax Act wanted to confer powers on the sales tax authorities to collect from a dealer the amount which was collected "otherwise than in accordance with the provisions of the Act", although the Act itself did not prohibit any person from so collecting the amount. Similarly, in Commissioner of Sales Tax v. Ganga Sugar Corporation Ltd.[1970] 25 S.T.C. 155 (S.C.)., the above decision of the Supreme Court in R. Abdul Quader's case(1) was held applicable to the facts of that case, which arose under the U.P. Sales Tax Act, as the amount which was being collected under the provisions of the U.P. Sales Tax Act in that case, was also not an amount the collection of which was prohibited and penalised under the Act. In Ashoka Marketing Ltd. v. State of Bihar[1970] 26 S.T.C. 254 (S.C.)., the Supreme Court found that the amount in question consisted of the railway freight and the case fell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slature can provide that the amount can be collected by the State, in exercise of its ancillary or incidental powers. It is well-settled that the diverse heads of legislation in the Schedule to the Constitution demarcate the periphery of legislative competence and include all matters which are ancillary or subsidiary to the primary head. Thus, in Orient Paper Mills Ltd. v. State of Orissa [1961] 12 S.T.C. 357 (S.C.)., the Supreme Court held in the context of the Orissa Sales Tax Act, 1947, that the legislature of the Orissa State was competent to enact in exercise of its power under Schedule VII, List II, entry 54, provisions for granting refund of tax improperly or illegally collected. The amount so collected would not be in the nature of tax on sale or purchase, while the refund of amount was considered to be within the competence of the legislature. Similarly, in Burmah Construction Co. v. State of Orissa[1961] 12 S.T.C. 816 (S.C.)., the Supreme Court held that the legislative provisions providing for power of granting refund of tax improperly or illegally collected and laying down restrictions on the exercise of that power are both ancillary or subsidiary matters relating to po ..... X X X X Extracts X X X X X X X X Extracts X X X X
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