Bombay High Court
Commissioner Of Sales Tax vs Poona Municipal Corporation on 25 January, 1977
Equivalent citations: (1977)6CTR(BOM)535, [1977]40STC468(BOM)
Bench: D.P. Madon, M.H. Kania
JUDGMENT Madon, J.
1. In each of these thirteen references under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the said Act"), made at the instance of the Commissioner of Sales Tax, the same question has been referred to us, viz. :
"Whether, on a true and proper interpretation of the first part of sub-clause (2) of section 46 of the Bombay Sales Tax Act, 1959, the Tribunal was correct in law in holding that the word 'person' occurring therein applies only to a person who is a dealer and not to a person who is not a dealer in respect of the transactions and, therefore, the order forfeiting the amount of tax collected on casual sale was bad in law ?"
2. The parties in all these references are the same and so are the facts necessary for the determination of these references. We, therefore, purpose to dispose of these thirteen references by a common judgment.
3. The respondent, the Poona Municipal Corporation, was at all material times registered as a dealer under the said Act. During the period 1st January, 1962, to 31st March, 1967, the respondent made sales of scrap materials, skins, refuse, empty barrels, compost, etc., by calling for tenders and accepting the highest tender. In respect of the materials so sold, the respondent charged to the purchasers and collected from them certain amounts by way of sales tax and general sales tax which the respondent would have been liable to pay had the sales made by them been exigible to tax under the said Act. In the relevant assessment periods, these sales were held by the Sales Tax Officer as being casual sales and not part of the taxable turnover of the respondent. Accordingly, the Sales Tax Officer issued to the respondent notices under section 37(2) of the said Act. After giving an opportunity to the respondent, the Sales Tax Officer passed orders forfeiting the amounts collected by the respondent by way of taxes. The respondent filed appeals against the said orders. These appeals were dismissed by the Assistant Commissioner of Sales Tax. The respondent thereafter filed second appeals before the Sales Tax Tribunal and the Tribunal allowed the said appeals following its earlier decision in Second Appeal No. 858 of 1968 Pratap Spinning, Weaving and Manufacturing Co. Ltd. v. State of Maharashtra and Second Appeal No. 425 of 1968 Simplex Mills Co. Ltd. v. State of Maharashtra decided by a common judgment on 31st December, 1970. It is against these orders of the Tribunal that the above thirteen references have been made to us.
4. Sales Tax References Nos. 113 and 132 of 1976 are in respect of the assessment period 1st January, 1960, to 31st March, 1960. Sales tax References Nos. 114 and 133 of 1976 are in respect of the assessment period 1st April, 1960, to 31st March, 1961. Sales Tax references Nos. 115 and 134 of 1976 are in respect of the assessment period 1st April, 1961, to 31st March, 1962. Sales Tax References Nos. 116 and 135 of 1976 are respect of the assessment period 1st April, 1962, to 31st March, 1963. Sales Tax Reference No. 117 of 1976 is in respect of the assessment period 1st April, 1963, to 31st March, 1964. Sales Tax References Nos. 118 and 119 of 1976 are in respect of the assessment period 1st April, 1964, to 31st March, 1965. Sales Tax Reference No. 120 of 1976 is in respect of the assessment period 1st April, 1965, to 31st March, 1966, and Sales Tax Reference No. 121 of 1976 is in respect of the assessment period 1st April 1966, to 31st March, 1967.
5. In its decision in the said two appeals, on the basis of which the Tribunal allowed the respondent's appeals, the Tribunal has held that in sections 37 and 46 of the said Act the word "person" had a restricted meaning and meant a dealer, inasmuch as the whole of the said Act applied to dealers only. In order to test the correctness of the interpretation placed by the Tribunal upon the said sections, it is necessary to set out the material provisions thereof. Section 37(1) of the said Act, as in force at the relevant time, provided as follows :
"37. Imposition of penalty for contravening certain provisions. - (1) If any person -
(a) not being a dealer liable to pay tax under this Act, collects any sum by way of tax, or being a registered dealer collects any amount by way of tax in excess of the tax payable by him, or otherwise collects tax in contravention of the provisions of section 46, or
(b) being a dealer liable to pay tax under this Act, or being a dealer who was required to do so by the Commissioner by a notice served on him fails in contravention of sun-section (1) of section 48 to keep a true account of the value of the goods purchased or sold by him, or fails when directed so to do under that section to keep any accounts or record in accordance with the direction, he shall be liable to pay, in addition to any tax for 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."
6. It may be mentioned by Maharashtra Act 40 of 1969, sub-sections (6) and (7) were inserted in section 38 of the said Act with retrospective effect. The said sub-sections provide as follows :
"(6) Notwithstanding anything contained in this Act or in any other law for the time being in force, where any sum collected by a person by way of tax in contravention of section 46, is forfeited to the State Government under section 37 and is recovered from him, such payment or recovery shall discharge him of the liability to refund the sum to the person from whom it was so collected. A refund of such sum or any part thereof can be claimed from Government by the person from whom it was realised by way of tax, provided that an application for such claim is made by him in writing in the prescribed form to the Commissioner, within one year from the date of the order of forfeiture. On receipt of any such application, the Commissioner shall hold such inquiry as he deems fit, and if the Commissioner is satisfied that the claim is valid and admissible and that the amount so claimed as refund was actually paid in Government treasury or recovered, and no drawback, set-off, refund or remission in respect of that amount was granted, he shall refund the sum or any part thereof, which is found due to the person concerned.
(7) Where any sum so forfeited is paid into the Government treasury or recovered as an arrear of land revenue at any time before the commencement of the Bombay Sales Tax (Amendment) Act, 1969, a claim for refund may be made by the person concerned to the Commissioner in accordance with sub-section (6), within one year from such commencement."
7. Section 46 of the said Act provides as follows :
"46. Prohibition against collection of tax in certain cases. - (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 provisions of this Act :
Provided that, this sub-section shall not apply where a person is required to collect such amount of the tax separately in order to comply with the conditions and restrictions imposed on him under the provisions of any law for the time being in force.
(3) Notwithstanding anything contained in sub-section (2), a dealer who has been permitted by the Commissioner to pay a lump sum, payment under section 40 shall not collect any sum by way of tax on the sales of goods if made during the period to which such lump sum payment applies."
8. It may be mentioned that in section 46(2), the words "and no registration 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" were inserted with retrospective effect by Maharashtra Act 21 of 1962.
9. The scheme of the said Act is that persons, who carry on business of selling or buying goods, once their turnover exceeds the limits prescribed by section 3 of the said Act, become liable to get themselves registered as dealers and pay the tax under the said Act. The said Act also permits them to recoup from the purchasers the amount which they would be liable to pay to the Government by way of tax provided their purchasers agree to so pay such amount to them. This is a facility given to as seller of goods, who is a dealer or, in other words, a permission or an authorisation granted to a seller to collect from his purchaser the amount of tax which the seller is liable 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. Sub-section (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 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 Government in respect of the transaction in question should not be permitted to recoup such amount from his purchasers, and in respect of those who collect tax in contravention of these provisions, section 37 prescribes forfeiture of the amount of tax so collected as also a levy of penalty. By the amendment made with retrospective effect in section 38, the amount so forfeited does not ensure for the benefit of the Government but the purchaser is given a right to apply that it should be refunded to him. The object underlying these sections is simple. It is based on the principle that a purchaser would agree to pay the amount by way of tax to a seller only when he is under the impression that the seller is liable to pay tax on the particular transaction of sale which he is entering into with him. If such an impression or belief has been wrongly induced to him and he is made to pay the amount in consequence thereof, the Government while not permitting the seller to retain the benefit of such erroneous impression nevertheless would refund the amount to the person who has been wrongly so induced to part with his money. On a plain reading of these sections and the intention underlying them we fail to see any principle in confining the interpretation of the word "person" in section 46(2) only to a dealer. To do so would be tantamount to holding that it was the intention of the legislature to penalise dealers who are not liable to pay tax on a particular transaction of sale but who collected the amount by way of tax from their purchasers by inducing in them a belief that they were so liable, but to permit those who are not dealers to so collect the amount. According to us, the intention of the legislature was to prohibit all persons other than those liable to pay tax, whether dealers or not, from recovering the amounts thereof from the other parties to the transaction.
10. Mr. Joshi, the learned counsel for the respondent, however, submitted that since under the Act only a dealer could be registered and assessed to tax, the provisions of sections 37 and 46 must also be so read as to confine them to dealers. It is undoubtedly true that under the Act only a dealer can be registered as such and that it is only on a dealer that an assessment could be made. But the machinery for registration and assessment is different from a provision penalising persons, who under the guise of being liable to pay tax, collect amounts from unwary purchasers. These are different provisions enacted to secure a different object. The machinery for registration and assessment is for collection of revenue for the Government. The provisions of forfeiture are by way of penalty for a person seeking to misuse the provisions of the Act.
11. In support of his submission Mr. Joshi relied upon the decision of the Supreme Court in Abdul Quader & Co. v. Sales Tax Officer . In that case, the question before the Supreme Court was whether section 11(2) of the Hyderabad General Sales Tax Act, 1950, which provided that any amount collected by way of tax by any person otherwise than in accordance with the provisions of the Act must be paid over to the Government and, in default of such payment, the said amount would be recovered from such person as if it were arrears of land revenue, was beyond the legislation competence of the State Legislature. The Supreme Court held that this provision was beyond the legislature competence of the State. The provisions of section 11 of the said Hyderabad Act are materially different from the provisions of sections 37 and 46 of the said Act. The Supreme Court held in that case that the legislative competence of the State enabled the State Legislature to enact a law taxing transactions of sale and purchase of goods and the provisions of the nature impugned before it could not be said to fall under the relevant legislative entry. The vires of these sections 37 and 46 are not before us and, therefore, this authority does not touch upon the issue which we have to decide. It is, however, useful to point out that the very judgment of the Supreme Court relied upon by Mr. Joshi shows that were the provisions of section 11(2) of the said Hyderabad Act construed a a penalty provision, they would have been valid. The Supreme Court had observed at page 408 as follows :
"An attempt was made to justify the provision as providing for a penalty. But as we read section 11(2) we cannot find anything in it to justify that it is a penalty for breach of any prohibition in the Act .... 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 the taxing legislation."
12. In the present case, the scheme of the Act and the provisions of sections 37 and 46 of the said Act show that these sections have been enacted as a penalty for collecting amounts wrongly by way of tax from the purchasers and that this has been done for the purpose of carrying out the objects of the said Act.
13. Mr. Joshi next relied upon another decision of the Supreme Court in Sales Tax Officer v. Tata Oil Mills Co. Ltd. . In that case, the vires of section 22(3) of the Kerala General Sales Tax Act, 1963, was in question. The provisions of that section were in pari materia with section 11(2) of the Hyderabad General Sales Tax Act, which had been declared ultra vires by the Supreme Court. Following its earlier decision, the Supreme Court held that section 22(3) of the said Kerala Act was also beyond the legislative competence of the State Legislature. The same observation, which we have made with respect to Abdul Quader's case , also applies to this case. We may also mention that a Division Bench of this Court had occasion to consider the vires of section 37 of the Bombay Sales Tax Act, 1959, in Special Civil Application No. 818 of 1971 Moolchand Purushottam Patel v. Sales Tax Officer along with Original Side Miscellaneous Petition No. 135 of 1969 Cinematographic Exhibitors Association v. Sales Tax Officer decided on 25th November, 1971 [Page 475 infra]. The Division Bench consisting of Deshpande and Vaidya, JJ., after considering Abdul Quader's case and other cases, has held that the provisions of section 37 of the Bombay Act were materially different from the provisions of section 11(2) of the said Hyderabad Act and were valid.
14. Mr. Joshi also referred to some other decisions to show that under the Act an assessment could only be made upon a dealer, but it is unnecessary to consider those decisions, because none of them has any relevance to the point which we have to decide.
15. Clause (19) of section 2 of the said Act defines the word "person" as including "any company or association or body of individuals, whether incorporated or not, and also a Hindu undivided family, a firm and a local authority". For the reasons stated above, we hold that the word "person" in the first part of sub-section (2) of section 46 of the said Act is not restricted to a person who is a dealer, whether in respect of the transactions in question or otherwise, and further is used not only as applying to a human being but also in the sense contained in the inclusive definition of the word "person" in clause (19) of section 2 of the said Act.
16. We, accordingly, answer the question referred to us in each of these thirteen references in the negative. Since only the first of these references was argued and the arguments were common to all these references, we direct the responded to pay to the applicant the costs of these references fixed in all at Rs. 300.
17. Reference answered in the negative.