Bharat Textiles and Proofing Industries Vs. State of Karnataka - Court Judgment

Excerpt:
(a) karnataka sales tax act (karnataka act no. 25 of 1957) - section 18aa as inserted by karnataka act no. 4 of 1992 with effect from 1.4.1992 - payment and disbursement of amount wrongly collected by dealer as tax - held constitutionally valid. ; (b) karnataka sales tax act (karnataka act no. 25 of 1957) - section 18aa - forfeiture of tax collected by dealer from consumer to the state - doctrine of mens rea excluded and no penal consequences to follow - hence forfeiture to state held valid. ; therefore, the doctrine of mens rea has been expressly excluded in determining the consequences conceived under section 18aa, and rightly so, because the idea underlying the provision is not to condemn the defaulting dealer, of which care has been taken under section 18a, but is to ensure an.....orderg.c. bharuka, j.1. the prayer in the present writ petition is to declare section 18aa of the karnataka sales tax act 1957 (in short, 'the act') as unconstitutional being ultra vires the legislative powers of the state legislature and consequently to quash the order dated 18.11.1995 passed by the second respondent (annexure-a) holding that the amount of rs. 1,50,737.00 which had been collected by the petitioner from the customers in excess of its tax liability under the act, stood forfeited to the government by operation of sub-section (3) of the impugned section, apparently for being refunded to the customers in the manner provided under sub-section (4) thereof.2. the relevant facts lie in a short compass. the petitioner, which is a partnership firm, is engaged in the production and.....

Judgment:
ORDER

G.C. Bharuka, J.

1. The prayer in the present Writ Petition is to declare Section 18AA of the Karnataka Sales Tax Act 1957 (in short, 'the Act') as unconstitutional being ultra vires the legislative powers of the State Legislature and consequently to quash the order dated 18.11.1995 passed by the second respondent (Annexure-A) holding that the amount of Rs. 1,50,737.00 which had been collected by the petitioner from the customers in excess of its tax liability under the Act, stood forfeited to the Government by operation of Sub-section (3) of the impugned section, apparently for being refunded to the customers in the manner provided under Sub-section (4) thereof.

2. The relevant facts lie in a short compass. The petitioner, which is a partnership firm, is engaged in the production and sale of Tarpaulins. During the accounting year ending on 2.11.1986 the petitioner had collected Rs. 1,99,796/- as tax on the sale of Tarpaulins. Subsequent to filing of the returns for the said period, in the case of the petitioner itself, this Court in Writ Petition No. 11213 to 11221 of 1987 disposed of on 19.4.1988, declared that tarpaulins being cotton fabrics are exempt from levy of tax in view of Entry 8A of V Schedule to the Act. Accordingly, as per the assessment order dated 6.2.1989 pertaining to the year 1985-86, though the assessing authority allowed exemption on the sale of tarpaulins, but the petitioner was subjected to penalty proceedings under Section 18A of the Act vide Notice dated 30.3.1989 on the ground that the appellant had collected the said amount in excess of its tax liability. The proceedings culminated in imposition of penalty of Rs. 1,50,737.00, since the assessing authority, as of fact, accepted the plea of the petitioner that out of the total collection of Rs. 1,99,796.00 it had already refunded a sum of Rs. 49,059.00 to the customers. Subsequently, in appeal, the Tribunal under its Order dated 3.8.1994 (Annexure-B) set aside the said penalty on the ground that at the time the tax was collected by the petitioner, it was not very clear as to whether tarpaulin was exempt or not and it was only subsequent to such collections that a declaration to this effect was made by the High Court. Accordingly, as per the Tribunal since there was complete absence of any mens rea on the part of the petitioner in making such collections, the levy of penalty was not justified. Nonetheless, the Tribunal by referring to the impugned provisions under Section 18AA of the Act felt it necessary to observe that the excess collection need not be made over to the appellant. Accordingly, the impugned order at (Annexure-A), was passed.

3. Sections 18, 18A and 18AA of the Act are relevant for the present purpose, and, accordingly those are being quoted hereunder:

'18. Collection of tax by dealer:- (1)(a) A person who is not a registered dealer liable to pay tax shall not collect any amount by way of tax or purporting to be by way of tax under this Act; nor shall a registered dealer collect any amount by way of tax or purporting to be by way of tax at a rate or rates exceeding the rate or rates at which he is liable to pay tax under the provisions of this Act.

(b) No person shall collect any amount by way of tax or purporting to be by way of tax in respect of sales of any goods on which no tax is payable by him under the provisions of this Act.

(2) Notwithstanding anything contained in Sub-section (1), a dealer who has been permitted to pay any amount byway of composition under Sub-section (1) or Sub-section (4) of Section 17 or a dealer who is exempted from sales tax by virtue of recognition granted under the provisions of this Act, shall not collect any amount by way of tax or purporting to be by way of tax on the sales of purchases of goods made during the period to which such composition or recognition applies.

(3) Notwithstanding anything contained in Sub-sections (1) and (2), no dealer who is liable to pay turnover tax under Section 6-B shall collect any amount by way of such turnover tax or purporting to be by way of such turnover tax payable by him.

'18-A. Penalty for collection in contravention of Section 18:- If any person contravenes any of the provisions of Section 18, the assessing authority may, after giving such person reasonable opportunity of being heard, by order in writing, impose upon him by way of penalty a sum not exceeding one and a half times such amount:

Provided further that no prosecution for an offence under Section 29 shall be instituted in respect of the same facts on which a penalty has been imposed under this Section.

'18.AA. Payment and disbursement of amounts wrongly collected by dealer as tax:- (1) Where any amount is collected by way of tax or purporting to be by way of tax from any person by any dealer in contravention of Section 18, whether knowingly or not, such dealer shall pay the entire amount so collected, to the assessing authority within twenty days after the close of the month in which such amount was collected, notwithstanding that the dealer is not liable to pay such amount as tax or that only a part of it is due from him as tax under this Act.

(2) If default is made in payment of the amount in accordance with Sub-section (1),-

(i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the dealer;

(ii) the dealer liable to pay the amount shall pay interest at the rate of two and one half per cent of such amount for each month of default; and

(iii) the whole of the amount remaining unpaid along with the interest calculated under Clause (ii) of this sub-section shall be recoverable in the manner specified in Section 13.

(3) Notwithstanding anything contained in this Act, or in any other law for the time being in force, any amount paid or payable by any dealer under Sub-section (1) shall, to the extent it is not due as tax be forfeited to the State Government and be recovered from him and such payment or recovery shall discharge him of the liability to refund the amount to the person from whom it was collected.

(4) Where any amount is paid or recovered by or from any dealer under Sub-section (1) or (3), a refund of such amount or any part thereof can be claimed from Government by the person from whom, it was realized by way of tax provided an application in writing in the prescribed form is made to the Commissioner, within two years 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 is actually paid or recovered, he shall refund the amount or any part thereof, which is found due to the person concerned.

(5) Where any amount is collected by way of tax or purporting to be by way of tax in contravention of Section 128 at any time before the commencement of the Karnataka Sales Tax (Amendment) Act, 1992, the provisions of Sub-sections (3) and (4) shall apply to such amount collected.'

4. The first contention raised by Mr. Gandhi, learned Counsel appearing on behalf of the petitioner, regarding the validity of the impugned Section 18AA need not detain me for a long, since, on a similar challenge, all the aspects pertaining to the validity of a pari materia provision namely Section 29A incorporated in the UP. Sales Tax Act, have been considered by the Supreme Court in the case of KASTURI LAL HARLAL v. STATE OF U.P., : [1987]1SCR86 , and the provisions were upheld as constitutionally valid. In paragraph 4 thereof it has been held that:

'4. The only entry under which Section 29A was sought to be brought was Entry 54 in List II of the Seventh Schedule to the Constitution. Clause (3) of Article 246 read with this entry empowers the State legislature to make laws with respect to taxes on the sale or purchase of goods. It is now well settled that an entry in a legislative List must be read in its widest amplitude and the legislature must be held to have power not only to legislate with respect to the subject matter of the entry but also to make ancillary or incidental provision in aid of the main topic of legislation. Can Section 29A be justified as exercise of an ancillary or incidental power of legislation under Entry 54? Now, this question is no longer res integra. It stands concluded by the decision of this Court in R.S. Joshi v. Ajit Milts, : [1978]1SCR338 . It is no doubt true that the decision of this Court in Ashoka Marketing Ltd. v. State of Bihar, : [1970]3SCR455 Section 29A would not be justifiable as an exercise of incidental or ancillary power. There also, the impugned legislative provision, namely, Section 20A of the Bihar Sales Tax Act was very similar to Section 29A and this Court held that it fell outside the legislative competence of the State legislature. This Court in Ashoka Marketising Ltd.'s case (supra) did not follow State of Orissa, : [1962]1SCR549 where a similar provision was attacked on the same ground but the attack was repelled by the Court. If the decision in Ashoka Marketing Ltd.'s case (supra) were to be regarded as good law, Section 29A would have to be struck down as being outside the legislative competence of the State legislature. But this Court in R.S.Joshi's case (supra) clearly and categorically disapproved of the decision in Ashoka Marketing Company's case and reaffirmed the view taken in Orient Power Mills case (supra). The Court held that the taking over of sums collected by dealers from the public under guise of tax solely with a view to return them to the buyers so deprived is necessarily incidental to tax on the sale and purchase of goods. Such a provision is manifestly a consumer protection measure since 'while suits against dealers to recover paltry sums by a large number of customers would lead to endless and expensive litigation, a simpler process of returning those sums on application by the relevant purchasers would protect the common buyer while depriving the dealers of their unjust gains.' This Court in a subsequent decision in State of Orissa v. Orissa Cement Ltd., : AIR1986SC178 also took the same view and pointed out that the decision in Ashoka Marketising Ltd.'s case (supra) was expressly dissented from by the decision in R.S.Joshi's case (supra). The decision in R.S.Joshi's case (supra) must, therefore, be regarded as laying down the correct law on the subject and if that be so, it is obvious that Section 29A must be held to fall within the legislative competence of the State legislature and its constitutional validity must be upheld.'

5. For the said reasons, the challenge to the constitutional validity of Section 18AA of the Act has to be out rightly rejected. Any earlier decision of this Court taking a contrary view on the subject should be deemed to have been impliedly overruled.

6. Mr. Gandhi in an effort to assail the impugned order Annexure-A has further contended that since the Tribunal has knocked down the penalty, the provisions of Section 18AA of the Act contemplating forfeiture of excess collections cannot be held as applicable. The submission is obviously misconceived. As noticed above, the Tribunal has set aside the penalty on the ground that at the time of collecting the tax on sale of tarpaulins, petitioner had no mens rea, since the legal position with regard to the taxability of tarpaulin was hazy, and it was only after the collections were made, the law was finally settled by this court declaring the sale of tarpaulins as exempt. But so far as the applicability of the provisions of Section 18AA are concerned, in the very opening sentence of Sub-section (1) thereof, the Legislature has made it absolutely clear that whether any amount collected as or purported to be a tax in contravention of Section 18 is made knowingly or not, all amounts so collected are to be deposited with the assessing authority, and the amounts found to have been collected in excess of the liability will stand forfeited to the State Government for being refunded to the customer concerned. Therefore, the doctrine of mens rea has been expressly excluded in determining the consequences conceived under Section 18AA, and rightly so, because the idea underlying the provision is not to condemn the defaulting dealer, of which care has been taken under Section 18A, but is to ensure an equitable speedy statutory remedy to the customer-payer to get the refund of the amounts which he has been tripped off under the guise of tax. Therefore, even if a person is exonerated of the penal consequences under Section 18A, nonetheless the collections made by him in the garb of tax can well be forfeited under and for the purpose of the impugned provisions. So this contention also fails.

7. Mr. Gandhi in his penultimate assault on the impugned order has asserted that the same cannot be sustained since respondent No. 2 is presently not an assessing authority in relation to the petitioner. In my opinion, this issue is wholly inconsequential, since Sub-section (3) of Section 18AA does not contemplate passing of any order by any authority. Under the scheme of these provisions, if it has already been ascertained that there has been excess collection, the amount so collected stands ipso facto forfeited by operation of law. In such cases passing of order declaring forfeiture of the excess collections is merely ministerial nature. It served two purposes. Firstly, if the amount was still lying with the dealer or the person concerned, it will facilitate initiation of appropriate proceedings for recovery thereof under Section 13 of the Act. Secondly, in terms of Sub-section (4) of the impugned Section it enables the person from whom the said amounts were realized to seek the refund thereof, because the said right is acquired only on and from the passing of such an order. Therefore, this ground also does not bear any substance.

8. The last ground taken, though faintly, is that since the collections were made before the insertion of the impugned Section in the Act by Karnataka Act 4 of 1992 with effect from 1.4.1992, therefore these provisions cannot be made applicable to the facts of the present case. Apprehending such an objection to be raised on behalf of the dealers intending to unjustly enrich themselves, the legislature in unambiguous terms has in Sub-section (5) of Section 18AA of the Act declared that where any amount is collected by way of tax or purporting to be by way of tax in contravention of Section 18 at any time even before commencement of the said amending Act 4 of 1992, still the provisions of Sub-section (3) and (4) shall apply to such collection. It is now firmly established that Indian Legislature having competence over a topic can legislate, both prospectively as also retrospectively except in case of penal laws. (See GOVERNMENT OF A.P. v. H.M.T. LTD., : AIR1975SC2037 & D.G. GOUSE & Co. v. STATE OF KERALA, : [1980]1SCR804 . I have already held that the impugned provisions are not penal in nature. Therefore this attack launched on behalf of the petitioner also falls to the ground.

9. On having reached up to this stage the State Government needs to be reminded that the purpose of forfeiting the amounts under Section 18AA (3) is not to allow even the State to unjustly enrich itself. Keeping in view the benevolent object behind the impugned provisions, sincere efforts should be shown to have been made in to carrying out the ultimate goal envisaged therein, namely that amount shall be refunded to the person concerned provided:-

(i) an application in writing in the prescribed form is made to the Commissioner;

(ii) the said application is made within two years from the date of the order of forfeiture; AND

(iii) on Commissioner's satisfaction, pursuant to an enquiry, that the claim is valid.

10. Therefore, the customer who is entitled to a refund under the said Sub-section (4) cannot claim the same unless:-

(i) the passing of the order of forfeiture is made known to him because his right to claim refund from the Commissioner commences only from the date of passing of such orders. Further, the date of order for counting limitation will be only the date of its knowledge (See RAJA HARISCHANDRA v. DY. LAO, : [1962]1SCR676 ) AND

(ii) a prescribed form is made readily available to him for the said purpose.

These, steps can be ensured by intimating the person concerned through a notice on the address discernible from the records of the collecting dealer. Such person should also be intimated of his right to claim interest under Section 13 and 13A of the Act. It is expected that the Commissioner, in whom the legislature has reposed the confidence of carrying out its desires will do all the best to effectuate the same.

11. Subject to the observations made above the Writ Petition is dismissed with costs assessed at Rs. 1000/-.

Let copy of this order be handed over to the learned Additional G.A. for communication and needful.