Case: Sales Tax Officer, Special Circle, Ernakulam &amp; Anr Vs. Tata Oil Mills Co. Ltd

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 othersection 5 of the Act, tax is payable by a dealer on his tax able turnover. "Taxable turnover` is defined in section 2(xxv) 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 cou rse 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. Th e respondents accounts disclosed that it had collected from the persons to whom it sold goods a sum of Rs. 30, 591.71 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. 6, 62, 958 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 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. 30, 591.71 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. 30, 591.71 to the Government under section 22(3) of the Act. The respondent then filed writ petition in the Kerala High Court to challenge its liability to pay t he 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(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.

Reasoning: After hearing the learned counsel, we are of the opinion that there is no merit in these twoState 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 thisanswer to such a question has to be in the negative. The matter indeed is not res integra and is concluded by two decisions of thisfact, 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. Muhammads argument involves inventing a category of a "deemed tax" which is not there in the Act. T he 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 2(xxiv) 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 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, eve n though the same could not be recovered as tax under the Act.