Civil Appeal Nos
1988 1989 of 1970
From the Judgment and order dated the 29th day of October 1968 of the Kerala High Court in WP No 156 of 1967
V A Seiyed Muhamad and K M K Nair for the appellant In CANo 198870
K M K Nair for the appellant In CA No 198970 G B Pai A G Meneses for the respondent
The Judgment of the Court was delivered by KHANNA J
This judgment would dispose of civil appeals No 1989 and 1989 of 1970 Filed on certificate against the judgment of the Kerala High Court whereby that court held that it was beyond the competence of the State Legislature to enact law contained in sub section 3 of section 22 of the Kerala General Sales Tax Act 1963 Act 15 of 1963 hereinafter referred to as the Act in so far as it related to payment of an amount collected as tax on transactions not liable to tax under the Act or in excess of the tax leviable under the
We may now set out the facts giving rise to one of the appeals
Both the learned counsel are agreed that the decision in that would also govern the other appeal
Under section 5 of the Act tax is payable by a dealer on his tax able turnover Taxable turnover  is defined in section 2xxv of the Act as the turnover on which a dealer is liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed by the rules under the Act
It does not however include the turnover of purchase or sale in the course of inter State trade or commerce or in the course of export or import of goods
The Kerala General Sales Tax Rules have been framed be the State Government in exercise of the powers conferred by section 57 of the Act
According to clause i of rule 9 of the sail rules
in determining the taxable turnover the following amount shall be deducted from the total turnover of the dealer the excise duty if any paid by the dealer to the Government of Kerala or the Central Government in respect of the goods sold by him
It may be stated that clause i was omitted subsequently but we are concerned with the period when that clause was an integral part of the rule
The respondent is an incorporated company engaged in the manufacture and sale of soaps toilets and other goods
The respondent s accounts disclosed that it had collected from the persons to whom it sold goods a sum of Rs 3059171 as sales tax in excess of the tax which the respondent was liable to pay under the Act
The respondent it would appear paid Rs 662958 as excise duty and deducted the same from its total turnover for the purpose of determining the taxable turnover
When however the respondent company sold the 154 goods it collected sales tax 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 respondent company realising Rs 3059171 in excess of the sales tax payable in respect of the goods sold by it The sales tax officer held that the respondent was liable to pay the aforesaid amount of Rs 3059171 to the Government under section 223 of the Act
The respondent then filed writ petition in the Kerala High Court to challenge its liability to pay the aforesaid amount on the ground that the provisions of section 22 in so far as they imposed a liability on a dealer to pay over to the Government any amount collected by him as sales tax even though that amount was not payable as tax was unconstitutional
The learned single Judge dismissed the petition filed by the respondent
On appeal however the Division Bench held as already mentioned earlier that the impugned provision was beyond the legislative competence of the State Legislature
Sub section 3 of section 22 of the Act reads as under 3 If any dealer or person collects tax on transactions not liable to tax under this Act or in excess of the tax leviable to 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 tax pay over to the Government in addition to the tax payable the amount so collected within such time and in such manner as may be prescribed
 The learned Judges of the High Court in holding the above provision
in so far as it related to payment of an amount collected as tax on transactions not liable to tax under the Act or in excess of the tax leviable under the Act to he beyond the legislative competence of the State Legislature referred to entry 54 of the State List in the Seventh Schedule to the Constitution upon which reliance had been placed on behalf of the State
It was held that the State Legislature was incompetent to enact the impugned provisions contained in sub section 3 of section 22 of the Act under the above entry
In appeal before us Dr Seiyed Muhammad on behalf of the appellants has assailed the judgment of the Division Bench of the High Court
As against that Mr Pai on behalf of the respondent has canvassed for the correctness of the said judgment
After hearing the learned counsel we are of the opinion that there is no merit in these two appeals
A State Legislature is competent to make a law under entry 54 of List II in Seventh Schedule to the Constitution in respect of taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92A of List I
Entry 92A of List I relates to taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter State trade or commerce and we are not concerned with this entry
155 Entry 54 enpowers State Legislatures to make law except i certain cases with which we are not concerned in respect of taxes on the sale or purchase of goods
As long as the law relates to taxes on the sale or purchase of goods it would be within the competence of the State Legislature to enact such a law
It would not however b permissible for the State Legislature to enact a law under entry 54 for recovery by the State of an amount which could not be recovered as sales tax or purchase tax in accordance with the law on the subject and which was wrongly realised by a dealer as sales tax or purchase tax
Such a law plainly would not be a law relating to tax on the sale or purchase of goods but would be one in respect of an amount wrongly realised by a dealer as sales tax or purchase tax
It looks perhaps odd that a dealer should recover in the course of business transactions certain sums of money as sales tax or purchase tax payable to the State and that he should subsequently decline to pay it to the State on the ground that the same amount is not exigible as sales tax or purchase tax
Whatever might be the propriety of such a course the question with which we are concerned is whether the State Legislature is competent to enact a law under entry 54 for recovery by the State of an amount which though not exigibie under the State law as sales tax or purchase tax was wrongly realised as such by a dealer
The answer to such a question has to be in the negative
The matter indeed is not res integra and is concluded by two decisions of this Court
A Constitution Bench of this Court examined in the case of R Abdul Quader  Co vs Sales Tax officer Hyderabad1 the validity of section l l 2 of the Hyderabad Sales Tax Act 1950 which reads as under 2 Notwithstanding anything to the contrary contained in any order of an officer or tribunal or judgment decree or order of a Court every person who has collected or collects on or before 1st May 1950 any amount by way of tax otherwise than in accordance with the provisions of this Act shall pay over to the Government within such time and in such manner as may be prescribed the amount so collected lay him and in default of such payment the said amount shall be recovered from him as if it were arrears of land revenue
 The appellant in that case collected sales tax from the purchasers of betel leaves in connection with the sales made by it
The appellant however did not pay the amount collected to the government
The Government directed the appellant to pay the amount to the Government
The appellant thereupon filed a writ petition in the High Court questioning the validity of section 112
The main contention of the appellant before the High Court was that section 112 which authorised the Government to recover a tax collected without the authority of law was beyond the competence of the State Legislature because a tax collected without the authority of law would not be a tax levied under the law and it would therefore not be open to the State to collect 1  156 under the authority of a law enacted under entry 54 of List II of the Seventh Schedule to the Constitution any such amount
The High Court upheld the validity of section 112
On appeal to this Court it was observed by the Constitution Bench as under The first question therefore that falls for consideration is whether it was open to the State legislature under its powers under entry 54 of List II to make a provision to the effect that money collected by way of tax even though it is not due as a tax under the Act shall be made over to Government
Now it is clear that the sums so collected by way of tax arc not in fact tax exigible under the Act
So it cannot be said that the State legislature was directly legislating for the imposition of sales or purchase tax under entry 54 of List II when it made such a provision for on the face of the provision
the amount though collected by way of tax was not exigible as tax under the law An attempt was made on behalf of the State in that case to sustain the validity of section 112 of the Hyderabad Act on the ground that the Legislature had enacted that law as part of the incidental and ancillary power to make provision for the levy and collection of sales or purchase tax
This contention was repelled and it was observed that the ambit of ancillary or incidental power did not go to the extent of permitting the legislature to provide that though the amount collected may be wrongly by way of tax is not exigible under the law
as made under the relevant taxing entry it shall still be paid over to Government as if it were a tax
The question again arose in this Court before a Bench consisting of six Judges in the case of Ashoka Marketing Ltd vs State of Bihar  Anr1
In that case in determining the appellant s turnover for assessment to sales tax for the year 1956 57 the Superintendent of Sales Tax included an amount representing Railway freight in the appellant s sales of cement
The appellate authority set aside the orders directing the inclusion of the Railway freight in the turnover
After the introduction of section 20 A of the Bihar Sales Tax Act the Assistant Commissioner issued a notice under section 20 A3 of the Act requiring the appellant to show cause why an amount representing sales tax on the Railway freight which became refundable under the orders of assessment be not forfeited
The appellant s contention that section 20 A was ultra vires the State Legislature was rejected by the Assistant Commissioner as well as by the High Court in a writ petition under article 226 of the Constitution
On appeal filed by the assessee this Court held that sub sections 3 4 and 5 of section 20 A were ultra vires the State legislature
As a corollary thereto sub sections 6 and 7 of that section were also held to be invalid
Subsection 3 of section 20 A of the Bihar Sales Tax Act read as under 3a Notwithstanding anything to the contrary contained in any law or contract or any judgment decree or order of 1 157 any Tribunal Court or authority if the prescribed authority has reason to believe that any dealer has or had at any time whether before or after the commencement of this Act collected any such amount in a case in which or to an extent to which the said dealer was or is not liable to pay such amount it shall serve on such dealer a notice in the prescribed manner requiring him on a date and at a time and place to be specified therein neither to attend in person or through authorised representative to show cause why he should not deposit into the Government treasury the amount so collected by him
b On the day specified in the notice under clause a or as soon thereafter as may be the prescribed authority may
after giving the dealer or his authorised representative a reason able opportunity of being heard and examining such accounts and other evidence as may be produced by or on behalf of the dealer and making such further enquiry as it may deem necessary order that the dealer shall deposit forthwith into the Government treasury the amount found to have been so collected by the dealer and not refunded prior to the receipt of the notice aforesaid to the person from whom it had been collected
 In holding sub section 3 and other impugned provisions of section 20 A to be beyond the legislative competence of the State Legislature this Court in the case of Ashoka Marketing Ltd supra relied upon the decision of this Court in Abdul Qadar s case supra
Dr Muhammad has however tried to distinguish the above two cases on the ground that the present case relates to an amount realised in excess of the tax leviable under the Act and not to an amount which was not payable at all as tax under the Act
This fact in our opinion would not prevent the applicability of the principle laid down in the cases of Abdul Qadar and Ashoka Marketing Ltd supra
Any amount realised by a dealer in excess of the tax leviable under the Act stands for the purpose of determining the legislative competence under entry 54 on the same footing as an amount not due as tax under the Act
Dr Muhammad s argument involves inventing a category of a deemed tax which is not there in the Act
The provisions of the Act contain a definition of tax
This necessarily means that every thing outside it collected by the dealer would be an exaction not authorised by the Act
Tax according to section 2xxiv of the Act means the tax payable under the Act
The amount which was realised by the respondent in excess of what was due as tax cannot 158 be held to be tax because such excess amount was not tax payable under the Act
If the State Legislature cannot make a law under entry 54 of List II of the Seventh Schedule to the Constitution directing the payment to the State of any amount collected as tax on transactions not liable to tax under the Act it would likewise be incompetent to make a law directing payment to the State of an amount realised be a dealer in excess of the tax payable under the Act
The amount realised in excess of the tax leviable under the Act would not stand for this purpose on a footing different from that of the amount realised as tax even though the same could not be recovered as tax under the Act
We would therefore dismiss the two appeals with costs
One hearing fee
VPS Appeals dismissed


Summary:
According to r 91 of the Kerala General Sales tax Rules framed under
the Kerala General Sales tax Act 1963 in determining the taxable turnover of a dealer the excise duty if any paid by the dealer to the Government of Kerala or to the Central Government in respect of the goods sold by him shall be deducted
Section 223 of the Act provides that if any dealer or person collects tax on transactions not liable to tax under the Act or in excess of the tax leviable under the Act such dealer or person shall pay to the Government
in addition to the tax payable the amount so collected unless it was refunded to the person from whom it was collected
The respondent deducted the sum paid by it as excise duty from its total turnover for the purpose of determining the taxable turnover
The respondent however when it sold the goods
had collected sales tax from the purchasers on the invoice prices without deducting therefrom the excise duty paid in respect of the said goods
This resulted in the respondent realising a sum in excess of the sales tax payable in respect of the goods sold by it
The Sales tax officer held that the respondent was liable to pay that amount to the Government under section 223
The writ petition filed by the respondent was allowed by the High Court on the ground that section 223 was not covered by Entry 54 of the State List in the VII Schedule to the Constitution and hence beyond the competence of the Slate Legislature
Dismissing the appeal to this Court
 HELD 1 Entry 54 empowers the State Legislatures to make laws except in certain cases in respect of taxes on the sale or purchase of goods
As long as the law relates to taxes on the sale or purchase of goods it would be within their legislative competence
But it would not be permissible for
the State legislature to enact a law under Entry 54 for recovery by the State of an amount which could not be recovered as sales tax or purchase tax in accordance with the law on the subject and which was wrongly realised by a dealer as sales tax or purchase tax
Such a l would not be a law relating to tax of the sale or purchase of goods but would be one in respect of an amount wrongly realised by a dealer as sales tax or purchase tax
1 55A C 2 The ambit of ancillary or incidental power would not go to the extent of permitting the Legislature to provide that
though the amount collected may be wrongly be way of tax was not tax it shall still be paid over to the Government as if it were a tax
156D E 3 The fact that the amount realised is in excess of the tax leviable and not as amount which was not at all payable as tax would not make any difference
Any amount realised by a dealer in excess of the tax leviable stands for the purpose of determining the legislative competence under Entry 54 on the same footing as an amount not due as tax under the Act
Tax according to section 2xxiv of the Act means tax payable under the Act
This necessarily means that everything outside it collected by the dealer
would be an exaction not authorised by the Act
The amount which was realised by the respondent in excess of what was due as tax cannot be held to be tax because such excess amount was not tax payable under the Act
If the State Legislature cannot make a law under Entry 54 directing payment to the State of any amount collected as tax on transactions not liable to lax under the Act it would likewise be incompetent to make a law directing payment to the State of an amount realised by a dealer in excess of the tax payable under the Act
157G 158C 153 R Abdul Quader  co vs Sales Tax Officer  Hyderabad and Ashoka Marketing Ltd vs State of Bihar  Anr followed