Ramkrishan Kulwantrai Vs. Commissioner of Sales Tax - Court Judgment

Madon, J.

1. These four references under section 61(1) of the Bombay Sales Tax Act, 1956 (hereinafter for the sake of brevity referred to as 'the Act'), have been made at the insurance of the assessee and, in each of these references, the same identical question has been submitted to this Court for its determination. The parties to these references are the same and the material facts which have given rise to these references and which are necessary for answering the question submitted to us are also the same. The only difference is that Sales Tax Reference No. 179 of 1976 concerns the assessment year 1st April, 1963, to 31st March, 1964; Sales Tax Reference No. 178 of 1976 concerns the assessment year 1st April, 1964, to 31st March, 1965; Sales Tax Reference No. 177 of 1976 concerns the assessment year 1st April, 1965 to 31st March, 1966; and Sales Tax Reference No. 181 of 1976 concerns the assessment year 1st April, 1966, to 31st March, 1967. For this reason, we have thought it convenient to dispose of all these four references by a common judgment.

2. The assessee are a partnership firm. They are registered dealers under the Act and carry on business in iron and steel and in other goods. During each of the above assessment years, the assessees delivered a part of their stock of iron and steel to certain persons under the directions and orders issued to them by the Iron and Steel Controller. Apprehending that the sales tax authorities might contend that these transactions were transactions of sale of these goods to the persons to whom these goods were delivered as aforesaid, the assessee asked such persons to pay to them the amounts which they would be liable to pay by way of sales tax to the Government if the department were top hold that these transactions were transactions of sale and, therefore, exigible to tax under the Act. In the course of their assessment proceedings, however, the Sales Tax Officer accepted the contention of the assessee that these transactions were not transactions of sale and were, therefore, not exigible to tax. However, the Sales Tax Officer by his orders under section 37 of the Act forfeited the said amounts paid to the assessee by the persons to whom the goods were delivered by them pursuant to the directions and orders of the Iron and Steel Controller as being amounts by way of tax wrongfully collected by the assessees. The assessees thereupon filed appeals before the Assistant Commissioner of Sales Tax. These appeals were dismissed. The assessees thereupon went in second appeal to the Sales Tax Tribunal. The Tribunal also dismissed the assessees' appeals. It is against these orders of the Tribunal that the present references have been made.

The question referred to us in each of these references is as follows :

'Whether, in the facts and circumstances of the case and on a true and correct interpretation of section 46(2) of the Bombay Sales Tax Act, 1959, the Tribunal was correct in law in coming to the conclusion that the latter part of section 46(2) was wide enough to take within its fold even the transactions which did not amount to sales and in concluding that the amounts collected by way of tax on such transactions were liable to be forfeited under section 37(1)(a) of the said Act ?'

The material provisions of section 46 of the Act are 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 the provisions of this Act .......'

3. Section 37(1), as it stood at the relevant time, inter alia, provided that if any person not being a dealer liable to pay tax under the Act collected any sum by way of tax, or being a registered dealer collected any amount by way of tax in excess of the tax payable by him, or otherwise collected tax in contravention of the provisions of section 46, he would not only be liable to pay a penalty, but also the sum collected by him by way of tax in contravention of section 46 was liable to be forfeited to the State Government. The other sub-section of section 37 prescribe the procedure for levy of such penalty and forfeiture of the amount of tax wrongfully collected.

4. Before us, Mr. Joshi, the learned counsel for the assessee, has contended that the Act was passed by the State Legislature in pursuance of the legislative power conferred upon it by entries 54 and 64 in List II of the Seventh Schedule to the Constitution of India and that under such powers the State Legislature could not validly enact a law which dealt with or related to a transaction which was not a sale or purchase of goods. Mr. Joshi has further submitted that to construe section 46 of the Act as authorising a prohibition against collection of tax in respect of a transaction which was not a transaction of sale or purchase and thus as a complementary thereto as authorising the State Government under section 37(1) to forfeit such amount would be unconstitutional as being beyond the legislative competence of the State Legislature. Mr. Joshi has contended that an interpretation which would render a section unconstitutional should not be placed upon a section and, therefore, section 46(2) should be so construed and interpreted as to make it applicable only to transactions of sale or purchase. Mr. Joshi has further submitted that, even otherwise, on a proper interpretation of section 46, it did not apply to any amount collected by a registered dealer by way of tax in respect of a transaction which was not a transaction of sale or purchase. Mr. Jetly, the learned counsel for the department, has, no the other hand contended that the power to bring within the ambit of sections 46 and 37 the amounts collected by a registered dealer by way of tax in respect of transactions which were not transactions of sale was a power which was incidental or ancillary to the taxing power of the State under the said entry 54 read with the said entry 64. Mr. Jetly further submitted that the words in section 46 and, particularly, in the latter part of sub-section (2) of that section, were unambiguous and must be given their plain and ordinary meaning and, if given such meaning, the department was justified in law in forfeiting the amounts in question. These arguments of the department have found favour with the Tribunal.

5. The rival contentions set out above now fall to be examined by us. For this purpose, it is necessary for us to trace the source of the legislative power of the State Legislature in enacting the Act as also to examine the scheme of the Act. List II of the Seventh Schedule to the Constitution enumerates the matters with respect to which the legislature of any State has the power to make laws. Entries 54 and 64 in the said List II provide as follows :

'54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.

64. Offences against laws with respect to any of the matters in this List.'

6. List I in the Seventh Schedule enumerates the mattes with respect to which the Parliament has the exclusive power to make laws. Entries 92, 92A, 93 and 97 of the said List I provide as follows :

'92. Taxes on the sale or purchase of newspapers and on advertisements published therein.

92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.

93. Offences against laws with respect to any of the matters in this List.

97. Any other matter not enumerated in List Ii or List III including any tax not mentioned in either of those List.'

7. Article 286 of the Constitution prescribes certain restrictions as to the imposition of tax on the sale or purchase of goods. Under that article, no law of a State can impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place either outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India. The Parliament is given the power to make a law formulating principles for determining when a sale or purchase takes place in any of the above ways. Further, under article 286, any law of a State which, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce is to be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. Clause (12) of article 366 defines 'goods' as including 'all materials, commodities, and articles'. Thus, the constitutional position with respect to legislative power is that the State Legislature can pass an Act providing for taxes on sales or purchases of goods other than newspapers where such sales or purchases take place within the State. Further, any such tax on the sales or purchases of goods, which, by an Act of Parliament, have been declared to be of special importance in inter-State trade or commerce, is to be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of that tax as the law of the Parliament might specify.

8. The Act was enacted by the State Legislature in pursuance of the legislative powers conferred upon it by the said entries 54 and 64 of List II in the Seventh Schedule to the Constitution. The long title of the Act is 'An Act to consolidate and amend the law relating to the levy of tax on the sale or purchase or certain goods in the State of Bombay'. The preamble to the Act states 'Whereas it is expedient to consolidate and amend the law relating to the levy of tax on the sale or purchase of certain goods in the State of Bombay; It is hereby enacted ...'. Section 2 is the definition section. The definitions given in section 2 also make it clear that the subject-matter of the Act is the sale or purchase of goods in the State of Bombay. Though, under the said entry 54, the State Legislature had the power to impose a tax on the sale or purchase of any goods taking place within the State except newspapers and, so far as the goods declared by the Parliament to be of special importance in inter-State trade or commerce (hereinafter for the sake of brevity referred to as the 'declared goods') are concerned, subject to restrictions imposed by Parliament, the State Legislature has not chosen to exercise fully its legislative power while enacting the Act. From the nature of thing, it would be impossible for the administrative machinery of the State to assess each and every single transaction of sale or purchase effected within the State and even in the case of those whose business it is to buy and sell goods, it would be difficult, if not unproductive, for the State to assess small traders. Bearing these considerations in mind, the State Legislature has imposed tax only upon traders of a certain class who are termed 'dealers' in the Act. Further, it is not all dealers who are liable to pay tax but only those whose turnover of sales or purchases exceeds a certain limit. Another consideration before the legislature was that the economic incidence of a sales tax must ultimately fall on the consumer. Certain goods are necessities of life and certain other goods may be of great importance to the industry and trade and commerce of the State. It would, therefore, impose a harsh burden on the poorer sections of the society to levy any tax in the first case and, in the second case, it would be detrimental to the economic prosperity of the State to levy a tax at the same rate upon sales or purchases of each and every class of goods. Accordingly, by the Act, sales of certain classes of goods have been exempted from tax, and different rates have been prescribed for sales of other classes of goods. How this has been achieved will be seen by a brief review of the relevant provisions of the Act. Clause (11) of section 2 defines the term 'dealer'. By that clause (omitting the necessary words), 'dealer' means 'any person who whether for commission, remuneration or otherwise carries on the business of buying or selling goods in the State'. Clause (13) of section 2 defines 'goods' as meaning all kinds of movable property (not being newspapers or actionable claims, or stocks, shares or securities) and as including all materials, articles and commodities and all forest produce which is agreed to be severed before sale or under the contract of sale. There is an explanation to this definition which is not material. The definition of 'sale' given in clause (28) of section 2 is important. That clause is as follows :

'(28) 'sale' means a sale of goods made within the State, for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge; and the words 'sell', 'buy' and 'purchase', with all their grammatical variations and cognate expressions, shall be construed accordingly;

Explanation. - For the purposes of this clause, a sale within the State includes a sale determine to be inside the State in accordance with the principles formulate in sub-section (2) of section 4 of the Central Sales Tax Act, 1956;'.

9. It will be convenient to see along with this explanation the definition of the terms 'purchase price' and 'sale price' given in clause (22) and (29) respectively of section 2. These clauses are as follows :

'(22) 'purchase price' means the amount of valuable consideration paid or payable by a person for any purchase made, including any sum charged, for anything done by the seller in respect of the goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged;

(29) 'sale price' means the amount of valuable consideration paid or payable to a dealer for any sale made, including any sum charged, for anything done by the dealer in respect of goods at the time of or before delivery thereof, other than the cost of insurance for transit or of installation, when such cost is separately charged;'.

Clauses (32) and (33) define 'tax' and 'taxable goods' respectively and are as follows :

'(32) 'tax' means a sales tax, general sales tax, purchase tax, or retail sales tax, payable under this Act;

(33) 'taxable goods' means goods other than those on the sale or purchase of which no tax is payable under section 5;'.

Clauses (35) and (36) define 'turnover of purchases' and 'turnover of sales' respectively and are as follows :

'(35) 'turnover of purchases' means the aggregate of the amounts of purchase price paid and payable by a dealer in respect of any purchase of goods made by him during a given period, after deducting the amount of purchase price, if any, refunded to the dealer by the seller, in respect of any goods purchased from the seller and returned to him within the prescribed period;

(36) 'turnover of sales' means the aggregate of the amounts of sale price received and receivable by a dealer in respect of any sale of goods made during a given period, after deducting the amount of sale price, if any, refunded by the dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within the prescribed period;'.

10. Section 3 provides that every dealer whose turnover either of all sales or of all purchases made in a year first exceeds the relevant limit specified in that section is to be liable to pay the under the Act with effect from the said date. By section 22 he is also under an obligation to get himself registered as a dealer. Further, under section 3, a dealer who has once become liable to pay tax under the Act is to continue to be so liable until his registration is duly cancelled. Section 5 of the Act provides that no tax is to be payable on the sales or purchases of any goods specified in Schedule A to the Act. There are different types of taxes imposed by the Act, namely, sales tax, general sales tax, purchase tax and retail sales tax. Section 7 provides for a single point levy of sales tax or general sales tax on declared goods. Section 8 levies sales tax on all goods specified in Schedule C. Section 9 levies general sales tax on sales of goods specified in Schedule D. Under section 10, in respect of the sales of goods specified in Schedule E, sales tax, general sales tax and retail sales tax have been levied, while section 13 levies purchase tax on certain purchases of goods. The phraseology of sections 7 to 10, which levy sales tax, general sales tax and retail sales tax, is almost identical and significant. The opening words of section 7(1) are as follows :

'There shall be levied a sales tax on the turnover of sales of declared goods specified in Part I of Schedule B at the rate set out against each of them in column 3 thereof, but after deducting from such turnover -

(i) sales of goods ...,

(ii) resales of goods ...,

(iii) sales of goods, or resales of goods to which clause (ii) does not apply ....'

11. Sub-section (2) of section 7, which is in identical terms, makes provision for levying a general sales tax on declared goods specified in Part II of Schedule B. The opening words of section 8 are : 'There shall be levied a sales tax on the turnover of sales of goods specified in Schedule C at the rate set out against each of them in column 3 thereof, but after deducting from such turnover ...' The deductions are once again in respect of certain sales or resales of goods. The opening words of sections 9 and 10 also show that the tax imposed by those sections is on the turnover of sales of goods specified, in the case of section 9 in Schedule D and, in the case of section 10 in Schedule E, at the rate set out against each of these classes of goods in column 3 of the relevant schedule, but after deducting from such turnover certain classes of sales and resales of goods. Thus, the scheme of the Act is that sales tax or general sales tax is imposed on the turnover of sales. Under section 11, tax at a reduced rate is payable in respect of certain classes of sales.

12. Thus, under the Act, tax is not imposed upon a dealer's total turnover of sales of goods but only upon that part of the turnover which is arrived at after deducting from the total turnover the turnover in respect of certain sales or resales with respect to which the dealer is entitled to a deduction, which turnover, we will, for the sake of brevity, refer to as 'the taxable turnover of sale'. Further, as the rates set out in the different schedules are different for different types or classes of goods, in order to arrive at the amount of tax payable by a dealer, each taxable transaction of sale has to be looked at in order to ascertain the rate at which the tax is attracted to it. Thus, though sales tax or general sales tax is levied on the turnover of sales, for ascertaining the taxable turnover of sales, each particular transaction has to be looked at not only for determining whether any transaction in respect of which a deduction is claimed is is law deductible but also for ascertaining the quantum of the tax which is payable by the dealer. Sections 36 and 37 of the Act deal with the imposition of penalties in certain cases. We have already referred earlier to the provisions of section 37. Section 63 makes certain acts a punishable offence. Clause (h) of section 63(1) makes it an offence for any person without reasonable excuse to contravene any of the provisions of section 46, which we have already reproduced earlier. That the Act has been enacted for the purpose of levying a tax on the sales or purchases of certain goods taking place within the State and in respect of matters incidental or ancillary thereto is further made clear by section 75 of the Act, which provides as follows :

'75. Certain sales and purchases not to be liable to tax. - Nothing in this Act or the rules made thereunder shall be deemed to impose or authorise the imposition of a tax on any sale or purchase of any goods, where such sale or purchase takes place -

(a) (i) outside the State; or

(ii) in the course of the import of the goods into the territory of India, or the export of the goods of such territory; or

(b) in the course of inter-State trade or commerce,

and the provisions of this Act and the said rules shall be read and construed accordingly.

Explanation. - For the purpose of this section whether a sale or purchase takes place -

(i) outside the State; or

(ii) in the course of the import of the goods into the territory of India, or the export of the goods of such territory; or

(iii) in the course of inter-State trade or commerce,

shall be determined in accordance with the principles specified in sections 3, 4 and 5 of the Central Sales Tax Act, 1956.'

13. Having ascertained the source of the legislative power of the State Legislature to enact the Act and having examined the scheme of the Act, let us now turn to the section in question, namely, section 46, and consider the correct interpretation to be placed upon it. This we must do bearing in mind two cardinal principles of interpretation of statutes, now settled beyond debate by decisions of the Supreme Court. These principles are : (1) where two interpretations of a statutory provision are possible, according to one of which the particular provision would be constitutionally valid, while according to the other, it would be tainted with the vice of unconstitutionality, the court must put on the particular statutory provision that interpretation which ensures its constitutionality; and (2) for this purpose the court would, if necessary, read down the particular statutory provision, as was done by the Supreme Court in the case of R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited : [1978]1SCR338 . The submission of Mr. Jetly, the learned counsel for the department, was that sub-section (1) of section 46 of the Act and the first part of sub-section (2) of that section both refer to a sale, while the second part of section 46(2) does not contain any such limitation and, therefore, applies both where there is a sale of goods as also where there is a transaction which is not a sale of goods. To recapitulate, section 46(1) provides that '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'. Thus, under section 46(1), everyone is prohibited from collecting any sum by way of tax in respect of goods made tax-free by section 5, that is, goods set out in Schedule A to the Act. Section 46(2), according to Mr. Jetly, is in two parts, the first providing, '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, the second part providing, '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 of this Act'. In Mr. Jetly's submission the first part prohibits a person 'who is not a registered dealer and liable to pay tax in respect of any sale or purchase' from collecting on the sale of any goods tax in respect of any sale or purchase' from collecting on the sale of any goods 'any sum by way of tax from any other person', while the second part prohibits every registered dealer from collecting 'any amount by way of tax in excess of the amount of tax payable by him', this prohibition in the case of registered dealers being irrespective of the fact whether the amount of tax collected by a registered dealer was in respect of a transaction of a sale or not. According to Mr. Jetly, for the application of the second part of sub-section (2), all that one has to see is the total amount collected by a registered dealer by way of tax and the total amount of the tax payable by him under the Act and, if the total amount of such collection exceeds the total amount of tax payable, such excess would be in contravention of the second part of section 46(2) and is liable to be forfeited to the State Government under section 37(1) of the Act. We are unable to put upon section 46(2) the interpretation, canvassed before us by Mr. Jetly, for two reasons. The first is that to place such an interpretation would be to bring about an absurd result and would defeat and frustrate the intention of the legislature in enacting the Act. If one were to pause to consider and analyse the interpretation canvassed for by the department, two absurdities which would result from placing such an interpretation immediately strike one. If all that one has to look at is the total amount collected by a registered dealer by way of tax and the total amount of tax payable by him and to forfeit the excess as being amount collected in contravention of the so-called second part of section 46(2), it would permit registered dealers to collect unauthorisedly amounts by way of tax on transactions of sale which are not liable to tax. To give a concrete instance, a registered dealer may collect tax on sales of goods exempted from tax by section 5 as also on other classes of sales in respect of which no tax is payable. In the case, however, of sales of goods on which tax is payable, either by reason of a personal relation with the purchaser or out of some other consideration, he may not collect any amount by way of tax from such purchaser. Section 46 does not cast an obligation upon a dealer to collect tax. It, by implication, authorises him to do so, whether to collect to the tax or not in respect of taxable transactions of sale, being optional to the dealer. In the illustration given by us above, the total amount of tax collected by such registered dealer on sales of goods exempted from taxation as also on sales of goods exigible to tax may equal the amount of tax payable by him in respect of all transactions sales of goods exigible to tax for the reason that the dealer did not choose to collect tax on some of these transactions of sales exigible to tax. If the interpretation canvassed for by the department were correct, such a registered dealer incurred no liability and can with impunity reimburse himself for the tax which he would have to pay on transactions of sales exigible to tax in respect of which he had not collected or recovered tax from his purchasers from the amounts wrongfully collected by him from his purchasers on tax-free transactions of sales. This was not and surely could never have been the intention of the legislature. The intention of the legislature was to prohibit collection of tax on every transaction of sale or purchase which was not exigible to tax. The other absurd result which would follow from the wider interpretation sought to be placed by the department upon the so-called second part of section 46(2) would be that a person, who is not a registered dealer, would be prohibited from collecting any sum by way of tax on sales of any goods only, while a registered dealer would be prohibited from collecting any amount by way of tax on any transaction, whether it is a sale or not a sale. According to this interpretation, if, therefore, an unregistered dealer, who is not liable to pay tax, collected, by way of sales tax, amounts on transactions which are not transactions of sales, he would be able to keep the amounts so collected by him, while in the hands of a registered dealer, amounts collected on such transactions would be liable to be forfeited. It surely could not have been the intention of the legislature to place an unregistered dealer on a higher and better footing than a registered dealer. When we put to Mr. Jetly the results which would flow from the interpretation canvassed for by the department, two of which we have outlined above, Mr. Jetly had no answer to give save to say that the words in the section must be read in their plain grammatical sense. The fallacy in the interpretation canvassed for by the department arises not because the department has read the words in section 46 according to their plain grammatical meaning and sense but according to the meaning and sense attributed to them by the department. The department has considered section 46(2) as being divided into two wholly distinct and separate parts just as sub-section (1) is divided from sub-section (2). Thus, according to the department, sub-section (1) and (2) of section 46 really constitute three separate sub-sections, the first sub-section being sub-section (1), as enacted, the second sub-section being what the department calls the first part of sub-section (2) and the third sub-section being what the department calls the second part of sub-section (2). In doing so, what has been overlooked is that sub-section (2) is an integral whole and cannot be split up into two separate and distinct parts, as canvassed for by the department, an error into which the Tribunal also fell. Sub-sections (1) and (2) deal with different prohibitions, section 46(1) containing an absolute prohibition against all persons, whether they are registered dealers or not, against collecting any sum by way of tax in respect of sales of tax-free goods and, sub-section (2) containing prohibitions with respect to collection of tax on sales of goods other than tax-free goods. Since in respect of sales of goods which are exigible to tax only registered dealers are authorised by implication to collect the tax, sub-section (2) deals with the two facts of a single prohibition against collection of tax in respect of transactions of sales of goods other than tax-free goods, where such sales are not exigible to tax. The so-called first part of it deals with those persons who are not registered dealers liable to pay tax in respect of such sales or purchases. The so-called second part deals with registered dealers who collect amounts by way of tax in excess of the amounts of tax payable by them in respect of these transactions. The phrase 'No person, who is not a registered dealer and liable to pay tax in respect of any sale or purchase, shall collect ..' in sub-section (2) really means 'No person other than or except a registered dealer liable to pay tax in respect of any sale or purchase shall collect ...' As the whole of sub-section (2) deals with the two facets of a single prohibition, a prohibition against collection of tax in respect of those transactions of sale of sale or purchase not falling under sub-section (1), the concept of collection of tax on a transaction of sale is imported into the entire sub-section. The prohibitions imposed by section 46(1) and (2) are complete. Section 46(1) and (2) properly analysed contain three prohibitions : (1) a prohibition against any person, whether a registered dealer or not, from collecting any sum by way of tax in respect of sales of tax-free goods, (2) a prohibition against any person who is not a registered dealer liable to pay tax from collecting any sum by way of tax on the sale of any goods, and (3) a prohibition against a registered dealer from collecting any amount by way of tax in excess of the amount of tax payable by him in respect of a transaction of sale of purchase. The third prohibition set out above would be violated when a registered dealer collects tax in respect of a transaction of sale of goods at a rate higher than the rate of tax attracted to the sales of this particular class of goods, for the dealer has then collected an amount by way of tax in excess of the amount of tax payable by him. Such prohibition would also be violated if in the case of a particular transaction of sale only sales tax is payable but the registered dealer collects amounts by way of sales tax as also general sales tax on such transaction of sale. It would also be violated where, by reason of certain exemptions, no tax is payable on a particular type of sale and the registered dealer collects amounts by way of tax on it. To take, however, merely the aggregate of the amounts collected by a registered dealer by way of tax and deduct from it the amount of tax payable by him and to forfeit the balance would be, as we have pointed out above, doing violence to the language and the meaning of section 46(2), as also to make a mockery of the intention of the legislature in enacting section 46.

14. The fallacy in the department's case lies in reading what is termed by the department and the Tribunal as the latter part of section 46(2) as constituting a separate statutory provision and in not reading together and harmoniously, as well-settled canons of interpretation of statutes require, the whole of sub-section (2) together as being one.

15. The interpretation canvassed for by the department is also replete with another difficulty, so far as its acceptance by the court goes; for to accept such an interpretation would be, in our opinion, to render unconstitutional the prohibition with respect to registered dealers contained in section 46(2). As mentioned earlier, the legislative powers of the State Legislature to enact the Act are derived from entries 54 and 64 of List II in the Seventh Schedule to the Constitution. Thus, under it, the State Legislature has the power to legislate imposing taxes on sales and purchases of goods other than newspapers taking place within the State and to legislate with respect to offences against such sales tax law. This would include all powers incidental and ancillary to the exercise of the legislative power to impose this tax. Powers which are incidental and ancillary to the exercise of the legislative power under the said entries 54 and 64 cannot, however, be extend to matters not covered by these two entries. They must be exercised and must operate in the field of sales and purchases of goods. It is now well-settled by the decisions of the Supreme Court that the expression 'sale of goods' in the Act and the expression 'sale or purchase of goods' in the said entry 54 must be interpreted in their legal sense and should be given the same meaning which is given in the State of Goods Act, 1930 [see Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash : [1955]1SCR243 and State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. : [1959]1SCR379 , to cite but two of these decisions]. For this reason, any attempt on the part of the State Legislature in the exercise of its legislative power under entries 54 and 64 to legislate with respect to a matter which does not fall within the field of sale or purchase of goods would be to exceed its legislative competence and would render the offending statutory provisions void. Where the question of constitutionality is involved, one has to look to the scheme of the Act and the setting in which the particular statutory provision, to which the constitutional challenge is made, occurs. In R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited : [1978]1SCR338 , the Supreme Court had to consider the validity of section 37(1) of the Act, as in force in the State of Gujarat, that section being the same as section 37(1), as it stood at the relevant time in the Act, and with which we are concerned. In that case, the respondents had collected certain amounts from their purchasers on transactions of sale not exigible to tax. Krishna Iyer, J., in the course of his judgment, pointed out that the prohibitions contained in section 46 have been made effective by section 37(1)(a) and section 63(1)(h), in the first case by departmental action and in the second case by criminal proceedings. Referring to section 46, Krishna Iyer, J., said :

'Although there is no specific provision enabling the dealer to pass on the tax to the customer, there is a necessary implication in section 46 authorising such recovery, it being optional for him to do so or not. The primary liability to pay the tax is on the dealer but it is a well-established trade practice, which has received express or implied legislative cognisance, that the dealer is not prohibited from passing on the tax to the other party to the sale. Such a usage is implicit in section 46 of the Act although what is explicit in the provision is that nothing shall be collected by way of tax in respect of sale of any goods exempted under section 5 and no registered dealer shall exact by way of tax any sum exceeding what is payable under the Act .... In short, there is a triple taboo writ into section 46. This prohibitory project is made operational, as stated earlier, by two other provisions, one sounding in criminal and the other in departmental proceedings.'

16. It is pertinent to note that section 46 before the Supreme Court is the same section 46 with which we have to deal. In testing whether the provisions of section 37(1), which provide for forfeiture of amounts unauthorisedly collected by way of tax, were constitutional or not, the Supreme Court accepted the test laid down in its earlier decision in R. Abdul Quader and Co. v. Sales Tax Officer, Second Circle, Hyderabad : [1964]6SCR867 . In Abdul Quader's case : [1964]6SCR867 , section 11(2) of the Hyderabad General Sales Tax Act, 1950, was declared void by the Supreme Court on the ground that it did not have anything to do with penalties and could not be justified as a penalty on the dealers. The court held :

'It [that is, section 11(2) of the Hyderabad Act] 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. 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. This cannot be done directly for it is not a tax at all within the meaning of entry 54 of List II, nor can the State Legislature under the guise of incidental or ancillary power do indirectly what it cannot do directly.'

17. Referring to the first sentence in the above-quoted passed from Abdul Quader's case : [1964]6SCR867 , Krishna Iyer, J., said in Ajit Mills case : [1978]1SCR338 that the crucial ratio of Abdul Quader's case : [1964]6SCR867 lay in that sentence. Continuing he observed :

'Had there been a penalty, including forfeiture, coupled with a prohibition against collecting any amount wrongly by way of tax from purchasers, 'it may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation'. In a sense, Abdul Quader : [1964]6SCR867 demarcates the constitutional watershed between merely laying hands upon collection by way of tax by traders although they are not exigible from traders (a provision for which the State is under-powered by entry 54 of List II, even expanding it by the doctrine of implied powers) and the policing by penalising, including forfeiting illegal exactions, of the working of a taxing statute and inhibiting injury to the public.'

18. Dealing with the challenge to section 37 on the ground that section 37(1) violated article 19(1)(f) of the Constitution, the Supreme Court rebutted that challenge by holding (at page 514), 'Without holding that article 19(5) is violated we think the ends of justice can be met by reading down the forfeiture clause interpretatively.' Referring to the word 'collected' in the phrase 'any sum collected by the person', Krishna Iyer, J., observed (at page 514) :

'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 it was not taxable, it was not collected. 'Collected', in an Australian Customs Tariff Act, was held by Griffith, C.J., not 'to include money deposited under an agreement that if it was not legally payable it will be returned' : (Words & Phrases, page 274). We therefore semanticise 'collected' not to cover amounts gathered tentatively to be given back if found non-eligible from the dealer.'

19. Abdul Quader's case : [1964]6SCR867 , the ratio of which has been approved in Ajit Mills' case : [1978]1SCR338 , is thus authority for the proposition that the State's power to legislate under entry 54 in Lit II of the Seventh Schedule to the Constitution does not extend to transactions which are not exigible to tax by the State under the said entry. Ajit Mills' case : [1978]1SCR338 is an authority for the proposition that if necessary a narrow interpretation should be placed upon the words used in a section in order to give the section an interpretation which would bring about its constitutional validity.

20. We have had occasion earlier to consider the scheme of section 46 of the Act. After referring to the provisions of that section, we said in Commissioner of Sales Tax v. Poona Municipal Corporation [1977] 40 S.T.C. 468 :

'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.'

Again, in Mahalakshmi Glass Works Pvt. Ltd. v. Commissioner of Sales Tax [1977] 40 S.T.C. 488, we have held :

'In our opinion, on the other hand, the expression 'any amount by way of tax in excess of the amount of tax payable by him under the provisions of this Act' used in sub-section (2) of section 46 of the said Act clearly shows that the legislature intended, inter alia, to deal with a situation where a registered dealer collects any amounts from a purchasers on the ground that it represents the tax which the dealer would be liable to pay under the said Act when such amount or a part thereof is not so payable.'

21. In this connection, we may refer to another case decided by us, namely, Commissioner of Sales Tax v. Ramkrishna Kulvantrai [1976] 37 S.T.C. 564. That was a case which arose under the Central Sales Tax Act, 1956. The assessees in that case had collected certain amounts both in respect of inter-State sales effected by them as also on transactions which were not sales. The amounts so collected in respect of those transactions which were not transactions of sale were forfeited. In that case, the Tribunal upheld the contention of the assessees that if the transactions in question were not sales, there could be no amount collected thereon by way of any sales tax payable by the seller and, therefore, the question of forfeiture of such amount did not arise. The Tribunal further held that under the Central Sales Tax Act, 1956, the assessing authorities had no power to forfeit any such amount or to levy any penal on any sum collected in contravention of section 9A of the said Act. Section 9A of the said Act provided : 'No person who is not a registered dealer shall collect in respect of any sale by him of goods in the course of inter-State trade or commerce any amount by way of tax under this Act, and no registered dealer shall make any such collection except in accordance with this Act and the Rules made thereunder.' The application made by the department to the Tribunal to make reference to this Court was rejected by the Tribunal. Against this rejection, the Commissioner of Sales Tax filed an application to this Court for an order directing the Tribunal to state a case and refer the questions of law set out therein to this Court. While rejecting that application, we observed :

'Section 9A of the Central Sales Tax Act, 1956, in clear terms talks of the amount by way of tax under the said Act collected by a registered dealer 'in respect of any sale by him of goods in the course of inter-State trade or commerce'. It does not talk of any amount collected by way of tax in respect of any purported sale or any transaction which is a purported sale. If there is no sale by one man to another, the question of collecting any tax on it either rightfully or wrongfully under the said Act does not and cannot arise.'

22. It is true that the language of section 9A is not identical with that of the section we have to consider, but none the less these observations on the said section 9A are pertinent for our present purpose. In Trustees of the Port of Bombay v. P. D. Karandikar, Sales Tax Officer, A Ward, Unit III, Bombay (Since reported at page 102 supra) (Miscellaneous Petition No. 318 of 1971) and Trustees of the Port of Bombay v. A. N. Patil, Sales Tax Officer, A Ward, Unit III, Bombay (Since reported at page 102 supra) (Miscellaneous Petition No. 224 of 1972 - Unreported), decided by us on 24th/27th November, 1978, we had to interpret section 46(2) of the Act. In that case, we held that the expression 'No person, who is not a registered dealer and liable to pay tax in respect of any sale or purchase' occurring in that sub-section means 'no person other than or except a registered dealer liable to pay tax in respect of any sale or purchase'.

23. If under entry 54 in List II of the Seventh Schedule to the Constitution the State's power of taxation does not extend to levying a tax on a transaction which is not a transaction of sale or purchase, then the State does not possess under entry 64 in that list the power to make any legislative provision with respect to any amount collected by a registered dealer in respect of such transaction merely by reason of the fact that in respect of other business carried on by him he is a dealer within the meaning of that term as defined in the Act and has got himself registered as a dealer under the Act. In the course of arguments, we put to Mr. Jetly as to what would be the position if a registered dealer owned a plot of land and sold it to another and charged sales tax to the purchaser and collected the amount so charged Whether such amount could be forfeited by the State Government under section 37(1) of the Act as being a collection made contrary to the provisions of section 46(2) or rather the second part of it, as has been referred to by the department and the Tribunal Mr. Jetly stated that this amount could not be forfeited under the Bombay Sales Tax Act because the State had no power under the said entry 54 read with the said entry 64 to legislate with respect to a sale of land. If that is the position, we fail to see any distinction or difference between a transaction of sale of land, put by us to Mr. Jetly, and a transaction which is admittedly not a transaction of sale of goods.

24. In support of his submission, Mr. Jetly relied upon two unreported judgments of Bhatt, J., in C.R. Wood & Co. Private Limited v. S. B. Sidhwani (Miscellaneous Petition No. 667 of 1969 decided on 15th March, 1975 (Bombay High Court)) and in Electric Constitution & Equipment Co. Ltd. v. D. K. Vanjari, Sales Tax Officer (Miscellaneous Petition No. 755 of 1969 decided on 15th March, 1975 (Bombay High Court)), decided also on the same day. In the first case, certain amounts collected by the petitioners on sales taking place in the course of import of goods into the territory of India were ordered to be forfeited by the Sales Tax Officer under section 37(1) of the Act. The validity of section 37(1) was challenged before Bhatt, J. He negatived that challenge. With respect to the amounts collected by the petitioners by way of tax from sales taking place in the course of import of goods into the territory of India, Bhatt, J., held that the expression 'tax' in section 37(1)(a) and (2) must be given its ordinary and legitimate meaning, namely, an amount of money whether authorised or not, recovered by the registered dealer as and by way of tax and, therefore, when a registered dealer collected any amount by way of tax, which, in fact, he was not entitled to collect by way of tax, he squarely fell within the ambit of section 37(1)(a) and (2). He further held that once a registered dealer had collected any amount by way of tax in excess of the tax payable by him, the provisions of section 37 of the Act must apply. In arriving at the conclusion, the learned Judge rejected the argument that, in view of section 75 of the Act, the provisions of section 37 could not be made applicable to the transactions in question. With respect to the learned Judge, we are unable to agree with the conclusion reached by him or the reasoning which led him to reach this conclusion. The learned Judge has not considered the scope of the incidental and ancillary powers of the State under the said entry 54 read with the said entry 64 of List II. The learned Judge has further overlooked that, under article 286 of the Constitution, no State has the power to impose a tax on the sales or purchases of goods taking place in the course of the import of goods into, or the export of goods out of, the territory of India and that, if at all; any legislative body could legislate with respect thereto, it is the Parliament. The learned Judge has further overlooked the conflict which would arise if the Central Sales Tax Act, 1956, passed by the Parliament had made provision for the forfeiture of such amounts. The learned Judge has not considered which Government would have the right to forfeit the amount in such an eventuality - the Central Government by virtue of a Central Act passed by Parliament, or an Act passed by a State Legislature, which legislative body has no power to legislate with respect to taxes on sales and purchase of goods taking place in the course of export out of or import into the territory of India, by reason of the constitutional prohibition enacted in clause (1) of article 286 of the Constitution. The learned Judges has failed to notice that section 75 of the Act embodies the constitutional prohibition contained in article 286(1) of the Constitution in order to eliminate the possibility of anyone arguing that the expressions 'sale' and 'purchase' used in the Act were wide enough to include such sales and purchases and, therefore, the Act suffered from the taint of unconstitutionality. The case of Electric Construction & Equipment Co. Ltd. (Miscellaneous Petition No. 755 of 1969 decided on 15th March, 1975 (Bombay High Court)), decided by Bhatt, J., merely followed the earlier decision given by him in C.R. Wood & Co.'s case (Miscellaneous Petition No. 667 of 1969 decided on 15th March, 1975 (Bombay High Court)).

25. Mr. Jetly next relied upon the decision of a Division Bench of the Gujarat High Court in M. Dadubhai & Co. v. C. C. Trivedi [1966] 17 S.T.C. 59. In that case, the assessees, who were registered dealers, had collected amounts by way of sales tax both in respect of transactions of sale as also certain transactions which were not sales effected by them. The amounts collected by them on transactions which were not sales ordered to be forfeited by the Sales Tax Officer. The petitioners approached the Gujarat High Court by way of a writ petition under article 226 of the Constitution challenging the validity of section 21(1), (2) and (4) of the Bombay Sales Tax Act, 1953. Sub-section (1) of that section is in pari materia with section 46(1) of the Act. Sub-section (2) of section 21 provided that 'No person selling any goods shall collect from the purchaser any amount by way of the tax unless such person is a registered dealer and is liable to pay the tax in respect of such sale'. Sub-section (4) of that section provided that 'If any person collects any amount by way of the tax in contravention of the provisions of sub-section (1) or (2) or if any registered dealer collects any amount by way of the tax in excess of the amount payable by him, the amounts so collected shall, without prejudice to any prosecution that may be institution against such person or dealer for any offence under this Act, be forfeited to the State Government and such person or dealer, as the case may be, shall, within the prescribed period, pay such amount into a Government treasury and, in default of such payment, the amount shall be recovered as an arrear of land revenue'. Following the earlier decisions of the same High Court in Kantilal Babulal and Bros. v. H. C. Patel, Sales Tax Officer, Surat [1965] 16 S.T.C. 973, and Ramgopal & Sons v. Sales Tax Officer, Surat [1965] 16 S.T.C. 1005, where the corresponding section of Bombay Sales Tax Act, 1946, namely, section 12A, was held to be constitutional and valid, the Division Bench of the Gujarat High Court held that, as the provisions of section 21 were valid, even though they brought within its scope amounts collected on transactions which were not sales, the amounts collected by the petitioners were liable to be forfeited. The Division Bench further held :

'It may be that a registered dealer might have collected a lesser amount by way of tax in respect of certain sales and a larger amount by way of tax in respect of certain other sales but what was to be seen for the purpose of determining the applicability of sub-section (4) of section 21 was : what was the aggregate amount collected by the registered dealer by way of tax Did it exceed the amount of tax payable by the registered dealer on his turnover of sales during the particular year If it did, the excess would be liable to the forfeited. If it did not, there would be no question of forfeiture for there would be no excess to forfeit.'

26. We may mention that the two previous decisions of that High Court, relied upon in the case of M. Dadubhai & Co. [1966] 17 S.T.C. 59, are no longer good law, because, in the case of Kantilal Babulal and Bros. v. H. C. Patel, Sales Tax Officer, Surat City Division : [1968]1SCR735 , the Supreme Court, reversing the decision of the Gujarat High Court, struck down section 12A(4) of the Bombay Sales Tax Act, 1946, as being unconstitutional because it contravened article 19(1)(f) of the Constitution. In that case, the Supreme Court also expressly overruled the decision of the Gujarat High Court in Ramgopal & Sons v. Sales Tax Officer, Surat [1965] 16 S.T.C. 1005. So far as the interpretation placed on the expression 'If any registered dealer collects any amount by way of the tax in excess of the amount payable by him' occurring in section 21(4) is concerned, it should be noted that that expression occurred in a very different context in section 21(4) from that in which it occurs in section 46(2) of the Act. Further, so far as the scope of legislative power of the State Government as also the meaning to be attributed to this phrase in section 46(2) are concerned, we have already set out above the view we have taken and the reasons which have prompted us to take that view and, therefore, we respectfully differ from the view taken by the Gujarat High Court in the case of M. Dadubhai & Co. v. C. C. Trivedi [1966] 17 S.T.C. 59.

27. Mr. Jetly lastly relied upon certain passages from the judgment of the Supreme Court in the case of R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Limited : [1978]1SCR338 , already referred to above by us. The first is a sentence at page 501, where Krishna Iyer, J. in dealing with the background of the relevant statutory provisions, said : 'Yet several dealers showed a tendency, under the guise of sales tax levy, to collect from buyers such tax even in regard to tax-free items or sums in excess of the tax payable by them or where the dealers were not even assessable.' Relying upon this sentence, it was urged that the Supreme Court had set its seal of approval upon the forfeiture of amounts collected by dealers in respect of transactions which were not transactions of sale. We are completely surprised at such an argument being advanced. The very sentence begins by referring to amounts collected from buyers. There cannot be a buyer unless there is a seller and a contract of sale. The phrase 'or where the dealers were not even assessable' in that sentence refers to unregistered dealers and to dealers effecting what are known in sales tax law as casual sales which are not assessable to tax. The next passage is at pages 502 and refers to various illustrations, given by the learned counsel for the respondents in that case, of the inequitable manner in which the department worked the Act. It would serve no useful purpose if we quote that passage. The third passage, relied upon by Mr. Jetly, was the following one at page 503 :

'Certainly, these illustrations do emphasise that the scope of section 37(1)(a) is not restricted to sums collected along with the price by dealers by way of tax with a touch of turpitude but also innocently on the strength of the actual or anticipated (albeit erroneous) view of the tax officers themselves.'

28. Here the reference is to sums collected along with the price, and the emphasis is no the motive of the collecting dealer, whether it was collected with a touch of turpitude or as a protection against anticipated liability as a result of the contention raised by the department. The use of the word 'price' clearly shows that what was referred to were sums collected along with the price, which could only mean the price payable under a contract of sale, and does not and cannot refer to any transaction which is not a sale. Other passages from the said judgment relied upon by Mr. Jetly contain the same or similar expressions which show that what was referred to were amounts collected under and in respect of transactions of sales of goods contrary to the prohibitions contained in section 46 of the Act.

29. Mr. Jetly lastly relied upon the provisions of sub-section (6) of section 38 of the Act in support of his submission that a wider interpretation must be given to section 46(2). Section 38(6) provides that 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 and 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. Relying upon section 38(6), Mr. Jetly submitted that what the State was doing was to protect innocent purchasers by collecting amounts wrongfully recovered from them for the purpose of refunding them to such purchasers and that the Government, not being a dealer or trader who can be dishonest, section 46(2) must be given a wider meaning to enable the Government to carry out this beneficial and laudable subject. Apart from the fact that the State cannot set itself up as a collection agency of this nature without being armed with legislative competence in that behalf, the solicitude professed on behalf of the department by its learned counsel sounded somewhat hollow when we were informed by Mr. Joshi, the learned counsel for the applicants, that, under this provision, not a single pie has so far been paid over to any purchaser and that very probably all the claims by the purchasers would be rejected as time-barred because applications in that behalf were to be made within one year from the date of the order. We were further informed that no attempt has been made by the department to bring the orders of forfeiture to the notice of the purchasers from whom such amounts were collected. Neither Mr. Jetly, the learned counsel for the department, nor any of the officers instructing him were able to contradict or dispute these statements, and all that Mr. Jetly could say was that all the Sales Tax Officers were very busy making assessments and did not, therefore, have the time to put up notices or give notices to those from whom the amounts were collected by the dealers. Leaving aside the question whether the period of limitation of one year would begin to run when the order of forfeiture is passed or from the time it is brought to the notice of the person who would be entitled to apply for refund, we fail to see how the provisions of section 38(6) could be pressed into service to enlarge the scope of section 46(2) of the Act or of the legislative field provided for in the said entries 54 and 64 in List II of the Seventh Schedule to the Constitution.

30. In the result, we answer the question submitted to us in each of these four references in the negative.

31. The respondent will pay to the applications the costs of these references.

32. The fee of Rs. 100 paid by the applicants in each of these references shall be refunded to them.

33. References answered in the negative.