ivil Appeal No678 of 1957
Appeal from the judgment and order dated August 1 1956 of the Patna High Court in Misc
Judicial Case No 188 of 1955
WITH Civil Appeals Nos
546 of 1958 and 115 of 1959
333 Appeals from the judgment and order dated March 8 1957 of the Patna High Court in Misc
Judicial Cases Nos 116 and 215 of 1956
Lal Narayan Sinha and section P Varma for the appellant
C K Daphtary Solicitor General of India and R C Prasad for respondent No 1 in C A No 678 of 57
B C Ghose and P K Chatterjee for the intervener
H N Sanyal Additional Solicitor General of India and C P Lal for respondent No 1 in CA No 546 of 58
H N Sanyal Additional Solicitor General of India and P K Chatterjee for respondent No 1 in CA No 115 of 1959
November 26
The Judgment of the Court was delivered by GAJENDRAGADKAR J
This is a group of three appeals which have been filed in this Court by the State of Bihar hereinafter called the appellant against three separate registered dealers with a certificate issued by the Patna High Court Under article 1321 of of the Constitution that they involve a substantial question of law as to the interpretation of article 201 of the Constitution
The facts in each one of the three appeals are similar though not exactly the same but they raise a common question of law under the proviso to section 14A of the Bihar Sales Tax Act 1947 Act XIX of 1947 hereinafter called the Act
Orders of forfeiture have been passed against the three registered dealers in the three appeals respectively and they raise a common question of law in regard to the validity of the said orders
By consent Civil Appeal No 678 of 1957 has been argued before us as the principal appeal and it has been conceded that our decision in that appeal will govern the two other appeals
We would therefore set out the facts in Civil Appeal No 678 of 1957 and deal with the merits of the points raised for our decision in that appeal
Rai Bahadur Hurdut Roy Motilal Jute Mills Katihar hereinafter called the first respondent was at the 43 334 material time registered as a dealer under the Act and was carrying oil business of manufacture and sale of gunny bags Hessian and other jute products at Katihar in the district of Purnea
During the period April 1 1950 to March 31 195 1 the said respondent sold and despatched its ware worth about Rs 9224386 to dealers outside the State of Bihar and realised a sum of Rs 211222 9 6 as sales tax from such dealers
The said respondent s assessment to sales tax for the relevant period was taken up by the Superintendent of Sales Tax Purnea hereinafter called the second respondent on May 31 1953 and in consequence of these proceedings the impugned order of forfeiture came to be passed
Meanwhile article 286 of the Constitution along with other articles was considered by this Court in the State of Bombay  Anr
vs The United Motors India Ltd  Ors
The question which this Court bad to consider in that case was about the vires of the impugned provisions of the Bombay Sales Tax Act 1952 Act XXIV of 1952 and for the decision of the said question article 286 fell to be Considered
According to the majority judgment in that case article 2861a read with the explanation thereto and construed in the light of article 301 and article 304 prohibits the taxation of sales or purchases involving inter State elements by all States except the State in which the goods are delivered for the purpose of consumption therein
The latter State is left free to tax such sales or purchases and it derives this power not by virtue of the explanation to article 2861 but under article 2433 read with Entry 54 of List 11
The view that the explanation does not deprive the State in which the property in the goods passed of its taxing power and that consequently both the State in which the property in the goods passes and the State in which the goods are delivered for consumption have the power to tax is not correct
When the first respondent s assessment was taken up by the second respondent his attention was invited to this Court s decision in the case of the United Motors 1 he followed the said decision and held that 1  335 the turn over of Rs 9224386 1 6 on account of despatch of manufactured jute products to out of Stat buyers was exempted from the levy of tax this meant a deduction of the said amount from the amount of Rai Bahadur the total turnover shown by the first respondent in the return submitted by him according to the provisions of the Act
Subsequently the second respondent proceeded against the first respondent under section 14A of the Act and issued a notice in that behalf on June 18 1954
By this notice the first respondent was called upon to show cause why the entire amount of Rs 211222 9 6 which had been recovered by him as sales tax from the dealers should not be forfeited to Government
The first respondent showed cause but the second respondent was not satisfied with the explanation given by the first respondent and so he directed the first respondent to deposit the said amount into the Government treasury and produce the proof of payment before him within a month of the receipt of his order
This order was passed on February 10 1955
It shows that the second respondent thought that the matter raised for his decision was simple the first respondent had collected the amount in question as tax under the Act from his customers for and on behalf of the appellant and so he could not retain the said amount  it must go to the State coffers
He also held that the first respondent had represented to the purchasers that the amount was chargeable as sales tax under the Act and as such the first respondent had clearly contravened the explicit provisions of section 14A of the Act read with r 19 of the Bihar Sales Tax Rules hereinafter called the Rules
It is on these findings that the second respondent passed the impugned order of forfeiture
The first respondent then applied to the Patna High Court tinder articles 226 and 227 of the Constitution challenging the validity of the said order
It was urged on his behalf that the proviso to section 14A under which the impugned order was purported to have been passed did not apply to the case of the first respondent and as such the order was Dot justified 336 by the said proviso
It was also contended that if it is held that the said proviso justified the impugned order it was ultra vires the State Legislature inasmuch as it violates article 201 and article 312 of the Constitution
The High Court did not consider the first contention raised before it it dealt with the two constitutional points urged by the first respondent and found in his favour on both of them
On these findings the petition filed by the first respondent was allowed the impugned order of forfeiture was set aside and the proceedings taken against the first respondent under section 14A were quashed
The appellant then applied for and obtained a certificate from the said High Court under article 1321 of the Constitution
On behalf of the appellant Mr Lal Narain Sinha has contended that the High Court was in error in holding that the proviso to section 14A violates either article 201 or article 312 of the Constitution
He has addressed us at length in support of his case that neither of the two articles is violated by the impuged proviso
On the other hand the learned SolicitorGeneral has sought to support the findings of the High Court on the said two constitutional points and he has pressed before us as a preliminary point his argument that on a fair and reasonable construction the proviso cannot be applied to the case of the first respondent
We would therefore first deal with this preliminary point
In cases where the vires of statutory provisions are challenged on constitutional grounds it is essential that the material facts should first be clarified and ascertained with a view to determine whether the impugned statutory provisions are attracted if they are the constitutional challenge to their validity must be examined and decided
If however the facts admitted or proved do not attract the impugned provisions there is no occasion to decide the issue about the vires of the said provisions
Any decision on the said question would in such a case be purely academic
Courts are and should be reluctant to decide constitutional points merely as matters of academic importance
337 Before considering the preliminary point raised by the first respondent it is necessary to refer briefly the relevant scheme of the Act
The Act was originally passed in 1947 because the Legislature thought it necessary to make an addition to the revenue of Bihar and for that purpose to impose a tax on the sale of goods in Bihar
The provisions of the Act as well as the statutory Rules framed under it have been subsequently modified from time to time
In our present discussions we would refer to the provisions and the Rules which were in operation at the material time
The goods the sale of which is taxed under the Act are defined by section 2d as meaning all kinds of moveable property other than those specifically excepted
Section 2g defines  sale  inter alia as meaning any transfer of property in goods for cash or other considerations and the second proviso to it prescribes that the sale of any goods 1 which are actually in Bihar at the time when in respect thereof the contract of sale as defined in section 4 of that Act is made or 2 which are produced or manufactured in Bihar by the producer or manufacturer thereof shall wherever the delivery or contract of sale is made be deemed for the purposes of this Act to have taken place in Bihar
The tax leviable Linder the Act is defined by section 2hh as including a fee fixed in lieu of the tax under the  first proviso to section 5 whereas under section 2i  turnover  means the aggregate of the amounts of sale prices received and receivable by a dealer in respect of sale or supply of goods or carrying out of any contract effected or made during the given period or where the amount of turnover is determined in the prescribed manner the amount so determined
Section 4 which is the charging section provides that every dealer whose gross turnover during the specified period on sales which have taken place both in and outside Bihar exceeds Rs 10000 shall be liable to pay tax on sales which have taken place in Bihar oil and from the date of the commencement of the Act
This section shows that the incidence of taxation can be attracted only where the gross turnover of the dealer exceeds Rs 10000 and in 338 determining this prescribed minimum
sales which take place both in Bihar and outside are taken into account
Section 5 prescribes the rate of tax at six pies in a rupee on the taxable turnover
The provisos to this section confer specific powers on the State Government the first proviso which is relevant for our purpose empowers the State Government by notification to fix a higher rate of tax not exceeding one anna in a rupee or any lower rate of tax in respect of sale of any goods or class of goods specified in such notification subject to such conditions as it may impose
The explanation to this section indicates what the taxable turnover for the purpose of the section means
 Taxable turnover  according to this explanation means that part of a dealer s gross turnover on sales which have taken place in Bihar during any period which remains after deducting therefrom the items specified in cls
a and b of the explanation
The sale of any goods declared from time to time as tax free goods under section 6 is one of those items
Section 6 empowers the State Government to exempt sale of any goods or class of goods from the levy of tax under this Act subject to the conditions specified in the section whereas section 7 empowers the Government to exempt dealers from tax and section 8 authorises the Government to prescribe points at which goods may be taxed or exempted
Section 9 deals with the question of registration of dealers and provides that no dealer who is liable to pay tax under section 4 shall carry on business unless he has been registered under the Act and possesses a registration certificate
Under section 11 a list of registered dealers is published and by section 12 such registered dealers are required to furnish such returns by such dates and to such authorities as may be prescribed
Section 13 prescribes the procedure for assessment and section 14 requires that the tax payable under the Act shall be paid in the manner hereinafter provided at such intervals as may be prescribed
Section 142 requires the registered dealer to pay into a Government treasury the full amount of tax due from him according to the returns which he has to file and has to 339 furnish along with the said return a receipt from the treasury showing the payment of such amount
Having thus provided for the recovery of the tax charged under section 4 section 14A in effect authorises registered dealers to reimburse their dues by making collections of the tax payable by them in accordance with the restrictions and conditions as may be prescribed
It provides that no dealer who is not a registered dealer shall realise any amount by way of tax on sale of goods from purchasers nor shall any registered dealer make any collection of tax except in accordance with such restrictions and conditions as may be prescribed
That takes us to the proviso to section 14A with which we are directly concerned in the present appeal
It reads thus  Provided that if any dealer collects any amount by way of tax in contravention of the provision of this section or the conditions and restrictions prescribed thereunder the amount so collected shall without prejudice to any punishment to which the dealer may be liable for an offence under this Act be forfeited to the State Government and such dealer shall pay such amount into the Government treasury in accordance with a direction issued to him by the Commissioner or any officer appointed under section 3 to assist him and in default of such payment the amount shall be recovered as an arrear of land revenue
 The effect of this proviso is clear
A dealer is authorised to collect amounts by way of tax from the purchasers only in accordance with the provision of section 14A and the conditions and restrictions prescribed thereunder
The conditions and restrictions referred to in the proviso are to be found in the material Rules framed under the Act
If it is shown that a dealer has collected an amount by way of tax in violation of the conditions and restrictions prescribed by the Rules he incurs the penalty of forfeiture as specified in the proviso
There can be no doubt that before the penalty of forfeiture can be imposed upon the dealer under the proviso it must be shown that he has acted contrary to the conditions and restrictions prescribed 340 by the Rules
It would not be enough to show that the collection of the amounts in question by the dealer is otherwise illegal or improper
The contravention of the statutory provision contained in section 14A or of the Rules prescribing conditions and restrictions in that behalf alone can form the basis of the imposition of the penalty under the proviso
This position is not disputed before us
The appellant contends that the proviso is attracted to the present case because the first respondent has contravened the conditions and restrictions imposed by the proviso to r 19 whereas the first respondent argues that a proper construction of this latter proviso does not justify the appellant s plea
It would thus be seen that the decision of the preliminary point raised by the first respondent involves the narrow question of the construction of the proviso to r 19
Before construing the said proviso it is however necessary to refer to section 33 of the Act
This section was enacted on April 41951 but it has been expressly made retrospective as from January 26 1950
Therefore at the material time this section must be deemed to have been in operation
Section331aiprovides that notwithstanding anything contained in the Act a tax on the sale or purchase of goods shall not be imposed under the Act where such a sale or purchase takes place outside the State of Bihar
Section 332 makes the explanation to cl
1 of article 286 of the Constitution applicable for the interpretation of subcl
i of cl
a of sub section
It is common ground that if the relevant provision just cited is construed in the light of the decision of this Court in the case of the United Motors 1 there can be no doubt that the sales which are the subject matter of the present proceedings consist of transactions on which a tax cannot be imposed under the Act
That is why the appellant strongly relies on this provision and contends that in construing the proviso to r 19 the true legal position in respect of the transactions in question must be borne in mind
Let us now read the proviso to r 19
Rule 19 itself prescribes the procedure which has to be followed by 1  341 a registered dealer in realising any amount by way of tax on sale of goods from purchasers
This procedure refers to the issue of a cash memo or a bill as prescribed by it
The proviso to this Rule lays down that no such registered dealer shall realise any amount by way of tax at a rate higher than the rate at which he is liable to pay tax under the Act or realise any amount by way of tax in respect of such part of his turnover as is allowed to be deducted from his gross turnover for the determination of his taxable turnover under the Act or these Rules
The appellant relies on the latter part of the proviso and argues that the part of the turnover of the first respondent which is in question fell within section 331a1 and as such was not liable to be taxed
That being so there was no justification for the first respondent to collect any amount by way of tax from his purchasers under section 14A The scheme of section 14A is to permit the registered dealer to collect such amounts of tax from his purchasers as he in his turn is liable to pay to the appellant
Authority to collect such tax amounts given to the registered dealer inevitably postulates his liability to pay a similar amount to the appellant
Therefore the conduct of the first respondent in collecting amounts by way of tax from his purchasers amounts to a breach of section 14A itself
It is also contended that having regard to the provisions of section 331ai the first respondent was entitled to claim a deduction of the transations in question from his gross turnover under the latter part of the proviso and that clearly means the first part of the said proviso applies to his case and it prohibited him from realising the said amounts
His conduct in collecting the amounts therefore constitutes a breach of the conditions specified in the proviso to r 19
In appreciating the validity of these arguments it would be relevant to remember that at the material time there was considerable confusion in the minds of the public as well as the State authorities about the true scope and effect of the provisions of article 2861 of the Constitution
It is not disputed that during the material period and in the years preceding it registered 44 342 dealers used to pay tax in respect of transactions which were really not liable to be taxed under section 331ai and such tax was being received by the appellant
In fact as we have already pointed out section 14 of the Act imposes a liability on the registered dealer to furnish along with his return a receipt for the payment of the tax which is payable under the return
Such payments were made by registered dealers in respect of similar transactions and were accepted
It is an accident that the assessment proceedings of the first respondent were actually taken up for decision by the second respondent after the decision of this Court in the case of the United Motors 1
If the question about the first respondent s liability to pay the tax under the Act had been decided before the date of the said decision there is no doubt that he would have been required to pay the tax for the transactions in question
Indeed it is common ground that the notification issued for the material period levied a tax at three pies on the goods in question  if the sales tax authority is satisfied that the goods have been despatched by or on behalf of the dealer to any person outside the Province of Bihar
 This notification is consistent with the definition of the word  sale  as it then stood
It is thus clear that at the material time the appellant thought that transactions like those in question in the present appeal were liable to pay the tax at the rate of three pies as prescribed by the relevant notification the registered dealers also had no doubt on the point and so taxes were collected in respect of such transactions by the appellant from the registered dealers and by the registered dealers in their turn from their purchasers
Nevertheless after the enactment of section 33 the legal fiction about the retrospective operation of the said section must be given effect to and in construing the proviso to r 19 it must be assumed that the transactions in question were outside the scope of the Act and no tax could have been imposed in respect of them
Construing the proviso on this assumption can it be said that in respect of the part of the first respondent s 1  343 turnover which is in question a deduction was allowable within the meaning of the proviso In our opinion this question cannot be answered in favour of the appellant
Rule 19 itself was framed in 1949 and has not been amended subsequent to the enactment of section 33
As it was framed its reference to the allowable deductions was clearly based on the provisions of sections 6 7 and 8 of the Act
This position would be clear beyond all doubt if we read the material words in the proviso in the light of the explanation to section 5 of the Act
The explanation in terms enumerates deductions which have to be made in determining the taxable turnover of the registered dealer and it is to these deductions which are allowable under the three sections specified in the explanation to which the latter part of the proviso to r 19 refers
A claim for the exclusion of a part of the first respondent s turnover on the strength of section 331ai cannot therefore be said to be an allowable deduction under the proviso
This question can be considered from another point of view
The provisions which allow deductions to be made or grant exemptions in respect of certain transactions obviously postulate that but for them the transactions in question would be liable to
tax under the Act and so when such transactions are included in the return the registered dealer is allowed to claim appropriate deductions in respect of them
But the position with regard to section 33 is entirely different  transactions which attract the provisions of the said section are in substance outside the scope of the Act and no tax can be imposed on them at all
If that be the true position the claim which can be made by the registered dealer in respect of such transactions cannot in law be regarded as a claim for allowable deductions or exemptions properly so called it is really a claim that the Act itself does not apply to the said transactions
Therefore in our opinion it would be straining the language of the second part of the proviso to r 19 to hold that the transactions in question fell within its purview
There is one more point to be considered in this connection
Form VI which has been prescribed for 344 making the returns under section 12 requires the gross turnover to be mentioned at the outset and then it provides for the different deductions allowable under the Act
This form was prescribed in 1949 and has not been amended after the addition of section 33 to the Act
On looking at this form it seems difficult to entertain the argument that the claim for the total exclusion of the transactions in question can be made under any of the headings prescribed in the form
The appellant however contends that the first item of gross turnover means the whole of the gross turnover which must include all sale transactions whether they took place within Bihar or outside it and in support of this argument reliance is placed on the definition of  turnover  contained in section 21
If the whole of the gross turnover has to be mentioned under item 1 it is urged the claim for the exclusion of the transactions in question can well be adjusted under one or the other of the deduction items prescribed in the form
We are not inclined to accept this argument
The form as it has been prescribed construed in the light of the material provisions contained in sections 6 7 and 8 does not support the case that in prescribing its several items it was intended that the transactions failing under section 33 should be first shown under item 1 and then excluded under one or the other of the remaining items of deduction
Besides it may be relevant to point out that the heading of Chapter VII which deals with the submission of returns by dealers is  return of taxable turnover  and it is arguable that the gross turnover mentioned in Form VI may mean gross taxable turnover  and not the gross turnover including the transactions which are outside the scope of the Act
Then as to the argument about the contravention of section 14A itself it is difficult to appreciate how any provision of section 14A can be said to have been contravened
Section 14A consists of two parts both of which are put in a negative form
The second part with which we are concerned in effect means nothing more than this that a registered dealer can make collections of such tax only as is payable by him in accordance with the restrictions and conditions as may be 345 prescribed
If the argument is that the first respondent was not liable to pay any tax and as such was not entitled to make any corresponding collection then the collection made by him may fall outside section 14A and be otherwise unjustified or improper but it does not amount to the contravention of any provision of section 14A as such
In fact section 14A itself refers to the restrictions and conditions which may be prescribed and as we have already seen these conditions and restrictions are prescribed by the Rules in general and by r 19 in particular
So the argument urged under section 14A takes us back to the question as to whether the proviso to r 19 has been contravened
In dealing with this question we cannot ignore the fact that the relevant provisions which fall to be construed in the present appeal impose a serious penalty on the registered dealer and so even if the view for which the appellant contends may perhaps be a possible view we see no reason why the other view for which the first respondent contends and which appears to us to be more reasonable should not be accepted
In the result we hold that the proviso to section 14A cannot be invoked against the first respondent and so the order of forfeiture passed against him by the second respondent is unjustified and illegal
In view of this conclusion it is unnecessary to consider the objections raised by the first respondent against the validity of the proviso on the ground that it contravenes articles 201 and 312 of the Constitution
We may incidentally add that during the course of the arguments before us we have also heard all the learned counsel on the question as to whether the said proviso contravenes the provisions of article 191f as well
The result is the appeal fails and is dismissed with costs
The decision of this appeal governs Civil Appeals Nos
546 of 1958 and 115 of 1959
They also fail and are dismissed with costs
Appeal dismissed


Summary:
On March 9 1956 a conspiracy to divulge the budget proposals on receiving valuable consideration was discovered and a case was registered under section 165A of the Indian Penal Code section 52 of the Prevention of Corruption Act 1947 section 5 of the Official Secrets Act 1923 and section 120B of the Indian Penal Code
Investigation started on March 10 1956 and thereafter pardon was tendered to M by the Additional District Magistrate under section 337 of the Code of Criminal Procedure
Owing to technical legal difficulties a complaint under section 5 of the Official Secrets Act read with section 120B of the Indian Penal Code was filed against the persons involved and proceedings began before a magistrate on this complaint
In the course of these proceedings the prosecution wanted to examine M as an approver but the accused persons objected that as the proceedings before the magistrate were only under section 5 of the Official Secrets Act read with section 12 OB of the Indian Penal Code and as no pardon could be tendered under section 337 of the Code of Criminal Procedure for these offences M could not be treated as an approver but could be examined only as an ordinary witness
It was contended for the prosecution that as the person to whom pardon was tendered was expected to tell the whole truth including details of other subsidiary offences committed in the course of the commission of the offence for which pardon was tendered such pardon must be held to include the subsidiary offences though not of the nature mentioned in section 3771 and therefore M could be considered as an approver in the present proceedings
Held that a pardon under section 3771 of the Code of Criminal Procedure could be tendered only with respect to the offences mentioned therein and that as section 5 of the Official Secrets Act read with section 120B of the Indian Penal Code was not covered by the words of section 3371 no pardon could be granted for an offence of this nature
Consequently as the proceedings before the magistrate were only with respect to these offences M could not be treated as an approver for the purpose of these proceedings