Legislative competence limits on sales tax recovery: wrongly collected amounts cannot be treated as deemed tax under Entry 54.

Section 22(3) of the Kerala General Sales Tax Act, 1963 could not validly compel a dealer to remit to the State amounts collected as tax on transactions not liable to tax or in excess of the tax leviable. Entry 54 of List II authorises legislation on taxes on the sale or purchase of goods, but it does not extend to treating wrongly collected sums as a separate category of deemed tax or to recovering them as an incidental or ancillary power. The provision was therefore beyond the State Legislature's legislative competence to that extent.

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Issues: Whether section 22(3) of the Kerala General Sales Tax Act, 1963, in so far as it required a dealer to pay over to the Government amounts collected as tax on transactions not liable to tax or in excess of the tax leviable, was within the legislative competence of the State Legislature under entry 54 of List II.

Analysis: Entry 54 of List II authorises State legislation only in respect of taxes on the sale or purchase of goods. A provision that merely recovers from a dealer amounts wrongly realised as tax, although not legally exigible as tax, is not itself a law relating to taxation on sales or purchases. The Court applied the principle already affirmed in earlier decisions that the State cannot enlarge the taxing entry by treating wrongly collected sums as a separate category of "deemed tax" and cannot support such recovery as an incidental or ancillary power.

Conclusion: Section 22(3) was held to be beyond the legislative competence of the State Legislature to the extent it compelled payment to the Government of amounts collected as tax but not legally payable as tax.

Final Conclusion: The State had no constitutional competence to require remittance of amounts collected by a dealer as sales tax when such amounts were not exigible under the Act, and the assessee succeeded.

Ratio Decidendi: Under entry 54 of List II, the State Legislature may legislate for sales tax itself, but it cannot, even incidentally, compel payment to the State of amounts collected as tax that are not legally leviable as tax under the taxing law.

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