1978 (7) TMI 237 - HC - VAT and Sales Tax

High Court: Collection by Dealer Deemed Tax, Subject to Forfeiture

The High Court held that the Tribunal erred in concluding that the amount collected by the assessee was not by way of tax. The Court determined that the ... Collection by way of tax - prohibition against collecting tax in excess of liability under section 46(2) - forfeiture under section 37(1) - construction of invoice/bill to determine nature of collection - distinction between unauthorised collection and penalty/forfeiture - principles in Abdul Quader and Ajit Mills on forfeiture and reasonableness - exercise of quasi judicial discretion in ordering forfeitureCollection by way of tax - construction of invoice/bill to determine nature of collection - prohibition against collecting tax in excess of liability under section 46(2) - The Tribunal was not justified in holding that the amounts collected under the head 'sales tax paid to the manufacturer' were not collected by way of tax. - HELD THAT: - The Court held that the Tribunal erred in inferring that the collections were not 'by way of tax'. The invoices unequivocally stated the amounts as collected under the head 'sales tax paid to the manufacturer' and the character of the sum is to be determined by the head under which it was collected, not by the dealer's ultimate liability to pay tax. The correct approach is first to ascertain whether an amount was collected by way of tax and only thereafter to consider whether that collection was in excess of the dealer's liability under the Act. The Tribunal reversed this logic by treating absence of liability as determinative of the character of collection, which the Court found to be a misdirection. Reliance on the narrower proposition in Abdul Quader was misplaced; the subsequent majority reasoning in Ajit Mills clarified that penal provisions, including forfeiture, may be sustained as part of policing the taxing statute so long as applied reasonably. Applying these principles, the Court concluded that the entire Rs. 6,361.31 was collected by way of tax and that the Tribunal's contrary conclusion was an error of law.Tribunal's conclusion that the collections were not by way of tax set aside; the Court answers the reference against the assessee and holds the collections were by way of tax.Forfeiture under section 37(1) - forfeiture as liability to forfeiture - exercise of quasi judicial discretion in ordering forfeiture - principles in Abdul Quader and Ajit Mills on forfeiture and reasonableness - Whether the entire amount collected must be forfeited is to be remitted for determination by the Tribunal applying the guidelines of reasonableness laid down by the Supreme Court. - HELD THAT: - While the Court held that the collections were by way of tax (thus triggering the prohibitions in section 46(2) and the forfeiture provision of section 37(1)), it declined to order automatic forfeiture of the entire sum. The Court accepted the Ajit Mills majority principle that 'forfeiture' should be read as a 'liability to forfeiture' and that the authority exercising the forfeiture power must consider all relevant circumstances - for example, amounts already returned to purchasers, undertakings to refund, and proportionality of departmental punishment - before finally ordering forfeiture. The Court directed the Tribunal to revisit the question of forfeiture and the extent thereof, bearing in mind these guidelines and ensuring a just and reasonable exercise of quasi judicial discretion.Matter remitted to the Tribunal to determine, in accordance with the Ajit Mills guidelines and relevant circumstances, whether and to what extent the collected sums are liable to be forfeited.Final Conclusion: Reference answered in the negative: the Tribunal was wrong in holding the collections were not by way of tax; the collections constituted sums 'by way of tax', but the question whether the entire amount must be forfeited is remitted to the Tribunal to decide in accordance with the reasonableness and procedural guidelines laid down in Ajit Mills. Issues Involved:1. Whether the Tribunal was justified in law in holding that the collection of Rs. 6,361.31 made by the opponent under the head 'sales tax paid to the manufacturer' was not made 'by way of tax'.2. Whether the power of forfeiture under section 37(1) of the Bombay Sales Tax Act, 1959, could be invoked and to what extent.Detailed Analysis:Issue 1: Justification of Tribunal's Holding on Collection 'By Way of Tax'The Tribunal concluded that the collection of Rs. 6,361.31 by the assessee under the head 'sales tax paid to the manufacturer' was not made by way of tax. The Tribunal based its decision on the fact that the sales were resales of goods purchased from a registered dealer, and thus, no tax was payable on these sales. The Tribunal referenced the decision in Kantilal Babulal and Bros. v. H.C. Patel, where it was held that any excess collection would be a matter of contract and not liable to be forfeited under the Act. The Tribunal opined that the collection was not made by way of tax as it was not in excess of the amount of tax payable by the assessee.However, the High Court disagreed with the Tribunal's reasoning, stating that the collection was indeed made by way of tax, regardless of the fact that it was on account of sales tax paid to the manufacturer. The Court emphasized that the nature of the collection remains that of tax, whether it is a tax already paid to the seller or a tax to be paid to the State. The High Court found the Tribunal's conclusion to be based on erroneous reasoning and a misconstruction of the relevant bills, which clearly stated that the amounts of sales tax had been collected by the assessee.Issue 2: Invocation and Extent of Forfeiture Power under Section 37(1)The High Court examined whether the power of forfeiture under section 37(1) of the Bombay Sales Tax Act, 1959, could be invoked and to what extent. Section 37(1) imposes a penalty for contravening certain provisions, including the collection of any amount by way of tax in excess of the tax payable by the dealer. The Court noted that the scheme contained in section 46, read with section 37, prohibits the collection of any amount by way of tax in excess of the amount payable by a registered dealer.The High Court held that the assessee's collection of Rs. 6,361.31 was in excess of what it was liable to pay under the Act, as the sales were resales of goods purchased from registered dealers, and thus, no tax was payable on these sales. The Court emphasized that the entire excess amount collected by way of tax is liable to be forfeited under section 37(1).The Court also referred to the Supreme Court's decision in R.S. Joshi v. Ajit Mills Limited, which highlighted that forfeiture should operate only to the extent of the total collections less what has been returned to the purchasers. The High Court suggested that the Tribunal should consider whether the entire amount of Rs. 6,361.31 is liable to be forfeited, taking into account the guidelines prescribed by the Supreme Court in Ajit Mills' case.Conclusion:The High Court answered the reference in the negative, holding that the Tribunal was not justified in concluding that the amount of Rs. 6,361.31 collected by the assessee was not by way of tax. The Court directed the Tribunal to adjust its decision in light of the Supreme Court's guidelines in Ajit Mills' case and determine whether the entire amount is liable to be forfeited. The reference was accepted, and there was no order as to costs.