TATA OIL MILLS LTD. Vs. SALES TAX OFFICER
LAWS(KER)-1967-6-34
HIGH COURT OF KERALA
Decided on June 06,1967

Tata Oil Mills Ltd. Appellant
VERSUS
SALES TAX OFFICER Respondents

JUDGEMENT

M.U.ISAAC,J. - (1.) THE petitioner is an incorporated company which is engaged in the manufacture and sale of soaps,toilets,pakav and other goods.It was assessed to salestax for the year 1964 -65 under the Kerala General Salestax Act,1963(hereinafter referred to as the Act)by the first respondent,the Salestax Officer,Special Circle,Ernakulam,by his order,Ext.P -1,dated 7th January 1966.This order was revised by him by rectifying certain errors by a subsequent order,Ext.P -2,dated 23rd February 1966.The petitioner claimed exemption in respect of a few transactions,and also deduction of certain amounts from its total turnover the petitioner's accounts were accepted;and all the above claims were allowed by the first respondent in making the assessment.The salestax and surcharge payable by the petitioner as per Ext.P -2 are Rs.5,37,631.69 p.and Rs.21,939.80 p.respectively;and there is no dispute about this assessment.The petitioner's accounts disclosed that it had collected from the persons to whom it sold goods a sum of Rs.30,591.71 p. as salestax in excess of the tax which the petitioner was liable to pay under the Act.This was because in determining the taxable turnover under the Act,a dealer is entitled under rule 9(1)of the Kerala General sales Tax Rules,1963(hereinafter referred to as the Rules)to deduct from the total turnover the excise duty,if any paid,by him to the Central Government in respect of the goods sold by him.Accordingly,sum of Rs.6.62,958.paid by the petitioner as excise duty was deducted from its total turnover in determmins the taxable turnover and assessing the tax payable by the petitioner.But the petitioner,when it sold the goods,collected salestax from the purchasers on the invoice price without deducting there from the excise duty paid in respect of the said goods.This resulted in the collection of a larger amount of sales tax than what the petitioner was liable to pay under the Act.The first respondent held as per Exts.P -1 and P -2 that the petitioner was liable to pay the aforesaid amount of Rs.30,591.71 also to the Government under section 22(3)of the Act.The petitioner had paid almost the whole tax payable under the Act,even before the assessment was made.The first respondent,therefore,issued a notice of demand Ext.P -3,dated 23 -2 -1966 to the petitioner,requiring the petitioner to pay a sum of Rs,30,592.39 which consisted of the above sum of Rs.30,591.71 and a small balance of the tax assessed under the Act.
(2.) THE petitioner contended before the first respondent that section 22(3)of file Act is unconstitutional and that the Government have no right to collect from the petitioner anything more than what it was liable to pay as tax under the Act.It relied on the decision of this court in O.P.Nos.485,486 and 487 of 1965,wherein a similar claim of the petitioner was upheld.Reliance was also placed on the decision of the Supreme Court in Abdul Quader &Co.v.Sales Tax Officer,Second Circle,Hyderabad (1964)15 S.T.C.403 in support of his contention,that the Government have no right to collect such an amount from a dealer.But the first respondent rejected the petitioner's contention.He observed regarding the decision of this Court in O.P.Nos.485,486 and 487 of 1965 that it happened to be in favour of the petitioner as the real and full facts of the case were not placed before the Court.He also observed that the above decision of the Supreme Court did not apply to this case,as that decision was concerned with the collection of tax made otherwise than in accordance with the provisions of the Act.The petitioner has,therefore,filed this Original Petition for a declaration that section 22 of the Act,in so far as it imposes a liability on a dealer to pay over to the Government any amount collected by him as salestax,even when such amount is not payable by him as tax under the Act,is unconstitutional,and to quash by a writ of certiorari the orders Exts.P -1 and P -2 as well as the notice of demand,Ext.P -3.
(3.) THE petitioner's learned counsel has advanced the same contention as was raised before the first respondent.The decision of this Court in O.P.Nos.485,486 and 487 of 1965 was passed on a concession made on behalf of the first respondent that the decision of the Supreme Court in Abdul Quader &Co.v.Sales Tax Officer,Second Circle,Hyderabad (1964)15 S.T.C.403 applied to those cases,and that the demands made therein could not be sustained.The position now taken up by the first respondent is that it was a wrong concession,and that the decision of the Supreme Court does not apply to the case.The above decision of this Court is therefore,no authority to support the petitioner's contention,nor does it preclude the first respondent from requiring the petitioner to pay the disputed amount under section 22(3)of the Act,which relates to a different assessment year.It is necessary to refer to the relevant provisions of the Act and the Rules,for the purpose of examining the respective contentions of the parties."Section 5 of the Act is the charging section;and it provides that every dealer coming within its ambit shall be taxed on his total turnover for the year.Section 2 (xxv) of the Act defines the taxable turnover;and according to this definition,taxable turnover means turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed.Rule 9 of the Rules deals with the determination of the taxable turnover;and according to clause (i) of this rule,excise duty,if any,paid by a dealer to the Central Government in respect of the goods sold by him,is a deduction to be made from the total turnover in determining the taxable turnover.Section 22 of the Act reads as follows:" "22. Collection of tax by dealers. "( 1)No person who is not a registered dealer shall collect any amount by way of tax under this Act;nor shall a registered dealer make any such collection except in accordance with such conditions and restrictions,if any,as may be prescribed. Provided that nothing contained in this sub -section shall apply to the Central Government,a State Government or a local authority. (2)If any dealer or person who is not liable to tax under this Act collects any amount purporting to be by way of tax,such dealer or person shall,unless it is established to the satisfaction of the assessing authority that the amount so collected has been refunded to the person who had originally paid the amount,pay over to the Government within such time and in such manner as may be prescribed all amounts so collected. (3)If any dealer or person collects tax on transactions not liable to tax under this Act or in excess of the tax leviable under this Act,such dealer or person shall,unless it is established to the satisfaction of the assessing authority that the tax so collected has been refunded to the person who had originally paid the tax,pay over to the Government,in addition to the tax payable,the tax amount so collected,within such time and in such manner as may be prescribed. (4)A local authority which collects any amount by way of tax under this Act shall pay over to the Government the amount so collected,and,if any such amount is not so paid the Collector of the district concerned shall,on requisition by the assessing authority make an order directing the person haying the custody of the funds of the local authority to pay it in priority to any other charge against such fund except charges for the service of authorised loans ; and such person shall be bound to comply with such order " ;. The legislative power of the State to levy salestax is contained in entry 54 of List II in the Seventh Schedule of the Constitution and it reads as follows:" "54.Taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92 (a) of List I " ;. The petitioner's learned counsel contended that sub -sections(2)and(3)of section 22 of the Act are not provisions relating to levy,assessment and collection of salestax;but they contain a device to collect an amount,which the State has no right to collect under the Act.He submitted that what the State can charge and collect as salestax is contained in the various provisions of the Act,and what is sought to be recovered by sub -sections(2)and(3)of section 22 are amounts,which a dealer is not liable to pay under the Act as tax.The learned Government Pleader controverted this contention,and submitted that what the Government purport to collect under the above sub -sections is only salestax,which a dealer has wrongly or unnecessarily collected as a salestax,and that the impugned provisions are absolutely constitutional.Section 22 of the Act requires a careful examination in the light of the above contentions.Ordinarily,a dealer,who is liable to pay salestax,is entitled to collect salestax from the other party to the transaction.But sub -section(1)of section 22 prohibits an unregistered dealer from collecting any salestax,and it also provides that a registered dealer shall not collect salestax,except in accordance with the provisions of the Act Sub -sections(2)and(3)deal with cases where a dealer collects salestax in contravention of sub -section(1 ).sub -section(4)deals with collection of salestax by a local authority,and the recovery of the same by the Government.This sub -section is not relevant to the controversy,and can be left out of consideration.Sub -section(2)relates to a dealer not liable to pay tax under the Act;and sub -section(3)relates to transactions not liable to tax and also to transactions in respect of which a dealer collects salestax in excess of what he is liable to pay under the Act.A dealer may not be liable to tax under the Act due to any one of the following reasons.First,he may be a seller,and the tax payable under the Act may be at the point of purchase.Secondly,he may be a purchaser,and the tax payable may be at the point of sale.Thirdly,he may belong to a class of persons,who is exempted from the liability under the Act.A transaction may not be liable to tax under the Act for the following reasons.First,it may not be a transaction which the State has got the legislative power to levy tax,such as a sale in the course of inter -State trade,or an import sale,or an export sale.Secondly,the transaction may relate to goods,whose sale is exempt from tax under the Act at all points,or is liable to tax only at a specified point in a series of sales in the State,and the transaction concerned is not one at that specified point.Collection in excess of the tax leviable under the Act,as contemplated in sub -section(3 ),may arise either becau HYPERLINK "http://becau.se/ " se a dealer collects tax at a higher rate than what is provided under the Act,or he collects a larger amount than what is payable under the Act or collects tax on the wholesale price,without deducting there from the amounts which a dealer is entitled to deduct from the turnover.But I do not think that a transaction,which the State Legislature has no power to deal with,such as inter -State sale,export sale or import sale,falls within the class of transactions dealt with in section 22(3 ).The State Legislature has no power to deal with such a transaction;and if any dealer collects tax on such a transaction,it is an illegal collection,and the State cannot claim to get it under any circumstance or under any pretext.In my view,sub -sections(2)and(3)deal only with sales in respect of which the State Legislature has power to levy tax.Sub -section(2)provides that,if a dealer who is not liable to pay tax on such a transaction collects any amount by way of tax,he shall pay the same to the Government,unless he establishes that he has refunded it to the persons from whom he collected it.Similarly sub -section(3)provides that,if a dealer collects tax in respect of a transaction not liable to tax under this Act,or if he collects tax in excess of the tax leviable there under,he shall pay over the same to the Government,unless he establishes that he has refunded it to the person from whom he collected it.In all these cases,what a dealer collects is salestax,and the collection is made under the Act,even though he need not have collected it because of the exemptions available under the Act,or what he collects is in excess of what was needed to be collected under the Act.All what subsections(2)and(3)provide is that salestax thus collected by a dealer should be paid over to the Government.The learned Government Pleader submitted that the Act generally provides for levy of salestax,that it exempts certain class of persons and transactions from salestax,and it also provides that,if a dealer collects salestax,in spite of the exemption,the tax so collected shall be payable to the Government.In other words,if a dealer collects tax without availing of the exemption,it must go to the State;and what is contained in sub -sections(2)and(3)is only a provision to this effect.It was submitted that the said provision,therefore,falls squarely under entry 54 of List II in Schedule VII of the Constitution.;


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