9911796707
TMI Blog1978 (7) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... g from 1st April, 1964, to 31st March, 1965, the assessee-company had purchased cotton waste from a manufacturer who was a registered dealer and had resold the same in the State of Gujarat. In the bills of the sale of the said goods, the assessee had charged 2 per cent "sales tax paid to the manufacturer" on the price mentioned in the bill. It appears that the assessee-company had purchased the goods of cotton waste from the manufacturer whose name is not specified in the statement of case or in the orders of the authorities below. On this purchase, the assessee had paid sales tax to the selling manufacturer of Rs. 4,209.12. However, on the resales made of this lot of goods, the assessee appears to have recovered in all Rs. 6,361.31 under the head described in the different bills of sale of the said lot of goods as "sales tax paid to the manufacturer" at the rate of 2 per cent on the price of the goods shown in the bills. In the course of the assessment proceedings, the assessee contended before the Sales Tax Officer that it had not collected the disputed amount of 2 per cent by way of tax in respect of the sales of cotton waste within the meaning of section 46(2) of the Bombay Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its force to the facts of this case and therefore, if there was no prohibition in the relevant provisions of the Bombay Act under which the present reference arises, and there was none as found by this Court in Kantilal Babulal's case [1965] 16 STC 973, because that was also a reference arising under the very Act, against the collection of sales tax from the purchasers, any excess collection would be a matter of contract and therefore, not liable to be forfeited under the Act. The Tribunal referred to section 46(2) of the Bombay Act and found that the latter portion of sub-section (2) would not be applicable to the facts of the present case as the appellant had not collected any amount by way of tax in excess of the amount of tax payable by it. The Tribunal noted that admittedly in the instant case as the sales were resales of the goods purchased from the registered dealer there is no question of paying tax on the amount of the sales. The Tribunal, therefore, concluded that in its view as the collection was not made by way of tax, the question of forfeiture under section 37 of the Bombay Act did not arise. In that view of the matter, the appeal of the assessee was allowed and the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to answer is whether the Tribunal was justified in holding that the power of forfeiture cannot be invoked on the facts and in the circumstances of the case, and if the power of forfeiture can be invoked, to what extent the power can be exercised. In other words, whether the entire amount of the collection is liable to be forfeited or only the excess amount is a question to be considered. In order to answer this question it would be profitable to set out the relevant provisions contained in section 46 so far as material for the purposes of this reference. Section 46 makes prohibition against the collection of tax in certain cases. The material part of section 46, so far as relevant for purposes of this reference, provides as under: "46. (1) No person shall collect any sum by way of tax in respect of sales 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection of Rs. 6,361.31 effected by the assessee under the head of sales tax paid to the manufacturer was not made by way of tax. We have not been able to appreciate how the Tribunal concluded that what has been collected by the assessee was not by way of tax. The reasoning which has found favour with the Tribunal does not recommend to us at all. The Tribunal has recorded its conclusion in the following terms: "Now, in the instant case, the amount is collected as sales tax paid to the manufacturer. Thepurchasermaynotknowhowthepriceisfixedbythevendor and on the face of it, the rate applicable is 2 per cent and in such case he might have accepted the collection as merely transferring to the purchaser the tax paid to its vendor by the seller. It is open to the purchaser to sue the vendor if he has collected something more than what has been actually paid to the manufacturer but so long as the bills are clear as to what is collected, the provisions of section 37 would not be applicable as it will be not a case of a registered dealer collecting any amount by way of tax in excess of the tax payable by him or otherwise collected tax in contravention of section 46.........." After referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay tax under the Act because the sales were in the nature of resales. This is, with respect, begging the question. There are two conditions which must be satisfied before it can be said that there is a contravention of the prohibition contained in section 46(2). The first condition is that some amount is collected by way of tax and the second condition is that it must be in excess of the amount of tax payable by the dealer under the Act. To determine the nature of the collection from his ultimate liability of paying the tax under the Act is, with respect to the Tribunal, reversing the entire process of logic. Mr. Raval, the learned Advocate for the assessee, was at great pains to persuade us that what has been collected is merely a component of the price and merely because the assessee has stated in the bills that what he was collecting was on account of his costs, which, inter alia, comprised of the tax paid to its vendors, the collection cannot be said to be by way of tax. This is too ingenious a contention which cannot be upheld for the simple reason that what the legislature has prescribed in the prohibition is that the person must not collect any amount by way of tax-may be- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to the effect that even though a certain amount collected is not a tax on the sale or purchase of goods as laid down by the law, it will still be collected as if it was such a tax. This is what section 11(2) has provided. Such a provision cannot in our opinion be treated as coming within the incidental or ancillary power which the legislature has got under the relevant taxing entry to ensure that the tax is levied and collected and that its evasion becomes impossible. We are therefore of opinion that the provision contained in section 11(2) cannot be made under entry 54 of List II and cannot be justified even as an incidental or ancillary provision permitted under that entry." The learned Advocate for the assessee made an attempt to elaborate his contention by relying on the above observation of the Supreme Court in Abdul Quader's case [1964] 15 STC 403 (SC), that if the impugned collection is not by way of the amount of tax, it cannot be forfeited legitimately under the power of forfeiture prescribed under a particular sales tax legislation because that would be contravening the ratio of Abdul Quader's case [1964] 15 STC 403 (SC). We are afraid that in advancing this contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of carrying out the objects of the taxing legislation. If a dealer has collected anything from a purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer. But unless the money so collected is due as a tax, the State cannot by law make it recoverable simply because it has been wrongly collected by the dealer ..................." (Emphasis supplied*) We are, therefore, of the opinion that the learned Advocate for the assessee was not justified in contending as he did by placing reliance on the decision of the Supreme Court in Abdul Quader's case [1964] 15 STC 403 (SC). As stated above, the learned Advocate for the assessee has missed the cardinal and pertinent point which has been brought out succinctly by Krishna Iyer, J., in Ajit Mills' case [1977] 40 STC 497 (SC). The learned Advocate for the assessee, therefore, in this connection, invited our attention to certain observations made in the concurring opinion of Kailasam, J., in Ajit Mills' case [1977] 40 STC 497 (SC), which read as under: "An attempt to justify the provisions of section 11(2) on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause he was not liable to pay tax under the Act. This is, as stated above, merely begging the question. The next important question is as to whether the impugned collection was in excess of what the assessee was liable to pay under the provisions of the Bombay Act. It cannot be urged, and rightly no attempt was made in that direction, that the State was not entitled to collect tax on the turnover of the sales of cotton waste in question. The assessee was no doubt entitled to claim deduction of the turnover of the sales because they were in effect the resales of the goods purchased from the registered dealers. Therefore, it cannot be urged successfully that the State was not entitled to collect the tax over these transactions. It is only if a dealer is able to establish that there were turnovers of resales of the goods purchased from the registered dealers that he is entitled to exclude those turnovers from his taxable turnover return for every quarter. In the present case, it is no doubt true that the assessee has been able to establish that the turnover of the sales of the goods of cotton waste were in fact and in law resales of the goods purchased from the registered dealers a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount is liable to be forfeited ex facie. In this connection the observation of Krishna Iyer, J., in Ajit Mills' case [1977] 40 STC 497 (SC), speaking on behalf of the majority view, are worth bearing in mind in order to determine this question which has been referred, which implies as to whether the whole amount is liable to be forfeited. At page 515 the significance of the difference between the forfeiture and the liability to forfeiture has been brought out: "This signification of 'forfeiture' as 'liability to forfeiture' saves the equity of the statute. The Commissioner must have regard to all the circumstances of the case, including the fact that amounts illegally collected have been returned to the purchasers to whom they belong before passing the final order. We are clear in our minds that the forfeiture should operate only to the extent, and not in excess of, the total collections less what has been returned to the purchasers. We may go a step further to hold that it is fair and reasonable for the Commissioner to consider any undertaking given by the dealer that he will return the amounts collected from purchasers to them. The humanism of a provision may bear upon its co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taking that the entire collection of Rs. 6,361.31 collected by the assessee was by way of tax and the Tribunal has committed an error of law in holding otherwise.
The consequential adjustment which the Tribunal shall, therefore, be required to make in view of our answer which we propose to give is to determine whether the entire amount of Rs. 6,361.31 is liable to be forfeited which will depend on the examination of various aspects of the question as indicated in the majority view of the Supreme Court in Ajit Mills' case [1977] 40 STC 497 (SC) expressed by Krishna Iyer, J., and the relevant part of which has been set out above. The Tribunal in adjusting this decision shall bear in mind the broad guideline prescribed by the Supreme Court in Ajit Mills' case [1977] 40 STC 497 (SC).
The result is that this reference is accepted and the question referred to us is answered in the negative, that is, against the assessee, that the Tribunal was not justified in holding that the amount of Rs. 6,361.31 collected by the assessee was not by way of tax. Having regard to the facts of the case, there should be no order as to costs.
Reference answered in the negative. X X X X Extracts X X X X X X X X Extracts X X X X
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