# ASHOKA MARKETING LTD v. STATE OF BIHAR AND ANR

- **Citation:** [1970] 3 S.C.R. 455
- **Court:** Supreme Court of India
- **Decided:** 1970-01-30
- **Bench:** M. Hidayatullah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ashoka-marketing-ltd-v-state-of-bihar-and-anr-5040
- **Pages:** 12

## Headnote

J. C. SHAH,
K. S. HEGDE,
A. N. GROVER, A. N. RAY AND I. D. DUA, JI.]
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Constitution of India Sch•dule VI/, Entry 54, List LI Entries
6, 7
and
13, Lisi Ill-Scope of. Bihar Sales Tax A.ct
1959' section 20-A
(3), (4) and (5)-VaUdity of.
'
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.
1bo
ApP,ellate authority set aside the orders directing the inclusion of the
Railway freight in the turnover.
After the introduction of section 20-A
in the Bihar Sales Tax Act 19 of 1959 by Act 20 of 1962, the Assistant
Commissioner issued a notic~ to the· AppeHant un~er section 20-A (3)
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 bv the
Assistant Commissioner, and by the High Court in a writ petition under
Article 226 of the Constitution.
On appeal to this Court,
HELD : The appeal must be allowed and the petition of the assessee
must be granted.
Sub sections (3), (4) and (5) of section 20A are
ultra vires the State Legislature.
As a coro1tary the'reto, sub sections 6
and 7 must also be deemed invalid.
Sub-section (8) of s. 20A does not alter the true nature of the demand
or appropriation which can be made under sub-ss. (3), (4) and (5) of
s. 20-A.
The intention underlying sub-ss. (3), (4) and (5) is to enable
the State to collect from the dealer tax which the State is not entitled
to levy and to appropriate it to itself except in the very rare cases in which
the purchas·or may approach the State and be able to satisfy it that be
has a claim, that the claim is in order, and that it is within limitation.
Notwithstanding tl•e addition of sub-s. (8), the amount received by the
State or appropriated bv the State continues to have th~ character of a
tax collected which the State is not entitled to collect.
A provision which
enables the dealer to pass on the liability for payment of tax is incidental
to legislation for sales-tax.
But it cannot be held that a provision under
which a dealer is called ui:;on to pay to t'.1c State an amount which has
been collected by him Oil a representation-express or implied-that an
equal amount i~. pay-able by him under the Bihar Sales Tax Act is a provision incid~ntal ·to the oower to levy "tax on sale or purchase of goods"
within the meaning of Entry 64, List II, of the Seventh Schedule.
In
effect the provision is one for levying an amount as tax which the State
is incompetent to levy. .A ~ere device ~annot be P:"rm!tted to defe~t the
provi•ion• of the Constttuhon by cl~thmg the claim .m the form of a
demand for deoositing the money with the State which the dealer has
collected, but which he was not entitled to collect. (464 F, 463 E, H]
456
SUPREME COURT R'EPORTS
[ 1970) 3 S.C.R.
The power to legislate in respect of sub-ss. ( 3), ( 4) and ( 5) of s.
20A doe3 not fall under Entries 6, 7 and 13. of List III expressly, nor is
it necessarily incidental to the power contained in Entries 6, 7 and 13
of List Ill. [465 E-F]
The Orient Paper Mills Ltd, v. The State of Orissa and Ors. (1962] I
S.C.R. 549 distinguished.
R. Abdul Qade.- & Co. v.
Sales Tax Officer, Hyderabad
(1964]
6
S.C.R. 867 followed.
State of Bombay v. United Motors (India) Ltd.
[1953] S.C.R. 1069
referred to.
CIVIL AP PELLA TE JURISDICTION : Civil Appeal No. 2004 of
1966.
Appeal by special leave from the order dated
March
14,
1966 of the Patna High Court in C.W.J.C. No. 143 of 1966.
S. V. Gupte, H. K. Puri for K. K. Jain, for the appellant.
Lal Narain Sinha, Advocate-General for the State of Bihar
and U. P. Singh, for the respondents.
The Judgmemt of the Court was delivered by
Shah, J.
Ashoka Marketing Ltd.-hereinafter called
'the
assessee'-returned for the yea

## Text

455
A
ASHOKA MARKETING LTD.
v.
STATE OF BIHAR AND ANR.
January 30, 1970
B
[M. HIDAYATULLAH, C.J.,
J. C. SHAH,
K. S. HEGDE,
A. N. GROVER, A. N. RAY AND I. D. DUA, JI.]
c
D
E
F
G
H
Constitution of India Sch•dule VI/, Entry 54, List LI Entries
6, 7
and
13, Lisi Ill-Scope of. Bihar Sales Tax A.ct
1959' section 20-A
(3), (4) and (5)-VaUdity of.
'
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.
1bo
ApP,ellate authority set aside the orders directing the inclusion of the
Railway freight in the turnover.
After the introduction of section 20-A
in the Bihar Sales Tax Act 19 of 1959 by Act 20 of 1962, the Assistant
Commissioner issued a notic~ to the· AppeHant un~er section 20-A (3)
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 bv the
Assistant Commissioner, and by the High Court in a writ petition under
Article 226 of the Constitution.
On appeal to this Court,
HELD : The appeal must be allowed and the petition of the assessee
must be granted.
Sub sections (3), (4) and (5) of section 20A are
ultra vires the State Legislature.
As a coro1tary the'reto, sub sections 6
and 7 must also be deemed invalid.
Sub-section (8) of s. 20A does not alter the true nature of the demand
or appropriation which can be made under sub-ss. (3), (4) and (5) of
s. 20-A.
The intention underlying sub-ss. (3), (4) and (5) is to enable
the State to collect from the dealer tax which the State is not entitled
to levy and to appropriate it to itself except in the very rare cases in which
the purchas·or may approach the State and be able to satisfy it that be
has a claim, that the claim is in order, and that it is within limitation.
Notwithstanding tl•e addition of sub-s. (8), the amount received by the
State or appropriated bv the State continues to have th~ character of a
tax collected which the State is not entitled to collect.
A provision which
enables the dealer to pass on the liability for payment of tax is incidental
to legislation for sales-tax.
But it cannot be held that a provision under
which a dealer is called ui:;on to pay to t'.1c State an amount which has
been collected by him Oil a representation-express or implied-that an
equal amount i~. pay-able by him under the Bihar Sales Tax Act is a provision incid~ntal ·to the oower to levy "tax on sale or purchase of goods"
within the meaning of Entry 64, List II, of the Seventh Schedule.
In
effect the provision is one for levying an amount as tax which the State
is incompetent to levy. .A ~ere device ~annot be P:"rm!tted to defe~t the
provi•ion• of the Constttuhon by cl~thmg the claim .m the form of a
demand for deoositing the money with the State which the dealer has
collected, but which he was not entitled to collect. (464 F, 463 E, H]
456
SUPREME COURT R'EPORTS
[ 1970) 3 S.C.R.
The power to legislate in respect of sub-ss. ( 3), ( 4) and ( 5) of s.
20A doe3 not fall under Entries 6, 7 and 13. of List III expressly, nor is
it necessarily incidental to the power contained in Entries 6, 7 and 13
of List Ill. [465 E-F]
The Orient Paper Mills Ltd, v. The State of Orissa and Ors. (1962] I
S.C.R. 549 distinguished.
R. Abdul Qade.- & Co. v.
Sales Tax Officer, Hyderabad
(1964]
6
S.C.R. 867 followed.
State of Bombay v. United Motors (India) Ltd.
[1953] S.C.R. 1069
referred to.
CIVIL AP PELLA TE JURISDICTION : Civil Appeal No. 2004 of
1966.
Appeal by special leave from the order dated
March
14,
1966 of the Patna High Court in C.W.J.C. No. 143 of 1966.
S. V. Gupte, H. K. Puri for K. K. Jain, for the appellant.
Lal Narain Sinha, Advocate-General for the State of Bihar
and U. P. Singh, for the respondents.
The Judgmemt of the Court was delivered by
Shah, J.
Ashoka Marketing Ltd.-hereinafter called
'the
assessee'-returned for the year 1956-57 under the Bihar Sales
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Tax Act, 1947, an amount of Rs. 2,46,67,517-1-6 as its turnover
from sale of cement and other commodities. The Superintendent
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o.f Sales Tax brought to tax an additional amount of Rs. 7,67,70213-0 being the railway freight paid in respect of the goods supplied
by the assessee.
By order dated April 2, 1961
the Appellate
Authority set aside the order directing inclusion of the railway
freight in the turnover, and ordered that the assessment be revised.
In the meantime the Bihar Sales Tax Act, 194 7, was repealed
and was replaced by the Bihar Sales Tax Act, 19 of 1959. By
Act 20 of 1962 f:. 20A was introduced in the Bihar Sales Tax
Act 19 of 1959. The relevant provisions of s. 20A were :
" ( 1 ) No person who is not a registered dealer shall
collect from any person any amount, by whatever name
or description it may be called, towards or purporting
to be tax on sale of goods.
( 2) No registered dealer shall collect from any person any such amount, .except in a case in which and to
the extent to which such dealer is liable to pay tax under
this Act.
( 3) (a) Notwithstanding anything to the contrary
contained in any law or contract or any judgment,
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ASHOKA MARKl!TJNG V. BUIAR (Shah,/.)
457
decree or order of any Tribunal, Court or authority, if
the pr~scribed authority has reason to believe that llnY
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 k not liable to pay such amount, it
shall serve on such dealer a notice in the prescribed
manner req'.Jiring him on a date and at a time and place
to be specified therein either to attend in person
or
through authorised repre~entative 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 reasonable opportunity of being heard
and examining such accounts and other evidence a> ;nay
be produced by or on behalf of the dealer and making
such further enquiry &s 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.
( 4) Where any amount so collected by the dealer
and deposited by him into the Government treasury has
already been refunded fo the dealer in pursuance of
or as a result of any judgment, decree or order of any
Tribunal, Court or authoritv, but the dealer has not
refunded the amoun• to the person from whom he had
collected it, the prescribed au:hority
shall,
notwithstanding such refund to the dealer, proceed to take
action in accordance with the provisions of sub-section
( 3) for securing deposit of such amount.
( 5) Where any such amount has not been refunded
to the dealer before the commencement of this Act but
a refund has been directed by a Court, Tribunal
or
authority, the amount shall, notwithstanding such
direction, be deemed 'to be a deposit made in pursuance
of an order under sub-section ( 3).
(6)
( 7) Notwithstanding ·anything to the contrary in
any law or contract, when any amount is deposited by
a dealer in comμlianoe \\lith an order under sub-section
( 3) or sub-section ( 4) or is deemed, under sub-section
458
SUPREME COURT REPORTS
[ 1970] 3 S.C.R.
( 5), to have been so deposited, such deposit shall constitute a good and complete discharge of the liability
of the dealer in respect of such amount to the person
from whom it was collected.
( 8) The. person from whom the dealer has collected
the amount deposited in pursuance of an order under
sub-section ( 3) or suh-section ( 4) or deemed, under
sub-si:ction ( 5), to have been so deposited shall
be
entitled to apply to the prescribed authority in the prescribed manner for refund of the amount to him and the
said authority shall allow the refund if it is satisfied
that the clairrt is in order :
Provided that no such refund shall be allowed unless
the application is made before the expiry of the period
within which the applicant could have
claimed
the
amount from the dealer by a civil suit had his liability
not been di.~charged in accordance with the provisions
of sub-section (7) :
Provided further that no claim for such refund shall
be rejected without giving the applicant a reasonable
opportunity of being heard.
"
On July 31, 1963, the Assistant Commissioner of Commercial Truces, Shahabad Circle, issued a notice under s. 20A ( 3) of
the Bihar Sales Tax Act, 1959, requiring the assessee to show
cause why an amount of Rs. 23,990-11-0 being the sales-tax on
the railway freight which had become refundable under the order
of assessment be not forfeited.
The assessee in reply contended,
iltter alia, that s. 20A of the Bihar Sales Tax Act was ultra vires
the State Legislature and that in any case it had no application
to his case.
The Assistant Commissioner of Commercial Taxes
rejected the contention and passed an order directing that the
amount of Rs. 23,990-11-0 do stand forfeited to. the Government
and further directe<l that the amount be deposited in the Government treasury.
The assessee then move4 a pet1t1on before the High Court
of Patna under A1t. 226 of the Constitution for a writ quashing
the order of the ·Assistant Commissioner of Commercial Truces
and for consequential orders restraining recovery of the amount.
The High Court of Patna, relying upon the judgment of this
Court in The O.rient Paper Mills Ltd. v. The State of Orissa
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ASHOKA MARKETING v. Bll!AR (Shah./.)
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and Ors. (1') rejected the petition. With special leave, this appeal
llas been preferred.
Two questions fall to be determined in this appeal :-
( 1) Whether s. 20A of the Bihar Sales Tax Act,
1959 is within the competence of the State
Legislature; and
(2) Whether an order may be made under s. 20A
for depositing with the State Government an
amount collected by a registered dealer from his
constituent to recoup himself for payment of
sales-tax under the Bihar Sales Tax Act, 194 7
which amount, according to law then in force,
the constituent was not liable to pay.
Counsel for the assessee, relying upon the judgment in R. Abdul
Quader & Co. v. Soles Tax Officer, Hyderabad('), contended that
an Act passed by a State Legislature authorising the State Government to recover an amount collected under a sale,·by a registered
dealer from the purchaser, 'to recoup himself for payment of salestax, ·which was not liable to tax, is beyond the competence of the
State Legislature.
In Abd•,/ Quader's case(') the Court was
dealing with the interpretation of s. 11 (2) of the Hyderabad
General Sales Tax Act 14 of 1950. · By s. 11 (2) it was provided:.
"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 the 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 by him, and
in default of such payment the said amount shall be
recovered from him as if it were
arrears of land
revenue."
This Court held that s. 11 (2) of the Hyderabad General Sales
Tax Act provided for recovery of an amount collected by way of
tax, as arrears of land revenue though· the amount was ·not due
as tax under the Act. In rejecting the. contention that the proviBion fell within Entry 54 List II, the Court observed at (p. 872) :
"The provision however is attempted to be justified
on the ground that though it may not be open to a State
Legislature to make provision for the recovery of an
(I) ['!%2] I S.C.R. 549.
(2) [19641 6 S.C.R. 867.
460
SUPREME COURT 1.El'ORTS
(1970] 3 S.C.R.
amount which is not a tax under Entry 54 of List II in
a law made for that purpose, it would still be open to
the legislature to provide for
paying
over all
the
amounts collected by way of ta'!. bj
person~. even
though they really are not exigible as tax, as part of the
incidental and ancillary power to make provision for the
levy and collection of such tax.
But
where the .legislation under the relevant entry proceeds
on the basis that the amount concerned is not a tax
exigible under the law made under that entry, but even
so lays down that though it is not exigible under the
law, it shall be paid over to Government, merely because some dealers .by mistake or otherwise have collected it as tax, it is difficult to see how such provision
can be ancillary or incidental to the collection of tax
legitimately due undcl\ a law made under the relevant
taxing -entry."
An. attempt to sustain the validity of the provision as one imposing a penalty was also negatived, and the Court held that s. 11 (2)
of the Hyderabad General Sales Tax Act was not within the competence of the State Legislature.
In Abdul Quader's ,asc(') this Court hold that in exercise of
the power under Entry 54 List II, the State Legislature is incompetent to enact a law authorising the State Goveqament to call
upon a dealer to pay an amount which he has collected from the
purchaser cf goods under a sa]e, to recoup himself for payment
of tax which he i!: not liable to pay in respecc of that transaction,
for ~uch a law authori~es a levy of tax which the State Legislature
is incompetent to levy.
The learned Advocate General for the Sta~e of Bihar, however. contended that the legislation impugned in this case is in
truth not for levy or collection of an amount as tax which the
State is not competent to levy or collect, but for compelling a
registered dealer to pay over the amount collected on behalf of
the State as tax so that it may be made available to a person from
whom it was unlawfully recovered. He contends that the legislation which is not of the nature which this Court was called upon /
to interpret in Abrlul Quader's case(') falls within Entry 54
List II and that in any event it falls within Entries 6, 7 and 13 of
List Ill.
Counsel strongly relied upon the judg;nent of this Court in
The Orient Paper Mill's case('). But the principle of that case,
(I) [1964] 6 S.C.R. 867.
(2) [t962) 1 S.C.R .. 549.
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ASHOKA MARKET11'G v. BIHAR (Shah, /.)
461
in our judgment, has no bearing on the question whether the State
by statute was competent to enact s. 20A of the Bihar Sales Tax
Act in exercise of the power under Entry 54 List II of the Seventh
Schedule.
In that case a registered dealer had collected, in respect of sales-tax, from the purchasers amounts for recoupment of
tax which he would have to pay to the State Government under
the Orissa Sales Tax Act, 194 7, in the belief that the tax was
payable. The dealer was assessed to and paid tax on the turnover which included inter-State sales.
After the decision of this
Court ','l State of Bombay v. United Motors (India) Ltd.(') the
dealer applied under s. 14 of the Act for refund of tax paid on the
plea that the turnover from inter-State sales was not taxable. The
High Court of Orissa issued writs directing the amount of tax
collec:ted by the State to be refunded. Thereafter by an amendment of the Act, the State Legislature incorporated s. 14A prnviding that refund of tax may be claimed only by the person from
whom the dealer had realhed the amount by way of sales tax or
otherwise.
At the hearing of the petition, the tax-payer challenged the levy on the ground that it infringed his fundamental right
under Art. 19 ( 1 )( f) and did not press the contention that the
State Legislature was incompetent to enact s. 14A of the Orissa
Sales Tax Act.
This Court observed that the power to legislate
with respect to a tax comprehends the power to impose the tax.
to prescribe machinery for collecting the tax, to designate the
officers by whom the liability may be enforced and to prescribe the
authority, obligution an'.i indemnity of those officers. It was then
observed:
"The Legislature of the Orissa State was therefore
competent to exercise power in respect of the subsidiary
or ancillary matter of granting refund of tax improperly
or illegallv collected. and the competence of the Legislature in \his behalf is not canvassed by counsel for the
assessees. If comoetence to legislate for granting refund
of sales-tax imoro'lerlv collected be granted, is there any
reason to exclude the· power to declare that refund shall
be claimable only bv the person from whom the dealer
has actually realised the amounts by way of sales-tax or
otherwise? We see none."
The Court then rejected the contention that s. 14A was invalid.
because it imoaired the fundamental right under Art. 19 ( 1) ( f) of
the Ccnstitution. That· case does not suoJJ<>rt the plea that the
State L~gislature is comoetent. to legislate for demanding Payment of or retaining amounts recovered by a rey:istered dealer
but which are not due as sales-tax to the State.
(!) [1953J S.C.R. 106°.
462
SUPREME COURT REPORTS
[1970] 3 s.c.R.
The learned Advocate-General contended that in any event
the impugned provision is not of the nature which this Court was
concerned to inb~rpret in Abdul Quader's case('). He said, that
whereas in Abdul Quader's case(')
the Court dealing ·with
a case in which the State Legislature enacted a law authorising the
State to recover and appropriate to itself amounts collected by a
dealer on the representation that he-the dealer-was entitled
to recoup himself for payment of sales-tax which he
was
not
liable to pay, in the present case the amount either collected or
retained by the State from the dealer is to be held for the benefit
of the person from whom it has been improperly collected. On
that account, the Advocate-General contended, the Legislature
exercised its power for setting up machinery for compelling refund
of amounts collected by the dealer under the authority of the
Legislature which he could not in law collect.
Counsel argued
that Entry 54 List II authorises the State Legislature to legislate
for collection of an amount which has been improperly collected
by a registered dealer as tax on behalf of the State and for refunding the amount to the pers® from whom it has been improperly
collected.
This argume:nt proceeds upon two assumptions : ( 1)
that
under the Bihar Sales Tax Act the purchaser of goods is liable to
pay sales-tax to the State, and the registered dealer collects 1he
tax from the purchaser as an agent of the State; and ( 2) that the
amount recovered from the registered dealer under s.
20A is
intended only to be refunded to the person from whom it has
been collected by the registered dealer, and the State is merely
an agency for enforcing the obligation of the dealer.
The first assumption is plainly contrary to the scheme of the
Bihar Sales Tax Act, 1959. Bys. 3 charge of tax lies upon every
dealer whose gross turnover during a period not exceeding twelve
months immediately preceding exceeds the specified amount. The
expression "gros!; turnover" is defined in s. 2(k) as meaning "the
aggregate of the: amounts of sale-prices received and receivable
by a dealer, during any given period, in respect of sale of goods
(.
.
. ) ", and the expression "sale-price" is defined in
s. 2(q) as meaning "the amount payable to a dealer as valuable
consideration in respect of the sale of goods". By sub-s. (2) of
s. 3 ·tax is made payable by a dealer on sales made inside the
State, and when the dealer sells goods, the price received by him
for sale of goods forms a component of the gross turnover and the
dealer is liable to pay tax on the turnover.
The Act does not
impose liability to pay tax upon the purchaser either directly or
indirectly .. Under s. 7, it is true, the taxable.turnover of a dealer
is determined to be that part of the gross turnover which remains
(I) ]1964] 6 S.C.R 867.
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ASHOKA MARKETING v. BIHAR (Shah, /,)
463
after deducting several items including the amount of sales-tax
actuaJ!y "collected as such", along with the sale-price received or
receivable in respect of sale of goods. It is implicit that the dealer
may recover from the purchaser in addition to the value of the
goods a certain amount which he will have to pay as tax on that
value.
The price payable by the purchaser on that account is
the value of the goods and the amount paid for recouping the
dealer for payment of tax.
The Act enables the dealer to pass
on the liability of sales-tax to the purchaser and if by invoice or
otherwise the dealer charges in respect of the goods sold by him
the value of the goods and the tax which he may have to pay on
the value, sales-tax will be computed on the value of the goods
and not on the .total amount paid by the purchaser. 'the amount
payable by the purchaser is however the consideration paid by
him for purchasing the goods.
The dealer may apportion the
value of the goods and the sales-tax payable by him on the sale
to the State. 1f he does so, he is liable to pay sales-tax onl,y on
the value and not on the amount of tax collected by him which
he is payaple as sales-ta;x to the State. If he does not apportion
the value and the tax, , he is liable to pay sales-tax on the total
amount received by him, calcnlated at the appropriate rate.
In
either case the liability to pay tax under the Act lies upon the
dealer : he does not collect any tax for and on behalf of the Government.
The dealer may recover from the purchaser the tax
payable by him as part of the price, but on that account the purchaser is not the person liable to pay tax on the sale to the.State.
A provision which enables the dealer to pass on the liability
for payment of tax is incidental to legislation for sales-tax. Hut
we are unable to hold that a provision under which a dealer is
called upon to pay to·,the State an amount which has been collected by him on a representation-express or implied-that an
equal· amount is payable by him under the Bihar Sales Tax Act, is
a provision incidental to the power to levy "tax on sale or purchase of goods" within the meaning of Entry '54 List II of the
Seventh Schedule.
Entry 54 List II, of the Seventh Schedule,
comprehends the power to impose tax, to prescribe machinery for
collecting the tax, to designate officers by whom the liability may
be imposed and to prescribe the authority, obligation and indemnity of the officers.
The State Legislature may under Entry 54
List II be competent to enact a law in respect of matters necessarily incidental to "tax on, the Sale and purchase ' of goods".
But a provision compelling a dealer who has deliberately or
erroneously recovered an amount from the purchaser on a representation that he is entitled to recover it to recoup himself for payment of tax, to pay over that amount to the State cannot, in our
judgment, be rel!llrded as necessarily incidental to Entry 54 List
II. In effect the provision is one for levying an amount as tax
464
SL'PREME COURT REPORTS
(1970) 3 S.C.R.
which the State is incompetent to levy. A mere device cannot be
permitted to defeat the provisions of the Constitution by clothing
. the claim in the form of a demand for depositing the money with
the State which the dealer has collected, but which he was not
entitled to collect.
The learned Advocate General contended that sub-s. ( 8) of
s. 20A authorises the person from whom the dealer has collected
the amount deposited· in pursuance of an order under sub-ss, (3),
( 4) , or deemed to have been so deposited under sub-s, ( 5 ) , to
apply to the prescribed authority for refund of the amount to him
and the authority is obliged, if satisfied about the claim, to make
that refund. The power to demand an amount collected by the
dealer applies to transactions governed by the Bihar Sales Tax
Act, 1959, as well as to the pre-existing Acts. There is no period
of limitation prcsc:ribed within wl>ich the demand for payment of
amounts collected by !he dealer may be made.
But an application for refund is to be made before the expiry of the period within
which the purchaser could have claimed the amount from the
dealer by a civil suit.
In the light of the scheme of the Act and
the various provi!;ions made, it would be futile to expect that a
purchaser would normally be able to enforce the liability of the
State to pay the amount collected by the dealer and which is
deposited or deemed to be deposited with the Government. The
period of limitation does not commence to run from the date on
which the money is deposited or deemed to be deposited into the
Government treasury but from the date on which the purchaser
may be entitled to file a suit against tl1e dealer in a civil court.
The State is in law under no obligation to hold the amount as
trustee for the purchaser. The amount to be recovered or approwiated remains part of the Consolidated Fund of the State and
becomes the property of the State.
Sub-section (8) of s. 20A. in our judgment, does not alter
the true nature of the demand or appropriation which can be made
under sub-ss. ( 3), ( 4) & ( 5) of s. 20A.
The intention underlying sub-ss. (3), 1 (4) & (5) is to enable the State to collect from
the dealer tax which the State is not entitled to levy and lo appropriate it to itself except in the very rare cases in which. the purchaser may approach the State and be able to satisfy that be has
a claim that the c:laim is in order. and that it is within limitation.
Notwithstanding the addition of sub-s. ( 8), in our judgment, the
amount received by the State or appropriated by the State con-
' ,tinues to have the character of a tax collected which the State is
not entitled to wllect.
The learned Advocate-General contended that assuming !hat
the first proviso of sub-s. ( 8) of s. 20A which prescribes the period
of limitation is indicative of the nature of the claim, that proviso
A
8
c
D
E
F
G
H
A
8
c
D
E
F
G
ASHOKA MARKETING v. BIHAR (Shah, /.)
465
alone may be declared ultra vires, and the remaining provisions
declared valid. But the first proviso to sub-s. ( 8) does not invest
the recovery with the character of tax : the provisions of sub-ss.
( 3), ( 4) and ( 5) iittvesr the recovery with the nature of a levy of
tax which the State is not entitled to collect, and sub-s. ( 8) is
me•ely an attempt to disguise the true nature of the claim. We are,
therefore, unable to accede to the contention of the learned
Advocate-General.
It was then contended !hat the power to legislate in respect
of recovery of the amount collected by a dealer which in law he
is not entitled to collect, falls within Entries 6, 7 and 13 of List III.
These entries are in the Concurrent List and provide :
"6. Transfer of property oilier than
agricultural
land; registration of deeds and documents.
7. Contracts, including partnership, agency, contracts of carriage, and other special forms of ~ontracts,
but not including contracts relating to agricultural land.
13. Civil Procedure, including all matters included
in the Code of Ci vii Procedure at the commencement of
this Constitution, limitation and arbitration."
We fail to. appreciate how power to legislate in respect of Entries 6,
7 and 13 would authorise the State Legislature to legislate in respect
of recovery from the dealer o! an amount which the dealer was in
law not entitled to collect, but which he has collected. The power
to legislate in respect of sub-ss. ( 3), ( 4) and ( 5) of s. 20A does
not fall under Entries 6, 7 and 13 of List III expressly, nor can it
be said that the power to legislate is necessarily incidental to the
power cqntained in Entries 6, 7 and 13 List Ill. As already pointed,
out, this Court in the judgment in Abdul Quade r's ca5e ( 1 ) has
clearly held that the State has no power to legislate for recovering
amount which is collected by-the tax-payer in order to recoup himself for payment of tax which under the law he is not bound to
pay. Even though the competence of the State to legislate was
not sought to be supported under Entries 6, 7 and 13 of List III, the
decision of the Court plainly implies that the State has no such
power under any Entry in the third List.
On the view we have expressed, we do not deem it necessary
to express any opinion on the second ques\ion. We may observe
that valid~ty of sub-ss. (1 ) and ( 2) of s. 20A has not been challenged.
H
We are, of the view that the appeal must be allowed, and the
petition of ·the assessee must be granted. · It is declared that sub-
(t) [1964] 6 S.C.R. 867.
466
SUPREME COURT REPORTS
(1970] 3 S.C.lt.
ss. ( 3), ( 4) and ( 5) of s. 20A are ultra vires the State Legislature.
As a ·corcifiary thereto sub-ss. ( 6) and ( 8) shall be ~ed invalid .
. The assessce will. be entitled to its costs fo. this Court and th•
High Court. There will be one hearing fee in C.As. 2004 and 2005
of 1966.
R.K.P.S.
Appeal allowed.
A
B