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TMI Blog1978 (12) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... cerns the assessment year 1st April, 1966, to 31st March, 1967. For this reason, we have thought it convenient to dispose of all these four references by a common judgment. The assessees are a partnership firm. They are registered dealers under the Act and carry on business in iron and steel and in other goods. During each of the above assessment years, the assessees delivered a part of their stock of iron and steel to certain persons under the directions and orders issued to them by the Iron and Steel Controller. Apprehending that the sales tax authorities might contend that these transactions were transactions of sale of these goods to the persons to whom these goods were delivered as aforesaid, the assessees asked such persons to pay to them the amounts which they would be liable to pay by way of sales tax to the Government if the department were to hold that these transactions were transactions of sale and, therefore, exigible to tax under the Act. In the course of their assessment proceedings, however, the Sales Tax Officer accepted the contention of the assessees that these transactions were not transactions of sale and were, therefore, not exigible to tax. However, the Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty and forfeiture of the amount of tax wrongfully collected. Before us, Mr. Joshi, the learned counsel for the assessees, has contended that the Act was passed by the State Legislature in pursuance of the legislative powers conferred upon it by entries 54 and 64 in List 11 of the Seventh Schedule to the Constitution of India and that under such powers the State Legislature could not validly enact a law which dealt with or related to a transaction which was not a sale or purchase of goods. Mr. Joshi has further submitted that to construe section 46 of the Act as authorising a prohibition against collection of tax in respect of a transaction which was not a transaction of sale or purchase and thus as a complementary thereto as authorising the State Government under section 37(1) to forfeit such amount would be unconstitutional as being beyond the legislative competence of the State Legislature. Mr. Joshi has contended that an interpretation which would render a section unconstitutional should not be placed upon a section and, therefore, section 46(2) should be so construed and interpreted as to make it applicable only to transactions of sale or purchase. Mr. Joshi has further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of goods. Under that article, no law of a State can impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place either outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India. The Parliament is given the power to make a law formulating principles for determining when a sale or purchase takes place in any of the above ways. Further, under article 286, any law of a State which, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce is to be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. Clause (12) of article 366 defines "goods" as including "all materials, commodities, and articles". Thus, the constitutional position with respect to legislative power is that the State Legislature can pass an Act providing for taxes on sales or purchases of goods other than newspapers where such sales or purchases take place within the State. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax must ultimately fall on the consumer. Certain goods are necessities of life and certain other goods may be of great importance to the industry and trade and commerce of the State. It would, therefore, impose a harsh burden on the poorer sections of. the society to levy any tax in the first case and, in the second case, it would be detrimental to the economic prosperity of the State to levy a tax at the same rate upon sales or purchases of each and every class of goods. Accordingly, by the Act, sales of certain classes of goods have been exempted from tax, and different rates have been prescribed for sales of other classes of goods. How this has been achieved will be seen by a brief review of the relevant provisions of the Act. Clause (11) of section 2 defines the term "dealer". By that clause (omitting the unnecessary words), "dealer" means "any person who whether for commission, remuneration or otherwise carries on the business of buying or selling goods in the State". (The emphasis* has been supplied by us). Clause (13) of section 2 defines "goods" as meaning all kinds of movable property (not being newspapers or actionable claims, or stocks, shares or securities) and as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice paid and payable by a dealer in respect of any purchase of goods made by him during a given period, after deducting the amount of purchase price, if any, refunded to the dealer by the seller, in respect of any goods purchased from the seller and returned to him within the prescribed period; (36) 'turnover of sales' means the aggregate of the amounts of sale price received and receivable by a dealer in respect of any sale of goods made during a given period, after deducting the amount of sale price, if any, refunded by the dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within the prescribed period;". (The emphasis* has been supplied by us). Section 3 provides that every dealer whose turnover either of all sales or of all purchases made in a year first exceeds the relevant limit specified in that section is to be liable to pay the tax under the Act with effect from the said date. By section 22 he is also under an obligation to get himself registered as a dealer. Further, under section 3, a dealer who has once become liable to pay tax under the Act is to continue to be so liable until his registration is duly cancelled. Section 5 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly upon that part of the turnover which is arrived at after deducting from the total turnover the turnover in respect of certain sales or resales with respect to which the dealer is entitled to a deduction, which turnover, we will, for the sake of brevity, refer to as "the taxable turnover of sales". Further, as the rates set out in the different schedules are different for different types or classes of goods, in order to arrive at the amount of tax payable by a dealer, each taxable transaction of sale has to be looked at in order to ascertain the rate at which the tax is attracted to it. Thus, though sales tax or general sales tax is levied on the turnover of sales, for ascertaining the taxable turnover of sales, each particular transaction has to be looked at not only for determining whether any transaction in respect of which a deduction is claimed is in law deductible but also for ascertaining the quantum of the tax which is payable by the dealer. Sections 36 and 37 of the Act deal with the imposition of penalties in certain cases. We have already referred earlier to the provisions of section 37. Section 63 makes certain acts a punishable offence. Clause (h) of section 63(1) ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7] 40 S.T.C. 497 at 513-516 (S.C.). The submission of Mr. Jetly, the learned counsel for the department, was that sub-section (1) of section 46 of the Act and the first part of sub-section (2) of that section both refer to a sale, while the second part of section 46(2) does not contain any such limitation and, therefore, applies both where there is a sale of goods as also where there is a transaction which is not a sale of goods. To recapitulate, section 46(1) provides that "No person shall collect any sum by way of tax in respect of sales of any goods on which by virtue of section 5 no tax is payable". Thus, under section 46(1), everyone is prohibited from collecting any sum by way of tax in respect of goods made tax-free by section 5, that is, goods set out in Schedule A to the Act. Section 46(2), according to Mr. Jetly, is in two parts, the first providing, "No person, who is not a registered dealer and liable to pay tax in respect of any sale or purchase, shall collect on the sale of any goods any sum by way of tax from any other person" and, the second part providing, "and no registered dealer shall collect any amount by way of tax in excess of the amount of tax payable by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an obligation upon a dealer to collect tax. It, by implication, authorises him to do so, whether to collect the tax or not in respect of taxable transactions of sale, being optional to the dealer. In the illustration given by us above, the total amount of tax collected by such registered dealer on sales of goods exempted from taxation as also on sales of goods exigible to tax may equal the amount of tax payable by him in respect of all transactions of sales of goods exigible to tax for the reason that the dealer did not choose to collect tax on some of these transactions of sales exigible to tax. If the interpretation canvassed for by the department were correct, such a registered dealer incurred no liability and can with impunity reimburse himself for the tax which he would have to pay on transactions of sales exigible to tax in respect of which he had not collected or recovered tax from his purchasers from the amounts wrongfully collected by him from his purchasers on tax-free transactions of sales. This was not and surely could never have been the intention of the legislature. The intention of the legislature was to prohibit collection of tax on every transaction of sale or purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l persons, whether they are registered dealers or not, against collecting any sum by way of tax in respect of sales of tax-free goods and, sub-section (2) containing prohibitions with respect to collection of tax on sales of goods other than tax-free goods. Since in respect of sales of goods which are exigible to tax only registered dealers are authorised by implication to collect the tax, sub-section (2) deals with the two facets of a single prohibition against collection of tax in respect of transactions of sales of goods other than tax-free goods, where such sales are not exigible to tax. The so-called first part of it deals with those persons who are not registered dealers liable to pay tax in respect of such sales or purchases. The so-called second part deals with registered dealers who collect amounts by way of tax in excess of the amounts of tax payable by them in respect of these transactions. The phrase "No person, who is not a registered dealer and liable to pay tax in respect of any sale or purchase, shall collect..." in sub-section (2) really means "No person other than or except a registered dealer liable to pay tax in respect of any sale or purchase shall collect .... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interpretation canvassed for by the department is also replete with another difficulty, so far as its acceptance by the court goes; for to accept such an interpretation would be, in our opinion, to render unconstitutional the prohibition with respect to registered dealers contained in section 46(2). As mentioned earlier, the legislative powers of the State Legislature to enact the Act are derived from entries 54 and 64 of List II in the Seventh Schedule to the Constitution. Thus, under it, the State Legislature has the power to legislate imposing taxes on sales and purchases of goods other than newspapers taking place within the State and to legislate with respect to offences against such sales tax law. This would include all powers incidental and ancillary to the exercise of the legislative power to impose this tax. Powers which are incidental and ancillary to the exercise of the legislative powers under the said entries 54 and 64 cannot, however, be extended to matters not covered by these two entries. They must be exercised and must operate in the field of sales and purchases of goods. It is now well-settled by the decisions of the Supreme Court that the expression "sale of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 5 and no registered dealer shall exact by way of tax any sum exceeding what is payable under the Act ...... In short, there is a triple taboo writ into section 46. This prohibitory project is made operational, as stated earlier, by two other provisions, one sounding in criminal and the other in departmental proceedings." (The emphasis* has been supplied by us). It is pertinent to note that section 46 before the Supreme Court is the same section 46 with which we have to deal. In testing whether the provisions of section 37(1), which provide for forfeiture of amounts unauthorisedly collected by way of tax, were constitutional or not, the Supreme Court accepted the test laid down in its earlier decision in R. Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad[1964] 15 S.T.C. 403 (S.C.); [1964] 6 S.C.R. 867. In Abdul Quader's case(1), section 11(2) of the Hyderabad General Sales Tax Act, 1950, was declared void by the Supreme Court on the ground that it did not have anything to do with penalties and could not be justified as a penalty on the dealers. The court held: "It [that is, section 11(2) of the Hyderabad Act] does not provide for a penalty for collecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ense of the word. The spirit of the provision lends force to the construction that 'collected' means 'collected and kept as his' by the trader. If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return it if eventually it was not taxable, it was not collected. 'Collected', in an Australian Customs Tariff Act, was held by Griffith, C. J., not 'to include money deposited under an agreement that if it was not legally payable it will be returned': (Words & Phrases, page 274). We therefore semanticise 'collected' not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer." Abdul Quader's case[1964] 15 S.T.C. 403 (S.C.); [1964] 6 S.C.R. 867., the ratio of which has been approved in Ajit Mills' case(2), is thus an authority for the proposition that the State's power to legislate under entry 54 in List II of the Seventh Schedule to the Constitution does not extend to transactions which are not exigible to tax by the State under the said entry. Ajit Mills' case[1977] 40 S.T.C. 497 (S.C.). is an authority for the proposition that if necessary a narrow interpretation sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said Act. Section 9A of the said Act provided: "No person who is not a registered dealer shall collect in respect of any sale by him of goods in the course of inter-State trade or commerce any amount by way of tax under this Act, and no registered dealer shall make any such collection except in accordance with this Act and the Rules made thereunder." The application made by the department to the Tribunal to make a reference to this Court was rejected by the Tribunal. Against this rejection, the Commissioner of Sales Tax filed an application to this Court for an order directing the Tribunal to state a case and refer the questions of law set out therein to this Court. While rejecting that application, we observed: "Section 9A of the Central Sales Tax Act, 1956, in clear terms talks of the amount by way of tax under the said Act collected by a registered dealer 'in respect of any sale by him of goods in the course of inter-State trade or commerce'. It does not talk of any amount collected by way of tax in respect of any purported sale or any transaction which is a purported sale. If there is no sale by one man to another, the question of collecting any tax on it either rightf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sale of land, put by us to Mr. Jetly, and a transaction which is admittedly not a transaction of sale of goods. In support of his submission, Mr. Jetly relied upon two unreported judgments of Bhatt, J., in C. R. Wood & Co. Private Limited v. S. B. Sidhwani(1) and in Electric Construction & Equipment Co. Ltd. v. D. K. Vanjari, Sales Tax Officer(2), decided also on the same day. In the first case, certain amounts collected by the petitioners on sales taking place in the course of import of goods into the territory of India were ordered to be forfeited by the Sales Tax Officer under section 37(1) of the Act. The validity of section 37(1) was challenged before Bhatt, J. He negatived that challenge. With respect to the amounts collected by the petitioners by way of tax from sales taking place in the course of import of goods into the territory of India, Bhatt, J., held that the expression "tax" in section 37(1)(a) and (2) must be given its ordinary and legitimate meaning, namely, an amount of money whether authorised or not, recovered by the registered dealer as and by way of tax and, therefore, when a registered dealer collected any amount by way of tax, which, in fact, he was not en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered from the taint of unconstitutionality. The case of Electric Construction & Equipment Co. Ltd.Miscellaneous Petition No. 755 of 1969 decided on 15th March, 1975 (Bombay High Court)., decided by Bhatt, J., merely followed the earlier decision given by him in C.R. Wood & Co.'s caseMiscellaneous Petition No. 667 of 1969 decided on 15th March, 1975 (Bombay High Court). Mr. Jetly next relied upon the decision of a Division Bench of the Gujarat High Court in M. Dadubhai & Co. v. C.C. Trivedi[1966] 17 S.T.C. 59 at 68. In that case, the assessees, who were registered dealers, had collected amounts by way of sales tax both in respect of transactions of sale as also certain transactions which were not sales effected by them. The amounts collected by them on transactions which were not sales were ordered to be forfeited by the Sales Tax Officer. The petitioners approached the Gujarat High Court by way of a writ petition under article 226 of the Constitution challenging the validity of section 21(1), (2) and (4) of the Bombay Sales Tax Act, 1953. Sub-section (1) of that section is in pari materia with section 46(1) of the Act. Sub-section (2) of section 21 provided that "No person sellin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Division[1968] 21 S.T.C. 174 (S.C.)., the Supreme Court, reversing the decision of the Gujarat High Court, struck down section 12A(4) of the Bombay Sales Tax Act, 1946, as being unconstitutional because it contravened article 19(1)(f) of the Constitution. In that case, the Supreme Court also expressly overruled the decision of the Gujarat High Court in Ramgopal & Sons v. Sales Tax Officer, Surat [1965] 16 S.T.C. 1005. So far as the interpretation placed on the expression "if any registered dealer collects any amount by way of the tax in excess of the amount payable by him" occurring in section 21(4) is concerned, it should be noted that that expression occurred in a very different context in section 21(4) from that in which it occurs in section 46(2) of the Act. Further, so far as the scope of legislative power of the State Government as also the meaning to be attributed to this phrase in section 46(2) are concerned, we have already set out above the view we have taken and the reasons which have prompted us to take that view and, therefore, we respectfully differ from the view taken by the Gujarat High Court in the case of M. Dadubhai & Co. v. C. C. Trivedi[1966] 17 S.T.C. 59. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, and does not and cannot refer to any transaction which is not a sale. Other passages from the said judgment relied upon by Mr. Jetly contain the same or similar expressions which show that what was referred to were amounts collected under and in respect of transactions of sales of goods contrary to the prohibitions contained in section 46 of the Act. Mr. Jetly lastly relied upon the provisions of sub-section (6) of section 38 of the Act in support of his submission that a wider interpretation must be given to section 46(2). Section 38(6) provides that 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 liability to refund the sum to the person from whom it was so collected and a refund of such sum or any part thereof can be claimed from Government by the person from whom it was realised by way of tax, provided that an application for such claim is made by him in writing in the prescribed form to the Commissioner within one year from the date of the order of forfeiture. Relying upon section 38(6), Mr. Jetly submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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