# SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM & ANR v. TATA OIL MILLS CO. LTD

- **Citation:** [1976] 1 S.C.R. 152
- **Court:** Supreme Court of India
- **Decided:** 1975-07-29
- **Case number:** Civil Appeal Nos. 1988·198.9 of 1970
- **Bench:** H. R. Khanna, M. H. Beg, A. C. Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sales-tax-officer-special-circle-ernakulam-anr-v-tata-oil-mills-co-ltd-6478
- **Pages:** 7

## Headnote

Kcroila General Sales 'Tax Act (15 of 1963) s. 22(3) and Kerala
G'enl:ral
B
Sales Tax Rules, 1963, r. 9(1)-Constitutioi' df India 1950, VII Schedule, List fl,
Entry 54--Section providing for pay111ent tQ Q_ovt. of tax wrongly collectedlf ultra vires.
According tor. 9(1) 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 hin1 shall be
deducted. Section Z2(3) uf the /\lt provides that if any dealer or person collects
C
tax.on transactions not liable to f[,x under the Act or in excess of the tax leviable
under the Act such dealer or person shall Pay to the Goverment, in adidtion to
the tax payable, the amount s0 collected unless it was refunded to the person
from whom it v1as collected.
The respondent deducted the sum paid by it as excise duty fro1n its total turnover for the purpose of delerm:ning the taxable turnover. The respondent, ho\Vever, when it sold the goods, had collectec\ sales-tax from the purchasers on the
invoice prices \vithout deductinf, therefrom the excise duty paid in respect of the
D
said goods. 1his re-suited in the respondent realising a sum in ex:ess of the salestax payable in respect of the goods sold by it.
The Sales-tax Officer held that
th;! respondent \Va<> liable to pay that amount to the Government under s. 22 (3).
The writ petition filed by the respondent \Vas allowed by the High Court on the
ground thats. 22(3) was not covered by Entry 54 of the State List in the VII
Sche~lule to the Constitui.ion, and hence, beyond the competence of the State
1-egislature.
Dismiss:.ng the appeal to this Court.
E
HELD : ( 1) Entry 54 empowers the State Legislatures to n1ake laws, except
in certain cases, in respect of taxes on the sale or purchase of goods. As Ion~
as the law relates to taxes on the sale or purchase of goods, it would be within
their legislative con1petence.
Bt:t, it would not be permissible
fo;_·
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 acconhtnce with
the Jaw on the subject and which was wrongly realised by a dealer as sale'l-tax
or purchase-tax. Such a J::-,,v would not be a law relating to tax on the sale or
purchase of goods but would be one i-n respect of an a1nount wrongly realised by
a dealer as sales-tax or purchase-tax. [155A-C]
(2) The ambit of ancillary or incidental power would not go to the extent of
pern1ittinp; the Legislature to provide that. thou.~h the an1ount collected, n1ay be·
\1/TOngly, by way of tax,, was not tax, it shall still be paid over to the Government as if it were a tax. [156D-EJ
(3) The fact that the nmount realised is in excess of the tax lev.:able and riot
an amount \\'htch was not at all payable as tax, would not n1ake any difference.
Any amount realised by a dealer in excess of the tax leviable, stands, for the rur-
·pose of determining the legislative competence under Entry 54, on the sa111e footing ns an amount not due as tax under the Act. Tax, according to s. 2(xxiv) of
the Act, means tax payable under the Act.
This necessarUy rn~ans that e\·crything outside it, collected by the dealer. would be an exaction not authorised by
the 1-\ct.
The <i.mount which \Yas realised by the respondent in excess of what
\Vas due as tax cannot be held 10 he tax, because, such excess amount \Vas not tax
payable under the Act.
If the State Legislature cannot make a law under Entry
54 directing payn1ent to the State of any amount collected as tax f)n transactions
not liable to iax under the Act, it would likewise be incompetent to make a hl\V
directing payn1ent to the State ol' an amount realised by a dealer in excess of the
!ax payable under the Act. [157G-158C].
F
G
H
-
+
B
•
!E
!i
""
'
G
i,
IH
S.T.O. V. TATA OIL MILLS LTD. (Khanna, J.)
15 3
R. A h

## Text

152
SALES TAX OFFICER, SPECIAL CIRCLE, ERNAKULAM & ANR.
A
v.
TATA OIL MILLS CO. LTD.
July 29, 1975
[H. R. KHANNA, M. H. BEG AND A. C. GUPTA, JJ.]
Kcroila General Sales 'Tax Act (15 of 1963) s. 22(3) and Kerala
G'enl:ral
B
Sales Tax Rules, 1963, r. 9(1)-Constitutioi' df India 1950, VII Schedule, List fl,
Entry 54--Section providing for pay111ent tQ Q_ovt. of tax wrongly collectedlf ultra vires.
According tor. 9(1) 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 hin1 shall be
deducted. Section Z2(3) uf the /\lt provides that if any dealer or person collects
C
tax.on transactions not liable to f[,x under the Act or in excess of the tax leviable
under the Act such dealer or person shall Pay to the Goverment, in adidtion to
the tax payable, the amount s0 collected unless it was refunded to the person
from whom it v1as collected.
The respondent deducted the sum paid by it as excise duty fro1n its total turnover for the purpose of delerm:ning the taxable turnover. The respondent, ho\Vever, when it sold the goods, had collectec\ sales-tax from the purchasers on the
invoice prices \vithout deductinf, therefrom the excise duty paid in respect of the
D
said goods. 1his re-suited in the respondent realising a sum in ex:ess of the salestax payable in respect of the goods sold by it.
The Sales-tax Officer held that
th;! respondent \Va<> liable to pay that amount to the Government under s. 22 (3).
The writ petition filed by the respondent \Vas allowed by the High Court on the
ground thats. 22(3) was not covered by Entry 54 of the State List in the VII
Sche~lule to the Constitui.ion, and hence, beyond the competence of the State
1-egislature.
Dismiss:.ng the appeal to this Court.
E
HELD : ( 1) Entry 54 empowers the State Legislatures to n1ake laws, except
in certain cases, in respect of taxes on the sale or purchase of goods. As Ion~
as the law relates to taxes on the sale or purchase of goods, it would be within
their legislative con1petence.
Bt:t, it would not be permissible
fo;_·
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 acconhtnce with
the Jaw on the subject and which was wrongly realised by a dealer as sale'l-tax
or purchase-tax. Such a J::-,,v would not be a law relating to tax on the sale or
purchase of goods but would be one i-n respect of an a1nount wrongly realised by
a dealer as sales-tax or purchase-tax. [155A-C]
(2) The ambit of ancillary or incidental power would not go to the extent of
pern1ittinp; the Legislature to provide that. thou.~h the an1ount collected, n1ay be·
\1/TOngly, by way of tax,, was not tax, it shall still be paid over to the Government as if it were a tax. [156D-EJ
(3) The fact that the nmount realised is in excess of the tax lev.:able and riot
an amount \\'htch was not at all payable as tax, would not n1ake any difference.
Any amount realised by a dealer in excess of the tax leviable, stands, for the rur-
·pose of determining the legislative competence under Entry 54, on the sa111e footing ns an amount not due as tax under the Act. Tax, according to s. 2(xxiv) of
the Act, means tax payable under the Act.
This necessarUy rn~ans that e\·crything outside it, collected by the dealer. would be an exaction not authorised by
the 1-\ct.
The <i.mount which \Yas realised by the respondent in excess of what
\Vas due as tax cannot be held 10 he tax, because, such excess amount \Vas not tax
payable under the Act.
If the State Legislature cannot make a law under Entry
54 directing payn1ent to the State of any amount collected as tax f)n transactions
not liable to iax under the Act, it would likewise be incompetent to make a hl\V
directing payn1ent to the State ol' an amount realised by a dealer in excess of the
!ax payable under the Act. [157G-158C].
F
G
H
-
+
B
•
!E
!i
""
'
G
i,
IH
S.T.O. V. TATA OIL MILLS LTD. (Khanna, J.)
15 3
R. A hdul Quader & Co. v. Sale::; Tax Officer, Hydercibad [1964} SCR 867 and
A.sl1aka l1farlit'!it1"~· Ltd. v. Sia!.: of Bihar & A nr. [1970] 3 SCR 455, follov1ed.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1988·198.9 of
1970.
firom the Judgment and order dated the 29th day of October, 19Ci8
of the Kerala High Court in W.P. No. 156 of 1967.
V. A. Seiyed Muhamad and K. M. K. Nair, for the appellant (In
C. A. No. 1988/70.
K. M. K. Nair, for the appellant (In C.A. No. 1989(70)
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. 1988
and 1989 of 1970, tiled 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 subsection (3) of section 22 of the Kerala General Sales Tax Act, l 963
(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 unckr the
Act.
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 taxable turnover.
"Taxable turnover" is defined in section 2(xxv) of the
Act as the turnover on which a dealer is liable to pay lax 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 by
the State Government in exercise of the powers conferred by section
57 of the Act.
According to clause (i) of rule 9 of the said 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 statl".d 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. 30,591.71 as sales tax in excess of the tax
which the respondent was liable to pav under ihe 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
154
SUPREME COURT REPORTS
(1976] 1 S.C.R,
goods it· collected sales tax from the purchasers on the invoice price
without deducting therefrom the excise duty paid in respect of the said
good_;.
This . resulted
in
the
respo11-dent
company
realising
Rs. ~0,591.71 m 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. 30,591.7 J to the Government under
section 22 ( 3) of the Act.
The respondent then filed wnt pcuuon in
the Kerala High Court to challenge its liability to pay the aforesaid
amount 011 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 Judcre dismissed the petition filed by the respondent.
On appeal, howev~r, 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 colJ.ects tax on transactions not
liable to tax under this Act or in excess of the tax leviablc
under this Act, such dealer or person shall, unless it is established to the satisfaction of the assessing authority that the
tax so coll-ected has been refunded to the person who bad originally paid tax, pay over to the Government, in addition to
the tax payable, the amount so collected within such time
and in such n1anncr as n1ay 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
Ieviable under the Act to be 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 bad 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.
Tn 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 bearing the learned
counsel, w~ are of the opinion that there is no inerit in these t\VO
appeals.
A State Legislature is competent to make a law under entry 54
of List TI in Seventh Schedule to the Constitution in respect of "taxes
on the sale or purchase of goods other than newspaoers. 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 newsoapers, where such
sale or purchase takes place in the ~ours~ of inter-State trade or commerce, anc1 we are not concerned with this entry.
\''
c
E . .
,_
F.
-
"
G;
'
'
~
H
A
B
c
D
E
F
G
j
H
S.T.O. v. TATA OIL MILLS LTD. (Khanna,!.)
tso
Entry 54 empowers State Legislatures to make law,
except in
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,
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 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 cxigible 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 exigiblc 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 K
Abdnl Quader & Co. v. Sales Tax Officer, Hyderabad(!) the validity of
section 11 (2) of the Hyderabad Sales Tax Act, 1950 which mads 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 collectsc
on or before !st 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."
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 Govern•
ment. The appellant thereupon filed a writ petition in the High Court
questioning the validity of section 11 (2). The main contention of the
appellant before the High Court was that section 11 (2) which authorised the Government to recover a tax collected without the authority
of law was beyond the competence of th,e 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
(I) [196416 S.C.R. 867.
!Si
SUPREME COURT REPORTS
(1976] 1 s.e.R.
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
O>urt upheld the validity of section 11(2). On appeal to this Court
it was 0bserved by the Constitution Bench as under :
"The first question therefore that falls for consideration is
whether it was open to the State legislature nnder 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 dne 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 11 (2) of the Hyderabad Act on the ground
that the Legislature had enacted that law as part of the incidental and
aRcillary 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 exigiblc 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 thci case of Ashoka Marketing Ltd. v. State of Bihar &
Anr.('). 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
A
B
c
D
E
appellant's sales of cement.
The appellate authority set
aside
the
orders directing the inclusion of the Ra!lway freight in the turnover.
F
After the introduction of section 20-A of the Bihar Sales Tax Act the
Assistant Commissioner issued a notice under 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 by the
1
Assistant Commissioner as well as by the High Court in a writ petition
G
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-seeI
tions (6) and (7) of that section were also held to be invalid.
Sub-
--\
section (3) of section 20-A of the Bihar Sales Tax Act read as under:
"(3) (a) Notwithstanding anything to the contrary contained
H
in any law or contract.or any judgment, decree or order of
(t) [1970] I S. C.R. 455.
y
t
s:r.o. v. TATA OIL MILLS LTD. (Khanna, !.)
15 7
A
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
B
manner requiring him on a date and at a time and place to
be specified therein either 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.
C
(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 bis authorised representative a reasonable 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
D
necessary, orddr 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."
E
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 cas~ (supra).
Dr. Muhammad has, however, tried to distinguish the above two
F
cases on the ground that the present case relates to an amount realised in excess of the tax leviable under thei 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
G
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 everything outside it collected by the dealer would be an exaction not
H
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
158
SUPREME COURT REPORTS
[1976] I S.C.R.
'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 transaction"
not liable to tax under the Act, it would likewise be incompetent to
make a Jaw directing payment to the State of an amount realised by a
.dealer in excess of the tax payable under the Act.
The amount realised
in excess of the tax leviablc 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 hear-
•ing fee.
'\l.P.S.
Appeals dismissed.
A
•
B