Legislative competence in sales tax law limits compulsory remittance of excess collections; invalid provision triggered refund relief.

The SC held that section 8-A(4) of the U.P. Sales Tax Act, 1948 was beyond the State Legislature's competence because a taxing entry does not authorise compelling payment to the State of sums collected as tax when those sums are not legally exigible. Applying that constitutional limit, the Court declared the provision ultra vires and invalid. As the assessee had deposited more than its actual assessed tax liability, the excess amount could not be retained under the invalid provision, and the assessee was entitled to refund of the excess deposit.

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Issues: (i) Whether section 8-A(4) of the U.P. Sales Tax Act, 1948 was within the legislative competence of the State Legislature and constitutionally valid; (ii) whether the assessee was entitled to refund of the amount deposited as sales tax in excess of its actual tax liability.

Issue (i): Whether section 8-A(4) of the U.P. Sales Tax Act, 1948 was within the legislative competence of the State Legislature and constitutionally valid.

Analysis: The provision required a dealer to deposit in the Government treasury amounts realised as tax where the amount realised exceeded the tax payable or where no tax was payable. The Court applied the principle that the ancillary or incidental power attached to a taxing entry does not extend to compelling payment over to the State of amounts collected as tax when such sums are not exigible as tax under the law. Relying on the earlier binding exposition of the constitutional limits on such provisions, the Court held that the impugned provision travelled beyond the State's competence.

Conclusion: Section 8-A(4) of the U.P. Sales Tax Act, 1948 was ultra vires and invalid.

Issue (ii): Whether the assessee was entitled to refund of the amount deposited as sales tax in excess of its actual tax liability.

Analysis: Once the impugned provision was held unconstitutional, the amounts retained only by reason of that provision could not be withheld. The assessee's assessed tax liability stood at a figure lower than the amount already deposited, and the excess deposit was not legally exigible. The consequence of invalidating the provision was that the assessee became entitled to restitution of the excess amount.

Conclusion: The assessee was entitled to refund of the excess deposited amount.

Final Conclusion: The constitutional challenge succeeded, and the assessee obtained refund relief to the extent of the excess amount collected and retained under the invalid provision.

Ratio Decidendi: A State taxing entry does not authorise a law compelling payment to the Government of sums collected as tax when those sums are not legally exigible as tax; such a provision is beyond legislative competence and constitutionally invalid.

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