Legislative competence over sales tax collection provisions failed where non-exigible tax amounts were treated as payable and non-refundable.

Section 9-B(3) and section 14-A of the Orissa Sales Tax Act were analysed against the State's legislative competence under the sales tax entry. The provisions required dealers to deposit amounts realised as tax even where no tax was legally payable, and limited refund only to the person from whom the amount had been collected. Applying Supreme Court authority, the text states that such treatment of non-exigible sums as tax was neither incidental nor ancillary to taxation power, and the provisions were therefore ultra vires. As the demand and refund restriction lacked legal foundation, the amounts deposited pursuant to the demand notice were held refundable to the petitioner.

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Issues: (i) Whether section 9-B(3) and section 14-A of the Orissa Sales Tax Act, 1947 were within the legislative competence of the State Legislature; (ii) whether the petitioner was entitled to refund of the amounts deposited pursuant to the demand notice.

Issue (i): Whether section 9-B(3) and section 14-A of the Orissa Sales Tax Act, 1947 were within the legislative competence of the State Legislature.

Analysis: Section 9-B(3) required a dealer to deposit in the Government treasury amounts realised by way of tax, even where the amount was not legally payable as tax. Section 14-A correspondingly restricted refund to the person from whom the amount had been realised. The provisions were examined in the light of the Supreme Court decisions which had held that a State Legislature, under Entry 54 of List II, could not enact a provision that treated amounts not exigible as tax as if they were tax merely because they had been collected by a dealer. Such a measure was not incidental or ancillary to the levy and collection of tax. The reasoning applied equally to the Orissa provisions.

Conclusion: The provisions in section 9-B(3) and section 14-A were ultra vires the Orissa State Legislature and were invalid.

Issue (ii): Whether the petitioner was entitled to refund of the amounts deposited pursuant to the demand notice.

Analysis: Once the provisions authorising the deposit and restricting refund were held to be beyond legislative competence, the demand for retention of the amounts by the State had no legal foundation. The sums had been deposited pursuant to a notice issued under an invalid statutory provision, and the petitioner's entitlement to refund necessarily followed.

Conclusion: The petitioner was entitled to refund of the amounts deposited under the demand notice.

Final Conclusion: The writ petitions succeeded, and mandamus was issued for refund of the deposited amounts.

Ratio Decidendi: A State Legislature acting under the sales tax entry cannot, even as an incidental or ancillary measure, require a dealer to pay into the treasury amounts collected by him though not legally exigible as tax, or restrict refund of such sums on that basis.

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