# R. S. JOSHI, S.T.O. GUJARAT ETC. ETC v. AJIT MILLS LTD., AHMEDABAD & ANR. ETC. ETC

- **Citation:** [1978] 1 S.C.R. 338
- **Court:** Supreme Court of India
- **Decided:** 1977-08-31
- **Case number:** Civil Appeal Nos. 533 and 1004 .of 1975
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/r-s-joshi-s-t-o-gujarat-etc-etc-v-ajit-mills-ltd-ahmedabad-anr-etc-etc-7281
- **Pages:** 37

## Headnote

338
A
R. S. JOSHI, S.T.O. GUJARAT ETC. ETC.
v.
AJIT MILLS LTD., AHMEDABAD & ANR. ETC. ETC.
August 31, 1977
[M. H. BEG, C.J., Y. V. CHANDRACHUD, P. N. BHAGWATI, V. R.
B
KRISHNA IYER, N. L. UNTWALIA, S. MURTAZA FAZAL ALI AND
c
D
E
F
G
H
P. S. KAILASAM, JJ.]
Bombay Sales Tax Act, 1959-Ss. 37, 46, 63 validity of-Act prohibitecl
collection of any sum not payable by way of sales tax or in excess of tax
payable-Amounts so collected forfeited-Forfeiture, .If withili, the legislative
competence of the State Le!(islature.
Constitution of India, 1950-Entries 54 and 64-List II-Constitutional validiJy of an enactment-Rests for determination of-Forfeiture, if a penalty.
Words and phrases-"Colourable"; "forfeiture"; "collected"; "shall be forjeited"-Meaning of.
Section 46(1) of the Bombay Sales Tax Act, 1959 (as applicable to the
State of Gujarat) enacts that no person shall collect any sum by way of tax
in respect of sale of any goods on which by virtue of s. 5 no tax is payable~
Sub-section (2) provides that no person, who is not a registered dealer and
liable to pay tax in respect of any sale or purchase, shall collect on the sale
of any goods any sum by way of 1<l!X from any other person and no registered dealer shall collect any amount by way of tax in excess of the amount
of tax payable by him under the provisions of the Act.
Section 63(1) (h) provides that whoever contravenes any of the provisions
of s. 46 shall, on conviction be punished with sin1ple imprisonment or with
fine or with both.
Section 3 7 ( 1) which deaJs with imposition of penalty departmentally for contravention of s. 46 provides in cl. (a) that if iuy person,
not being a dealer ljable to pay tax under the Act collects any sum by
way of tax in excess of the tax payable by him or otherwise collects tax
in contravention of the provisions of s. 46 he shall be liable to pay, in addition to any t<l!X for which he may be liable, a penalty as prescribed in cl. (i).
Clause (i) states that where there has been a contravention referred to in
c1. (a) a penalty of an amount not exceeding two thousand rupees .... and in
addition any sum collected by the person by way of tax in contravention of
s. 46 shall be forfeited to the Stele Governn1ent.
The respondents, who were registered dealers of sales tax, collected from
various customers amounts qua sales tax prohibited by s. 46 of the Act. Acting
on the prohibition plus penalty contained in s. 46 read with s. 37(1) of theAct the Sales Tax officers imposed penalties and forfeited the sums coJlected
in contravention of s. 46 (less amounts refunded).
The High Court struck down the last limb of the forfeiture prov1s1on
contained ins. 37(1)(ai) as being unconstitutiofllal on the ground that it was
not competent for the State Legislature to forfeit to the public exchequer
punitively, under entry 54 read with entry 64 of List II, sums collected by
dealers by wa\' of sales tax which was not exigible under the Act. (The High
Court of Bombay took an opposite view .while other High Courts ranged
themselves on one side or the other of the ·controversy).
Allowing the appeals
HELD : Per Beg CJ., Chandrachud, Bhagwati, Krishna Iyer, Untwalia.
Murt.aza Fazal Ali, J.T.
' The punitive impost in s. 37(1) (a) is legitimate and valid. [349 DJ
\
R. s. JOSHI v. AJIT MILLS (Krishna Iyer, J.'j.
339 /
The High Court was wrong in denouncing the impugned legislation as A-··
~
exceeding legislative competence or as a coloura-ble device or a5 supp1ementary,
not complementary. [348 Fl
·'
j
J
--~
l. (a) The true key to constitutional construction is to view the equity of
the statute and sense the social mission of the law, language permitting, against
the triune facets of justice highlighted in the Preamble to the Paramount Parchment, read with a spacious signification of the listed entries concerned.
A
law has to be adjudged for its constitutionality by the generality of cases it
covers, not by the freaks and exceptions it martyrs. [348 HJ
B
(b) The professed objec

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338
A
R. S. JOSHI, S.T.O. GUJARAT ETC. ETC.
v.
AJIT MILLS LTD., AHMEDABAD & ANR. ETC. ETC.
August 31, 1977
[M. H. BEG, C.J., Y. V. CHANDRACHUD, P. N. BHAGWATI, V. R.
B
KRISHNA IYER, N. L. UNTWALIA, S. MURTAZA FAZAL ALI AND
c
D
E
F
G
H
P. S. KAILASAM, JJ.]
Bombay Sales Tax Act, 1959-Ss. 37, 46, 63 validity of-Act prohibitecl
collection of any sum not payable by way of sales tax or in excess of tax
payable-Amounts so collected forfeited-Forfeiture, .If withili, the legislative
competence of the State Le!(islature.
Constitution of India, 1950-Entries 54 and 64-List II-Constitutional validiJy of an enactment-Rests for determination of-Forfeiture, if a penalty.
Words and phrases-"Colourable"; "forfeiture"; "collected"; "shall be forjeited"-Meaning of.
Section 46(1) of the Bombay Sales Tax Act, 1959 (as applicable to the
State of Gujarat) enacts that no person shall collect any sum by way of tax
in respect of sale of any goods on which by virtue of s. 5 no tax is payable~
Sub-section (2) provides that no person, who is not a registered dealer and
liable to pay tax in respect of any sale or purchase, shall collect on the sale
of any goods any sum by way of 1<l!X from any other person and no registered dealer shall collect any amount by way of tax in excess of the amount
of tax payable by him under the provisions of the Act.
Section 63(1) (h) provides that whoever contravenes any of the provisions
of s. 46 shall, on conviction be punished with sin1ple imprisonment or with
fine or with both.
Section 3 7 ( 1) which deaJs with imposition of penalty departmentally for contravention of s. 46 provides in cl. (a) that if iuy person,
not being a dealer ljable to pay tax under the Act collects any sum by
way of tax in excess of the tax payable by him or otherwise collects tax
in contravention of the provisions of s. 46 he shall be liable to pay, in addition to any t<l!X for which he may be liable, a penalty as prescribed in cl. (i).
Clause (i) states that where there has been a contravention referred to in
c1. (a) a penalty of an amount not exceeding two thousand rupees .... and in
addition any sum collected by the person by way of tax in contravention of
s. 46 shall be forfeited to the Stele Governn1ent.
The respondents, who were registered dealers of sales tax, collected from
various customers amounts qua sales tax prohibited by s. 46 of the Act. Acting
on the prohibition plus penalty contained in s. 46 read with s. 37(1) of theAct the Sales Tax officers imposed penalties and forfeited the sums coJlected
in contravention of s. 46 (less amounts refunded).
The High Court struck down the last limb of the forfeiture prov1s1on
contained ins. 37(1)(ai) as being unconstitutiofllal on the ground that it was
not competent for the State Legislature to forfeit to the public exchequer
punitively, under entry 54 read with entry 64 of List II, sums collected by
dealers by wa\' of sales tax which was not exigible under the Act. (The High
Court of Bombay took an opposite view .while other High Courts ranged
themselves on one side or the other of the ·controversy).
Allowing the appeals
HELD : Per Beg CJ., Chandrachud, Bhagwati, Krishna Iyer, Untwalia.
Murt.aza Fazal Ali, J.T.
' The punitive impost in s. 37(1) (a) is legitimate and valid. [349 DJ
\
R. s. JOSHI v. AJIT MILLS (Krishna Iyer, J.'j.
339 /
The High Court was wrong in denouncing the impugned legislation as A-··
~
exceeding legislative competence or as a coloura-ble device or a5 supp1ementary,
not complementary. [348 Fl
·'
j
J
--~
l. (a) The true key to constitutional construction is to view the equity of
the statute and sense the social mission of the law, language permitting, against
the triune facets of justice highlighted in the Preamble to the Paramount Parchment, read with a spacious signification of the listed entries concerned.
A
law has to be adjudged for its constitutionality by the generality of cases it
covers, not by the freaks and exceptions it martyrs. [348 HJ
B
(b) The professed object of the law .being clear, the motive of the legislature is irrelevant to- castigate an Act as a colourable device. The interdict
on public mischief. and the insurance of consumer interests against likely,
albeit, unwitting or ex abundanti ca11tela excesses in the working of a statute
are not merely an am:illary power put a necessary obligation of a social
welfare state. One potent prohibitory process for this consummation is to penalise the trader by casting a no-fault or absolute' liability to 'cough up' to the
state the total unjust takings snapped up and retaine4 by him by way of tax,
where tax is not so due from him. [348 D-EJ
( c) Jn a developing country, with the maGS of the people illiterate and
below the poverty line, and most of the commodities concerned coristitute their
daily requirements, there is sufficient nexus between lhe power to tax and the
incidental power to protect purchasers from being subjected to an unlawful
buu:len.
Social justice clauses integrally connected with the taxing pro9TS'ions,
cannot be viewed as a mere device or wanting in incidentality.
[355 HJ
c
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(d) The legal test tha-t divides the constitutional from the unconstitutional
is that if all that the legislation means to do is to take over, whatever the
verbal veils worn, the collections which were ex-hypothesi not sales tax but
were illegal additives as if sales tax were due, then such an exproprjation
of the expropriators is beyond entry 54 and, therefore, ultra vires.
On the
other hand, all real punitive measures, including the dissuasive penalty of confiscating the excess collections, are valid, being within the range of ancillary
powers of the legislature competent to exact a sales tax levy.
[349 B-C]
·
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2. (a) "Colonra.ble" is not 'tainted with bad faith or evil motive"; it is
not pejorative or crooked.
Conteptually 'colourability' is bound up with
incompetency 'Colour' according to Black's Legal Dictionary, is 'an appearance,
semblance or simulacrum, as distinguished from that which s real, .. . .. . a
deceptive appearance. . . . . . a lack of reality'. A thing
is colourable which
is, in appearance only not in reality, what it purports to be. In Indian terms,
it is maya.
In the jurisprudence of power, colourable exercise of or fraud on
legislative power or fraud on the Constitution are expressions which merely
F
mean that the legislature is incompetent to enact a particular law. although
the label of competency is stuck or it, and then it is colourable legislation.
(349 Fl
(b) If the legislature is competent to pass the particular law, the motives
which impel it to pass the law are really irrelevao!lt. If a legislation, apparently
enacted under one Entry in the List, falls in plain truth and fact, within the
content, not of that Entry but of one assigned to another· legislature it can be
G
struck down as colourable even if the motive were most commendable.
[349 Hl
(c) If the questions : what is the pith and substance of the Act; does it fall
within any entry assigned to that legislature in pith and substance,· or as
covered by the ancillary power implie.d in that Entry, can the legislation be
read down reasonably to bring it within the legislature's constitutional powers ?
can be answered affirmatively, the law is valid.
Malice or motive is beside
the point and. it i9 not permissible to suggest parliamentary incompetence on
H
the score of ma/a fides.
[356 A]
3. Having regard to the object of s. 37 read with s. 46; forfeiture has a
punitive impact. [350 F]
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340
SUPREME COURT REPORTS
(1978] 1 S.C.R.
.(a~ If forfeiture
~s punitive in infliction, it falls within. implied powers.
If 1t is an act of mere transference of mom:y from the dealer to the State,
then it falls outside the legislative entry. (350 E]
. (b) Black's Legal Dictionary states that 'to forfeit' is 'to lose, or lose the
ngJ:tt tp, by some 'error: ff ult, offence or crime', 'to incur a · penalty'. 'Forfeiture',
as JUd1c1ally annotated 1s a punishment annexed by law to some illegal act or
negligence . ... ', 'something imposed as a punishment for an offence or delinquency.' The word, in this sense, is frequently associated with the word
'penalty'. [350 G]
·
State of Maryland v. The Baltimore & Ohlo RR Co.-( 11 Led. 7 J 4, 722)
and Bankara Municipality v. Lalji Raja & Sons : (AIR 1953 SC 248, 250)
y ·
referred to.
(c) The word 'forfeiture' must bear the sa•me meaning of a penalty for
breach of a prohibitory direction.
[351E-F]
(d) In the instant case the fact that there was arithmetical identity between
the figures of the illegal collections made bv the dealers and the amounts
forfeited to the State cannot create a conceptua-1 confusion that what is provided is not punishment but a transference of funds. If this view be correctit must be held that it is so-the legislature, by inflicting the forfeiture, does
not go outside the crease when it hits out against the dealer and deprives him,
by the penalty of the law, of the .amount illegally gathered from the custome~.
The Criminal Procedure Gode, Customs & Excise Laiws and several other penal
statutes in India have used diction which accepts forfeiture as a kind of
penally. [351 F-G]
(e) The contention thats. 37(1) fastens a heavy liability regardless of fault
has no force in depriving the forfeiture of r.he character of penalty.
The
notion thaot a penaltr. or a punishment cannot he cast in the form of an absolute or no-fault liability but must be preceded by me11S rea should be rejected.
The classical view that 'no mens rea, no crime' has long ago been eroded and
several laws in India and abroad, especially regarding economic crimes and
depa.rtmental penalties, have created severe punishments even where the offences
have been defined to exclude mem rea.
[352 A]
4. (a) The decision id Abdul Quader demarcates the constitutional watershed between merely laying hands upon collect.ions by way of tax by traders
although they are not exigible from traders and the policing by penalizing,
including forfeiting illegal exadions of the working of a taxing statute and
inhibiting injury to the public. The ratio in Abdul Quader lies in the sen1ence :
"it does · not provide for a penalty (for) collecting the amount wrongly by
way of tax from purchasers which may have been justified as a penalty for
the purpose of carrying out the objects of th(: taxing legislation."
lit other
words, had there been a pena•lty, including forfeiture, coupled with a prohibition against collectin.g an'y amount wrongly by way of ta:< from purchasers,
it 'may have been justified as a penalty for tb.e purpose of carrying out the
objects of the taxing legislation.' r354 D-E, A]
(b) Although in Oriem Paper Mills this Court held that if competence to ,
legisl:rte for granting refund of sales-tax improperly collected be granted: there
is no reason to exclude the power to declare that refund shall be clmmable
only by the person1 from whom the dealer has actually realised the amounts
by way of sales tax or otherwise, in As/10ka Marketinf!. it was hel_~ tha~ the
ta·king over of sums collected by dealers from the pubhc under gmsc 3t tax
solely \Vith a view to return them to the buyers s:o deprived wa~ not 'necessarily
incidental' to 'tax on the sale and purchase of goods'. [355 F-G]
Abdul Quader [1964} 6 S.C.R. 867, approved.
Aslzoka Marketing [19701 3 S.C.R. 455, not approved:
Orient Paper Mills [1962] 1 S.C.R. 549, referred to.
Forfeiture ins. ·37(1) is competent legislation. [357 F]
...
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R. s. JOSHI v. AJIT MILLS (Krishna Iyer, J.)
34 I
5. (a) The word "forfeit" in the inartistically worded section
is
plainly
A
punitive, not nakedly confiscatory.
The marginal note to s. 37(1) treats the
forfeit also as a penalty.
When it says that the wrongful collections shall be
forlfeited it means what it says.
Forfeiture being penal, it must bear th-: san1e
sen~e here too. [357 Dl
(b) The spirit of the provision contained in'1 s. 37(1) lends force to the
cons;:ruction that ';collected" occurring in the expression "any sum collected
by the person shall be forfeited" means 'collected and• kept as his' by the.
trader.
If the dealer merely gathered the sum by way of tax and kept it in
B·
suspense nccount becaust: of dispute about taxability or was ready to return
it if eventually it was not taxable, it wa'3 not collected.
The word 'collected'
does not cover amounts gathered tentatively to be given back if found non·
ex;gible fron1 the dealer. [358 EJ
(c) The meaning of the expression "shall be f6rfeited" should be lin1ited
to ''shall be Jiabie to be forfeited".
Section 37 itself contains a clear clue
indicative of the sense in which 'shall be forfeited' has been used.
Sectionr
37(2) directs the Commi<;sioner to issue notice to the a-ssessee to show cause
C
why a penalty, with or \vi th out forfeiture, should not be imposed on him.
Such a notice, with specific reference to forfeiture, points to an option in the
Commissioner to forfeit or not to forfeit or partly to forfeit.
This is made
pl2iner in s. 37(3) which reads : "The Commissioner shall, thereupon. hold
an enquiry and shall make such order as he thinks fit".
This order embraces
penalty and forfeiture.
Therefore the Commissioner is vested with a discretion to forfeit the whole or any lesser sum or none at all. [359 B-C]
Auorn!'Y G"eneral v. Parsons [1956] A.C. 421, referred to.
D,
(d) The forf¢iture should operate only to the extent and not in excess
of, the total collections less what has been returned to the purchasers.
More·
over, it is fair and reasonable for the Commissioner to consider aiiy urlcler·
taking given by the dealer that he will return the amounts collected from
purchasers to them.
[359 E]
(e) Section 37(4) properly read forbids pena·lty plus prosecution but per~
mits forfeiture plus prosecutiotl.
The word "penalty" in its limited sense in
E
s. 37 ( 1) and s. 37 ( 4) does not inc1ude fotfeiture which is a different punitive.
icategory.
Forfeiture is a penalty, in its generic sense, but not. a penalty in
the specific signification in s. 37 (l} and ( 4). [360 A]
Kailas{lfll, J. (concurring)
Section 37(1) is within the legislative competence of the State .Legislature.
[373 DJ
1. (a) The principle in construing words conferring JegislativeJ power is that
F
the n105t liberal const1uction should be put on the words so that they may
hatve effect in their widest amplitude.
None of the items in the List is to
be read in. a narrow, restricted sense.
Each general word should
b~ held.
to extend to all ancillary. or subsidiary matters which can fairly a-nd reasona{bJy be
~aid to be comprehended in it.
All powerS necessary for the levy
and collection of the tax concerned and for seeing that the tax is not evaded
are comprised within the legislative ambit of the entry as ancillary or inci~
dentaJ.
It is also permissible to levy penalties for attempted evasion of taxes
G
or default in the payment of taxes properly levied.
[362 E~F]
t b) The plea of a device or colourable legislation would be irrelevant if
the legislature is competent to enact a pa·rticular law.
In other words, if the
legislature is competent to p~ss a particular law· the motive \Vhich impe1led
it to ~ct is not relevant. [371 EJ
(c) If what is levied is a. penalty for the proper enforcen1tn,t of the
taxing legislation it will be valid; if on the other hand, it is a device to collect
the amount unauthorisedly collected,. it will be invalid. [371 EJ
2. (a) In Abdul Quadar's case this Court held that in regard to sums collected by a dealer by way of tax, which are not in fact exigible as tax, the
H
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342
SUPREME COURT REPORTS
[ 1978] 1 s.c.R.
State legislature cannot direct them to be paid over to the Government bee:ause
the ambit of ancillary or incidental power does not permit the State Legislature
to provide that the amount which is not exigible as tax under the l<:.•\V shall
be paid over to the Government as if it were a tax. [370 E-FJ
(b) In Orient Paper Mills' case this Court held that the Legislature was
competent to grant refund of a tax unauthorisedly collected and paid to the
Government, to ai person from whom the dealer had realised the amouiit
This view had been approved by this Court both in Abdul Quadar's case :is
well as in Ashoka Marketing case.
In Ashoka Marketing
case,
however,
this
Court held
that
Orient
Paper
Mills'
Case
does
not
sup~
port the plea that the State Legislature is competent to legislate for demanding
payment to the State or retaining by the State of the amount recovered by
a registered dealer, which were not due as sales tax.
These cases, as also
the decision of this Court in Kanti Lal Babu/al, clearly laid down that it is
competent for the State Legislature to provide for a penalty for collecting any
~mount wrongly1 by way of tax, if it is levied, for the purpose of carrying
out the objects of taxing legislation. (370 F-(J]
R. Abu/ Quader and Co. v. Sales Tax Officer, Hyderabad. [1964] 6 S.C.R.
867, followed.
Orient Pap.er Mills Ltd. v. The State of Orissa & Ors. [1962] I S.C.R. 549,
Ashoka Marketing I,td. v. State of Bihar & anr. [1970] 3 S.C.R. 455, and
Kami Lal Babulal v. H. C. Patel [1968] I S.C.R. 735, referred to.
3. The assessee's contention that forfeiture is not a penalty cannot be
accepted. [372 CJ
(a) Forfeiture is one form of penalty.
Forfeiture of property is one of
the punishments provided for in the Indian Penal Code.
For contravention
of the sales tax law the section provides two forms of punishment : levy of,
penalty and forfeiture. Therefore, the use of the word "forfeiture" as distinct
from penalty will not make forfeiture any the less a penalty. [372 CJ
(b) A combined reading of s. 37 and s. 55 (which deals with appeals)
makes it clear that it is not obligatory on the part of Commissioner to direct
that the entire amount collected by way of tax in contra.vention of the provisions of the Act be forfeited.
Nor again, is it obligatory on the authorities
to levy a penalty which is identically the same as· the amount unaufhorisedly
collected.
The amount to be forfeited will have to be determined taking into
account a.11 the relevant circumstances.
Therefore, the contention that the forfeiture is only a device for recovering t·he unauthorised collection has no
force. [372 F-G]
y
'
( c) The plea that penalty should be confined only to \Vilful acts of omission
and commission in contravention of the provisions of an enactment cannot be
accepted because penal consequences can be. visited on acts which are committed with or without a guilty mind.
For the proper enforcement of various
/-
provisions of law it is common knowledge that absolute liabilty is irnposed
and acts without 1nens rea are made punishable. [372 Hl
(d) Further, Courts cannot declare that an Act is beyond the legislative
competence of the State Legislature on the ground tha.t, while under the Act
the amounts erroneously or innocently collected by the assessees were forfeited,
an obligation remained with the assessees to refund the amounts to the persons from whom they were collected. The mere fact that in some cases dealers
were prejudiced would not affect the validity of the legislation. [373 B·C]
,
(e) Section 46(2) is not unconstiutional.
For the enforcement of sales
tax la·w such a provision is absolutely necessary, for, without such prohibition
unauthorised collection of tax can never be checked.
Sales tax law V.'ill have
to demarcate articles on which tax can be collected and prohibit collection
of tax in any manner not authorised by law. [373 E-FJ
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R. s. JOSHI v. AJIT MILLS (Krishna Tyer, J.)
343
4. The plea• as to contravention of art. 14 has no force.
No arbitrary
A
or uncanalised power has been given to the authorities.
While the proceedings
are in the nature of penalty and forfeiture under s. 37, it is punishment by
-criminal prosecution under s. 63(1) (h).
Section 37 n1akes it clear that when
proceedings are taken under that section, no prosecution c~n be instituted under
s. 63(1)(H) on the same facts. [374 A]
5. The plea based on infringement of art. 19(l)(f) must also fail. [374 Cl
The plea \vhich was available in Kantilal Babulal's case, namely, that the
B
forfeiture was enforced without pr:ior enquiry and for that reason the section
was invalid, is not a·vailable in this case because s. 37(3) prescribes the pro·
cedure which makes it obligatory on the part of the Commissioner to give
notice of show cause against levy of penalty or forfeiture.
Further, under
this Act. there are provisions for appeal and revision against the Commissioner's
orders. [374 BJ
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 533 and 1004
.of 1975.
From the Judgment and Order dated 16-8-73 of the Gujarat High
Court in S.C.A. Nos. 421 and 508 of 1971 and
CIVIL APPEALS NOS. 1410 and 1671-1685/75
From the Judgment and Order dated 16-8-73 of the Gujarat High
Court in SCA No. 400, 377 and 1220/70 and 30, 129, 155, 184, 362,
363, 391, 406, 822, 823 and 1764/71 and 234 and 449/72.
S. T. Desai and R. M. Mehta, M. N. Shroff and Miss Radha Rangaswami for the Appellants in CAs. 533, 1004, and 1410 and 16711685/75.
F. S. Nariman, M. N. Shroff and Miss Radha Rangaswami for the
Intervener (State of Maharashtra) in CA No. 1410175.
Kanishkar H. Kaji, Mrs. S. Bhandare, M. S. Narasimhan, A. K.
Mathur, A. K. Sharma, and Miss Nalini Paduval for Respondent in CA
1671/75.
K. J. John for Respondents in CA 1685/75.
B. Sen (CA 533/75) I. N. Shroff for Respondent No. 1 in CA 533
and RR in C.As. 1677-78, 1680 and 1682-1683/75.
The following Judgments of the Court were delivered :
KRISHNA IYER, J. This bunch of appeals brought by the State of
Gujarat by certificate has a pan-Indian impact, as the sale-tax project
which has been struck down by the High Court may adversely affect
cousin provisions in like statutes in the rest of the country. Contradietary verdicts on the constitutionality of a certain pattern of salestax legislation, calculated to counter consumer victimisation by dealers
have been rendered by different High Courts and what complicates th~
issue is that reasonings in the prior rulings of this Court on the topic
have been presi;ed into service by both sides.
This slippery legal
~ituation makes it necessitous for the Constitution Bench of this Court
{numerically expanded, almost to breaking point, by the recent 42nd
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Constitution Amendment) to declare the law with relative certitude
reviewi.ng, in the .Process, its p,revious pronouncements and over-ruling'.
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ilf reqmred, the view of one High Court or the other so that the correct
position may fi_nally be re-stated.
The certainty of the law is the
safety of the citizen and, having regard to the history of judicial con-
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f11ct_ ~eflected m the rulings we will presently unravel, an authoritative
dcc1s1on is overdue.
A prefatory caveat.
When examining a
legislation
from
the
angle of its vires, the Court has to be resilient, not rigid, forwardlooking, not static, liberal, not verbal -in interpreting !he organic
y
law of the nation.
We must also remember the constitutional proposition enunciated by the U.S. Supreme Court in Munn v. lllinoi.'(')
viz 'that courts do not substitute their social and economic beliefs for
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the judgment of legislative bodies'.
Moreover, while trespasses will
not be forgiven, a presumption of constitutionaEty must colour judicial
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construction. These factors, recognised by our Court, are essential to the
modus vivendi between the judicial and legislative branches of the
State, both working beneath the canopy of the Constitution.
The meat of the matter-rather, the core of the dispute-ignoring,
for the moment, minor variations among the several appeals which we
may relegate for separate treatment-is as to whether it is permissible
for the State Legislature to enact, having regard to the triple Lists of
the Seventh Schedule and Articles 14 ·and 19, that sums collected by
dealers by way of sales tax but are not exigible under the State lawand, indeed, prohibited by it-shall be forfeited to the public
exchequer punitively under Entry 54 read with Entry 64 of List II.
The
Gujarat State whose Jaw, in this behalf, was held ultra vires by the
High Court, has, in its appeal by certificate, raised this issue squarely
and argued for an answer affirmatively.
The law we are concerned
with is the Bombay Sales Tax Act, 1959 (Bombay Act LI of 1959)
(for short, the Act) applicable during the relevant period to the Gujarat
State, although the State of Maharashtra itself has since modified the
law, as pointed out by Shri Nariman, who intervened on behalf of that
State, to supplement and substantiate the validity of the legislation.
The statutory provisions which have succumbed to unconstitutionality (as expounded by the High Court) are ss. 37(1) and 46 of
the Act.
The High Cdurt of Maharashtra, however, has taken a diametrically opposite view and other High Courts have ranged themselves on one side or the other in this controversy, while dealing with
more or less similar statutes.
We confine our judgment to the Act
that is before us and do not go into the validity of the other statutes
which have been incidentally referred to in court.
The point involved
is so critical, yet delicate, that, that even short but significant variations
in the scheme of the statute may well spell a result which is opposite.
We will now proceed to project preliminarily the factual-legal
setting in order to appreciate whether the legicidal blow delivered by the
High Court is merited or not.
Fortunately, the fact~ are few
and
(1) (1876) 94 U.S. 113 (quoted in Lab~r Board v. Jones and Laughlin, 301 ·
U.S. 1,
33-34-Corwin, Constitution of the U.S.A., Introduct1on, p.
xxxi).
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R. s. JOSHI v. AJIT MILLS (Krishna Iyer, J.)
34 5
not in dispute and lend themselves to sharp focus on the legal screen.
The respondent, a registered dealer under the Act, was, by 1mpLcation
of the provisions, eLgible to pass on sales-tax leviable from him to
the purchaser but several commodities, espec•ally the
necessaries of
life, were not liable to tax (s. 5). Other situations of non-exig1biLty
also exist. Yet several dealers showed a tendency, under the guise of
sales tax levy, to collect from buyers such tax even in regard to taxfree items or sums in excess of the tax payable by them or where the
dealers were not even assessable.
The l'kelihood of such abuse of the
sales-tax law induced the legislature to protect the public from this
burden by enacting a prohibition under s. 46 against such collection
from customers.
A mere prohibitory provision may remain a 'pious
wish', unless, to make it effect ve, the statute puts teeth into it.
Section 37(1) (a) and s. 63(1) (h) are the claws of s. 46 which go into
action, departmentally or criminallv. when there is violation.
Even
here we may read s. 46 ( 1) and (2) :
"46 (I) No person shall collect any snm by way of tax
in respect of sale of any goods on which by virtue of section
5 no tax is payable.
(2) No person, who is not a Registered dealer and liable
to pay tax in respect of any sale or purchase, shall collect on
the sale of any goods any sum by way of tax from any other
person and no Registered dealer shall collect any amount by
way of tax in excess of the amount of tax payable by him
under the provisions of this Act.
Although there is no specific provision enabling the dealer to pass
on the tax to the customer, there is a necessary implication in s. 46
authorising such recovery, it being optional for him to do so or not.
The pr:mary fabi!Hy to pay the tax is on the dealer but it ;s a wellestabFshed trade pract'ce which has received express or implied legislative cognisance, that the dealer is not proh'b'ted from passing on the
tax to the other party to the sale.
Such a usage is implicit in s. 46
of the Act although what is explicit in the provis'on is that nothing
shall be collected by way of tax in respect of sale of any goods exempted under s. 5 and no reg'stered dealer shall exact by way of tax any
snm exceeding what is payable under the Act.
Of course one who is
not a registered dealer, cannot collect any sum by way of tax from any
other person. In short, there is a triple taboo writ into s. 46.
This
prohibitory project is made operational, as stated earlier, by two other
provisions one sounding in criminal and the other in departmental proceedings.
Sectipn 63(1) (h) makes it an offence to contravene the provisions
of s. 46 (read above) and imposes, on conviction. a punishment of
simple 'morisonment (upto 6 months) with or without fine _ (upto
Rs. 2.000/-). We may excerpt s. 63 (1 )(h) since that may have to
be referred to later :
"63(1)(h)
Whoever contravenes any of the provisions of section 46,
shall on conviction, be punished with simple imprisonment
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which may extend to six months or with fine not exceeding
two thousand rupees, or w"th both; and when the offence i.• a
continuing one, with a daily fine not exceeding one hundred
rupees during the period of continuance of the offence."
Section 37 ( 1) relates to imposition of penalty departmentally for contravention of s. 46. It reads :
"~7(1)(a)
If any person, not being a dealer liable to pay tax under
this Act, collects any sum by way of tax in excess of the tax
payable by h m, or otherwise collects tax in contravention
of the provisions of section 46, he shall be liable to pay, in
addition to any tax for which he may be liable, a penalty as
follows :
(1) where there has been a contravention referred to in
clause (a), a penalty of an amoun\
not exceed'ng ·· two
thousand rupees; .... and, in additwn, . ... any sum collected by the person by way of tax in contravention of section
46 shall be forfeited to the State Government." (emphasis
supplied).
The provisions impugned are ss. 46 and 37(1) (especially the underscored part) and the grounds urged to make out unconstitutionality
are dealt with below.
It is fair to state that Shri Kaji and Shri B. Sen, appearing for two
separate dealers, did dispel the impression that the Trade was often
to blame for abuse and did make out that in many cases the Revenue
drove the dealers to collect, by way of tax, sums from the customers
since the law was uncertain and was often overzealously interpreted
against the assessees by the Caesarist officials of the department. For
instance, the assessing authority construed the entries in the Act habi- .
tually against the assessees or wriggled out of legal and constitutional
bans compelling them to go up in litigation to the High Court and the
Supreme Court and win their point only to find that, after all the
expense and delay and strenuous endeavour to establish that the tax
was not exigible, the department quietly resorted to the forfeiture
provision. 'Heads I win, tails you lose'-was the comfortable position
of the Revenue, thanks to the draconic attitude of the tax collectors
to view with hostility any legitimate cla'm for exemption.
The purchasing public eventually suffered, as the merchants were not eager
for phyrric victories by litigating for tax exemption.
Shri Kaji mentioned, for instance, the case of works contracls,
forward contracts, hire-purchase agreements,
compulsory transfers.
casual sales, artistk works and the like where the persistence of the
department drove dealers to achieve victorious futilities, for, at the end
of the litigation, they d'd succeed in law but lost in fact, the mogey
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being claimed back under s. 37(1)(a) by the Commissioner.
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Shri B. Sen, appearing for the respondent in Civil Appeal No. 533
of 1975 had a more sorrowful tale to tell.
The honest dealer made
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R. s. JOSHI v. AJIT MILLS (Krishna Iyer, J.)
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a return of the total sums collected by him on the turnover and it was
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discovered by the sales tax officer that certain items were· not taxable
and, therefore, refund was due.
He directed refund and foilowed it
up with an ironic post-script, as it were, forfeiting that amount under
s. 37(1)(a) of the Act.
Certainly, these illustrations do emphasize
that the scope of s. 37(1) (a) is not restricted to sums collected along
w;th the price by dealers by way of tax with a touch of turpitude but
also innocently on the strength of the actual or anticipated (albeit)
erroneous view of the tax· officers themselves.
Certainly, the fiscal
minions of Government, if they blatantly misuse power and overtax
to bring discredit to a benignant State, must be· publicly punished
since respect for the law is not a one-way street.
We will bear this
in mind when discussing the vires of the challenged provisions,
although even here we must mention that a large number of dealers
for whom the legislation is made apparently envisage guilty levies
under the guise of sales tax.
A law has to be adjudged for its constitufonality by the generality of cases it covers, not by the freaks and
exceptions it martyrs.
In any view, the fact is not disputed that the
dealers against whom s. 46 and s. 37(1) (a) have been applied have
collected sums by way of tax which are not exigible
as
tax.
The
respondents have all collected from their customers amounts qua sales
tax which come within the coils of s. 46.
The tax officials discovered
this deviance and, acting on the prohibition plus penalty contained in
s. 46 read withs. 37(1), imposed penalties and forfeited the sum
collected by the persons by way of tax in contravention of s. 46 less
amounts shown to have been refunded to the customers as wrong levy
of sales tax.
The last limb of forfeiture, sustainable ifs. 37(1) were
intra vires in toto, has been invalidated by the High Court; and the
aggrieved State, bewailing the huge financial implications of th;s holding and urging that the morality and competency of the impugned provision ;s unassailable, has appealed. We may also state that Shri S. T.
Desai has assured the Court that the conscionable stand of the State
is-and they will abide by this assurance-that if the dealer repays to
the purchaser the forfeiture will not apply to such sums.
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The trinity of points in controversy turns on (a) legislative comF
petency; (b) contravention of Art. 19; and (c) breach of processual
equality guarnateed under Art. 14. The pivotal problem is one of legislative competency. The other two, if good, are sufficient to void
the provisions under challenge but have been feebly
put forward,
counsel being perhaps aware of the bleak prospects.
He who runs and reads gets the facts without difficulty since the
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Revenue has done nothing more than forfeit the sums recovered from
customers by dealers in the teeth of s. 46, less refunded sums, if any.
Even so, the State, under our constitutional scheme, bas limited legislative powers restricted to List II and List III of the Seventh Schedule.
Ifs. 37(1) (a) spills over the Entr'es in List II (Entries 54 and 64)
and cannot· be salvaged under the doctrine of ancillary powers. the
law must be bad, morality notwi•bstanding. The State bas no divine
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·right to rob the robber. The money, if illegally gathered either by
mistake or by mendac;ty, must go back to whom it belongs, and not
to the State.
Nor is there any legislative entry which arms the State to
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sweep all. illegal levies connected with sales from the merchant commun.ty into its coffers.
This is the kernel of the submission which has
appealed to the High Court.
The counter-argument wh ch has been
urged by Shri S. T. Desai, for the State, reinforced by added glosses by
~hri Nariman, is that the State has the right not merely to impose tax
on sales but to ensure that the sales tax law is not misused by the
commercial community to fob off pseudo-fiscal burden upon the consumer community. It is elementary economic theory that while the
legal burden of sales tax falls upon the dealer, the fiscal
impact is
eventually on the consumer.
A Welfare State, w.th its logos
and
legend as social justice, has a sacred duty while it exercises its power
of taxation to police the operation of the law in such manner as to
protect the public from any extra burden thrown on it by merchants
under cover of the statute.
Bearing in mind the quintessential aspects of the rival contentions,
let us stop and take stock.
The facts of the case are plain.
The professed object of the law is clear.
The motive of the legislature
is
irrelevant to castigate an Act as a colourable device.
The interdict
on public misch,ef and the insurance of consumer interests against
likely, albeit, unwitting or 'ex abundanti cautela'
excesses in
the
working of a statute are not merely an ancillary power but surely a
necessary obligation of a social welfare state.
One potent prohibitory
process for this consummation is to penalize the trader by casting a
no-fault or absolute liability to 'cough up' to the State the total
'unjust' takings snapped up and retained by him 'by way of tax' where
tax is not so due from him, apart from other punitive impositions to
deter and to sober the merchants whose arts of deal;ng with customers
may include 'many a little makes a mickle'. If these steps in reasoning have the necessary nexus with the power to tax under Entry 54
List II, it passes one's comprehension how the impugned leg;slation
can be denounced as exceed:ng leg'slative competence or as a 'colourable device' or as 'supplementary, not complementary'. Bot this
is
precisely what the H;gh Court has done, calling to its aid passages
culled from the rul'ngs of this Court and curiously distinguishing an
earlier Division Bench decision of that very Court a procedure which,
moderately expressed, does not accord w"th comity, discipline and the
rule of law.
The puzzle is how minds trained to objectify law can
reach fiercely opposing conclusions.
Expressions like 'colourable device" and 'supplementary and not
complementary' have a tendency to mislead.
Logomachy is a tricky
legal trade; semantic nicety is a slippery mariner's compass for courts
and the three great instrumentalities have, ultimately, to render account
to the justice-constituency of the nation.
The true diagnosis of interpretative crises is as much the perplexity of deciphering the b<'undaries of constitutional power as attitudinal ambivalence and economic
predilections of those who sit to scan the symbols and translate their
imonrt. Shakespeare unconsciously haunts the halls of iustice : 'Thy
wish was fa'her, Harry. to that thought' (Henry IV, Scene 5). In our
view, the true key to const;tutional construction is to v'ew the eauity
of the statute and sense the social mission of the law, language oerm'tting, against the trirme facets of justice high-lighted in the Preamble
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to the Paramount Parchment, read with a spacious s.gnification of the
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listed entnes concerned. If then we feed this programme mto . the
judicial cerebration with the presumpt'on of constitutionality superadded, the result tells us whether the measure is ultra vires or not.
The doctrine of anc llary and incidental powers is also embraced within
this scheme of interpretation.
An overview of the relevant string of rulings of this Court may
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The basic ratio, if we may condense the legal
test that divides the constitutional from the unconstitutional, is that
if all that the legislation means to do is to take over, whatever the
verbal veils worn, the collections which were ex hypothesi not sales
tax but were illegal additives as if sales tax were due, charged along
with the price by the dealer, then such an expropriation of
the
expropriators (putting it in a morally favourable, though exaggerated,
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light for the State) is beyond Entry 54 and therefore ultra vires.