Civil Appeal No. 1862 of 1971

29th October, 1986.

Cases Cited:
AIR 1986 SC 178,(1985) Suppl SCC 608,1986 Tax LR 2215 [Para 4]
AIR 1977 SC 2279,(1978) 1 SCR 338 [Para 4]
AIR 1971 SC 946,( 1970) 3 SCR 455,1971 Tax LR 414 [Para 5]
AIR 1964 SC 922,(1964) 6 SCR 867 [Para 4]
AIR 1961 SC 1438,(1962) 1 SCR 549 [Para 3]

JUDGMENT

BHAGWATI, C. J.:-This appeal by certificate raises a short question as to the constitutional validity of S. 29A of the U. P. Sales Tax Act, 1948. This section, which was introduced in the U. P. Sales Tax Act, 1948 by S. 17 of the U. P. Taxation Laws (Amendment) Act, 1969. has been held to be constitutionally valid by a Division Bench of the Allahabad High Court on 13th July 1970. The appellants question the correctness of this view taken by the High Court.

2. The appellants carry on business as dealers in coal and they are registered as ,such under U. P. Sales Tax Act, 1948. Prior to 1st October 1965, there was no sales tax levied on sale of coal and for the first time on 1st October 1965, coal became a taxable commodity under the U. P. Sales Tax Act, 1948. The appellants, proceeding on the footing that sales tax was payable by them on sale of coal from and after 1st October 1965, collected amounts by way of sales tax from the purchasers and submitted their returns for the assessment year 1965-66 after depositing a sum of Rs. 10,073.86 representing the amount of tax payable by them in accordance with their returns. It was, however, found as a result of the assessment Order made by the Sales Tax Officer on 28th March 1970 that no sales tax was payable by the appellants on sales of coal under the U. P. Sales Tax Act, 1948. The appellants thereupon claimed refund of the sum of Rs. 10,073.86 but the Sales Tax Officer rejected the claim made by the appellants on the ground that by reason of S. 29A, no refund was claimable by the appellants and the only persons entitled to claim refund were those from whom the appellants had collected the tax. This Order made by the Sales Tax Officer was challenged by the appellants by filing a writ petition in the High Court of Allahabad and the principal ground on which the correctness of this Order was challenged was that S. 29A was ultra vires as being outside the legislative competence of the State legislature. The High Court negatived this challenge and upheld the constitutional validity of S. 29A and on this view sustained the Order made by the Sales Tax Officer. The appellants thereupon preferred the present appeal after obtaining certificate of fitness from the High Court.

3. It is necessary at this stage to set out the relevant provisions of the U. P. Sales Tax Act, 1948 as they stood at the material time. Sub-section (4) of S. 8-A made the following provision :

"(4) Without prejudice to the provisions of Cl. (f) of S. 14, the amount realised by any person as tax on sale of any goods shall, notwithstanding anything contained in any other provision of this Act, be deposited by him in a Government treasury within such period as may be prescribed. if the amount so realised exceeds the amount payable as tax in respect of that sale or if no tax is payable in respect thereof.

Sub-section (5) was added in S. 8-A by S. 11 of the U. P. Taxation Laws (Amendment) Act, 1965 and it read as follows :-

"(5) Where a dealer is found not liable to be assessed to tax by reason of his turnover being less than the amount specified in or under S. 3, or sub-sec. (1) or (2) of S. 18, but has realised any tax as such in respect of such turnover, he shall, notwithstanding anything contained in this Act, be liable to pay the same to the State Government and shall deposit it into the Treasury within 30 days of the date of the Order by which he was found not so liable, unless it has already been so deposited."

Since, having regard to the judgment of this court in R. Abdul Quader and Co. v. Sales Tax Officer, Hyderabad, (1964) 6 SCR 867 : (AIR 1964 SC 922), it was doubtful whether sub-ss. (4) and (5) of S. 8A, standing by themselves, would fall within the legislative competence of the State legislature Section 29-A was inserted in the U. P. Sales Tax Act, 1948 by S. 17 of the Taxation Laws (Amendment) Act 1969 :

"29-A. Procedure for disbursement of amounts wrongly realised by dealer as tax.

(1) Where any amount is realised from any person by any dealer purporting to do so by way of realisation of tax on the sale of any goods to such person, such dealer shall deposit the entire amount so realised into the Government Treasury, within such period as may be prescribed, notwithstanding that the dealer is not liable to pay such amount as tax or that only a part of it is due from him as tax under this Act.

(2) Any amount deposited by any dealer under sub-sec. (1) shall, to the extent it is not due as tax, be held by the State Government in trust for the person from whom it was realised by the dealer. or for his legal representatives, and the deposit shall discharge such dealer of the liability in respect thereof to the extent of the deposit.

(3) Where any amount is deposited by any dealer under sub-sec. (1). such amount or any part thereof shall, on a claim being made in that behalf in such form as may be prescribed, be refunded. in the manner prescribed, to the person from whom such dealer had actually realised such amount or part, or to his legal representatives, and to no other person :

Provided that no such claim shall be entertained after the expiry of three years from the date of the order of assessment or one year from the date of the final order on appeal, revision or reference. if any, in respect thereof, whichever is later.

Explanation- The expression 'final order on appeal, revision or reference' includes an order passed by the Supreme Court under Art. 32, Art. 132 or Art. 137. or by the High Court under Art. 226 or Art. 227 of the Constitution."

The question is whether this section. as it stood at the material time in the form in which it was introduced by S. 17 of the U. P. Taxation Laws (Amendment) Act, 1969, was within the legislative competence of the State Leigslature.

4. The only entry under which S. 29A was sought to be brought was Entry 54 in List II of the Seventh Schedule to the Constitution. Clause (3) of Art. 246 read with this entry empowers the State legislature to make laws with respect to taxes on the sale or purchase of goods. It is now well settled that an entry in a legislative List must be read in its widest amplitude and the legislature must be held to have power not only to legislate with respect to the subject matter of the entry but also to make ancillary or incidental provision in aid of the main topic of legislation. Can S. 29-A be justified as exercise of an ancillary or incidental power of legislation under Entry 54 ? Now, this question is no longer res integra. It stands concluded by the

decision of this Court in R. S. Joshi v. Ajit Mills, (1978) 1 SCR 338 : (AIR 1977 SC 2279). It is no doubt true that the decision of this Court in Ashoka Marketing Ltd. v. State of Bihar, (1970) 3 SCR 455 : (AIR 1971 SC 946) does seem to indicate that a provision such as S. 29A would not be justifiable as an exercise of incidental or ancillary power. There also, the impugned legislative provision namely. S. 20A of the Bihar Sales Tax Act was very similar to S. 29A and this Court held that it fell outside the legislative competence of the State legislature. The Court in Ashoka Marketing Ltd.'s case (supra) did not follow the decision in Orient Paper Mills Ltd. v. State of Orissa, (1962) 1 SCR 549 : (AIR 1961 SC 1438) where a similar provision was attacked on the same ground but the attack was repelled by the Court. If the decision in Ashoka Marketing Ltd.'s case (supra) were to be regarded as good law, S. 29A would have to be struck down as being outside the legislative competence of the State legislature. But this Court in R. S. Joshi's case (supra) clearly and categorically disapproved of the decision in Ashoka Marketing Company's case and reaffirmed the view taken in Orient Paper Mills' case (supra). The Court held that the taking over of sums collected by dealers from the public under guise of tax solely with a view to return them to the buyers so deprived is necessarily incidental to 'tax on the sale and purchase of goods'. Such a provision is manifestly a consumer protection measure since "while suits against dealers to recover paltry sums by a large number of customers would lead to endless and expensive litigation, a simpler process of returning those sums on application by the relevant purchasers would protect the common buyer while depriving the dealers of their unjust gains." This Court in a subsequent decision in State of Orissa v. Orissa Cement Ltd., (1985) Supp SCC 608 : (AIR 1986 SC 178) also took the same view and pointed out that the decision in Ashoka Marketing Ltd.'s case (supra) was expressly dissented from by the decision in R. S. Joshi's case (supra). The decision in R. S. Joshi's case (supra) must, therefore, be regarded as laying down the correct law on the subject and if that be so, it is obvious that S. 29A must be held to fall within the legislative competence of the State legislature and its constitutional validity must be upheld.

5. The appeal must, therefore, be dismissed. but since it was filed at a time when the position in law was nebulous and had not been finally settled by the decision in R. S. Joshi's case (AIR 1977 SC 2279) (supra) we would direct that there shall be no order as to costs.

Appeal Dismissed