TMI Blog1978 (11) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... are not removed from the docks within a certain time, the petitioners are under a statutory obligation to dispose of these goods by public auction after following the procedure prescribed in section 64A of the Bombay Port Trust Act. The petitioners also run a canteen on their premises. On 18th January, 1960, the petitioners applied for registration as dealer under the Bombay Sales Tax Act, 1959 (hereinafter for the sake of brevity referred to as "the said Act"). In their said application, the petitioners showed themselves as dealers in (1) sales of uncleared goods, (2) sales of old machinery and (3) canteen stores. The sales tax authorities, however, did not recognise the petitioners as dealers in uncleared goods or old machinery and issued to them a certificate of registration in respect of canteen stores and as retail dealers in respect thereof at the place of business mentioned in the said certificate. During the period 1st April, 1966, to 31st March, 1967, the petitioners disposed of obsolete machinery by public auction. The petitioners collected from the purchasers of such obsolete machinery a sum of Rs. 1,20,001, being the amount equivalent to the amount of sales tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of refund due to the petitioners. By another order dated 31st March, 1971, the said Sales Tax Officer adjusted the said amount of refund towards the liability of the petitioners in respect of the said sum of Rs. 1,20,001 ordered to be forfeited by him. Miscellaneous Petition No. 318 of 1971 has been filed challenging the legality of these two orders and the notice of demand. During the period 1st April, 1967, to 31st March, 1968, the petitioners sold by public auction not only obsolete machinery but various consignments of goods lying uncleared in the docks. In respect of such sales, the petitioners collected from the purchasers amounts representing the amount of sales tax and general sales tax which they would have to pay were these sales exigible to tax under the said Act. For this period also the petitioners filed their quarterly returns with statements showing the amounts of tax so collected by them. In the course of the assessment proceedings, the petitioners raised the same contentions in respect of these sales as they had done in the course of the earlier assessment proceedings in respect of sales of obsolete machinery. It appears that A.N. Patil, who was at that time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (2) of article 31 of the Constitution. (2) Sub-section (1) of section 37 and section 46 of the said Act apply only to dealers liable to pay tax under the said Act and do not apply to persons other than these dealers. (3) If the provisions of sub-section (1) of section 37 and section 46 of the said Act are to be construed as applying to persons other than dealers liable to pay tax under the said Act, to that extent, these provisions are unconstitutional as being beyond the legislative competence of the State. (4) The amounts ordered to be forfeited by the Sales Tax Officer were not collected by the petitioners by way of tax but with the intention of refunding them to the purchasers in case these sales were held not to be exigible to tax and, therefore, these amounts were not liable to be forfeited. (5) Mens rea was an essential ingredient of sub-section (1) of section 37 of the said Act and, that ingredient being absent in the petitioners, the said amounts were not liable to be forfeited. In order to appreciate the submissions made at the Bar in support of the above contentions, it becomes necessary to set out the relevant statutory provisions. Under the Constitution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or which he may be liable, a penalty of an amount not exceeding two thousand rupees, or double the amount of tax which would have been payable had there been no such failure, whichever is less; and in addition, in the case of a contravention referred to in clause (a), any sum collected by the person by way of tax in contravention of section 46 shall be forfeited to the State Government. (2) If the Commissioner in the course of any proceedings under this Act or otherwise has reason to believe that any person has become liable to a penalty or forfeiture or both penalty and forfeiture of any sum under sub-section (1), he shall serve on such person a notice in the prescribed form requiring him on a date and at a place specified in the notice to attend and show cause why a penalty or forfeiture or both penalty and forfeiture of any sum as provided in subsection (1) should not be imposed on him. (3) The Commissioner shall thereupon hold an inquiry and shall make such order as he thinks fit. (4) No prosecution for an offence under this Act shall be instituted in respect of the same facts on which a penalty has been imposed under this section." Sub-section (1) has been substituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in excess of the amount of tax payable by him under the provisions of this Act" have been inserted with retrospective effect by Maharashtra Act No. 21 of 1962. On the question of legislative competence it was submitted by Mr. Kolah, the learned counsel for the petitioners, that, by the said entry 54, the State Legislature was empowered to legislate with respect to the levy of tax on the sale or purchase of goods only and that it had no power, in the guise of imposing a penalty, to take away from a person any amount wrongfully collected by him from another. So far as we are concerned, the matter is concluded by a decision of the Supreme Court in R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited[1977] 40 S.T.C. 497 (S.C.). Before we come to this decision, it may be mentioned that sales tax laws of various States contain provisions for forfeiture in the same or similar terms. Some of these matters went up to the Supreme Court. The criterion laid down in those cases for testing the legislative competence of a statutory provision of this nature is that the court should see whether the forfeiture was levied for the purpose of enforcement of the enactment or whether it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s deprived the petitioners of their property without compensation. It was somewhat surprising to hear such an argument advanced, because, throughout, the petitioners have been contending that they had only collected these amounts because they were not sure whether these transactions of sale were exigible to tax or not and that, if these transactions were held in assessment proceedings to be not exigible to tax, they would refund these amounts to their purchasers. If so, the amounts held by them cannot be said to be their own property. Apart from that, such an argument is somewhat strange. If such an argument, namely, that a person who wrongfully obtains money should not be deprived of it as a punishment without being compensated for it, were to be accepted, it would follow that the provisions of criminal law under which stolen property when recovered is directed by the court to be returned to its rightful owner are also ultra vires as being violative of article 31(2) because the thief could contend that he was deprived of the property which he had wrongfully obtained without being compensated for it. There is thus no substance in the constitutional challenge levelled by the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to pay to the Government, This follows from section 46 of the said Act, which prohibits collection of tax except by certain persons. Thus, sub-section (1) of section 46 prohibits all persons from collecting any sum by way of tax in respect of sales of goods which are declared as non-taxable goods under section 5 of the said Act. Sub-section (2) contains a dual restriction. Firstly, it prohibits a person who is not a registered dealer and not liable to pay tax in respect of any sale or purchase from collecting on the sale of goods any sum by way of tax from another person and, secondly, it prohibits a registered dealer from collecting any amount by way of tax in excess of the amount of tax payable by him under the said Act. Subsection (3) prohibits a dealer, who has been permitted by the Commissioner of Sales Tax to pay in respect of any period a lump sum payment instead of the amount of tax payable by them under the provisions of the said Act, from collecting any amount by way of tax on sales of goods made during the period to which such lump sum payment applies. The principle behind this section is thus clear. It is that a person who is not liable to pay tax to the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ajit Mills' case[1977] 40 S.T.C. 497 at 527 (S.C.)., Kailasam, J., said as follows: "Section 46 imposes prohibition against collection of tax in certain cases. Section 46(1) prohibits any person whether dealer or not from collecting any sum by way of tax in respect of sales on which by virtue of section 5 no tax is payable. If, however, any person collects any sum by way of tax on sales by him of such goods he is by operation of section 37(1) liable to pay penalty and also penalty by way of forfeiture. This punitive measure affects all persons who sell non-taxable goods." There is no reason for holding, nor has any argument been advanced before us which has convinced us so to hold, that this punitive measure should not extend to all persons who collect tax on other transactions of sale which are not exigible to tax. Clause (a) of section 37(1) of the said Act deals with three categories of offenders, namely, (1) any person "not being a dealer liable to pay tax under this Act" collecting any sum by way of tax, (2) any person "being a registered dealer" collecting "any amount by way of tax in excess of tax payable by him" and (3) any person otherwise collecting "tax in contrav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plying to persons other than dealers also, they would, to that extent, be beyond the legislative competence of the State Legislature, the submission in that behalf only needs to be stated to be rejected. It was submitted that the State Legislature had the power to tax sales and purchases made by dealers only and not sales and purchases made by any other person. This argument is in the teeth of the express words of entry 54 in List II of the Seventh Schedule to the Constitution which confers upon the State Legislature the power to make laws with respect to taxes on the sales or purchases of goods subject to two qualifications, namely, (1) that they should not be taxes on the sale or purchase of newspapers and (2) that they should not be taxes on the transactions of sale or purchase taking place in the course of inter-State trade or commerce. Thus, it was open to the State Legislature to levy a tax on the sale or purchase of goods made not only by dealers but by each and every person and even what are known as casual sales. That the State Government has chosen to exercise its taxing power in part only does not deprive it of its legislative competence to legislate with respect to matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance was placed upon the following passage from the judgment delivered by Krishna Iyer, J., in Ajit Mills' case[1977] 40 S.T.C. 497 at 514, 515 (S.C.).: "Without holding that article 19(5) is violated, we think the ends of justice can be met by reading down the forfeiture clause interpretatively. Section 37(1) does say that 'any sum collected by the person by way of tax ... shall be forfeited ....... Literally read, the whole sum goes to the State. Let us suppose the dealer has returned the whole or part of the collections to the customers. Should the whole amount, regardless of such repayment, be forfeited? We think not. Section 37(1) uses the expressions, in relation to forfeiture, 'any sum collected by the person ...... shall be forfeited'. What does 'collected' mean here? Words cannot be construed effectively without reference to their context. The setting colours the sense of the word. The spirit of the provision lends force to the construction that 'collected' means 'collected and kept as his' by the trader. If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return it if eventually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the constitutional position. Moreover, our construction obligates the State not to forfeit sums already returned, undertaken to be returned and the like. Our direction that the State shall disgorge the sums by some easy process, back to the buyers helps the dealer against claims from the former." To hold that the same interpretation must be placed upon the word "collected" used in section 37 of the said Act, as was done by the Supreme Court upon the said expression "any sum collected by the person ...... shall be forfeited", as used in section 37(1), as in force in the State of Gujarat, is to ignore the context in which they occur in the legislation in force in this State. The reason for placing this narrow interpretation on the word "collected" is expressly set out in the judgment of the Supreme Court. This was in order to meet the ends of justice that the forfeiture clause was given a narrow meaning or, as put by Krishna Iyer, J., "we think the ends of justice can be met by reading down the forfeiture clause interpretatively", and, as expressly stated further down in the judgment, "this was with reference to the context in which that word occurs". The context was that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it would be more in the interests of unwary purchasers that the State undertakes the obligation to return the amount wrongfully collected than that the purchasers should be left to pursue their own remedies against the dealer. In this connection, Krishna Iyer, J., observed: "We do not think it is more feasible for ordinary buyers to recover from the common run of dealers small sums than from Government." The context in which the word "collected" occurs in section 37(1) of the said Act, as in force in this State, is fundamentally different from the context in which it occurs in the section, as in force in the State of Gujarat, by reason of the insertion with retrospective effect of sub-section (6) in section 38. In the wider context in which the word "collected" occurs in our section 37(1), we do not find it possible to place upon the word "collected" a narrow meaning. The word "collected" in our section 37(1) must, therefore, be construed in its natural and ordinary sense. Here it is the State which has taken over the obligation to refund these amounts to the purchasers, and it is the State which will do so. We, however, make it clear that in a case, where before an order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cellaneous Petition No. 318 of 1971. To us it is clear that the contention that these transactions were not exigible to tax was an afterthought raised in the course of the assessment proceedings. In support of their alleged intention to refund these amounts to the purchasers, the petitioners have alleged that the auctioneers took down the names, addresses and registration numbers of the purchasers. The petitioners have filed with the department a statement showing the particulars of all these sales. These particulars show, and the position is admitted by the petitioners through their counsel, that these statements reveal that the addresses have not been taken down in a number of cases and, further, in quite a few cases, the names of the purchasers have also not been mentioned. Another interesting fact which emerges from the said statements is that in several of these transactions goods have been sold against certificates in form 14 or 15 or 16. A certificate in form 14 is to be given by a dealer holding an authorisation, a certificate in form 15 is to be given by a dealer holding a recognition and, a certificate in form 16 is to be given by a dealer holding a licence, when such dea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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