State tax forfeiture cannot reach collections on import sales outside constitutional taxing power.

A State taxing statute cannot authorise forfeiture of tax collected on sales in the course of import, because such transactions fall outside the State's constitutional taxing competence. The Bombay High Court read section 37 of the Bombay Sales Tax Act, 1959 down so that forfeiture applies only to amounts collected on transactions exigible to tax within the State's power. It rejected the argument that the earlier Division Bench reasoning was merely obiter and applied the same constitutional limitation and statutory scheme. The forfeiture of amounts collected on import sales was therefore held invalid, with the issue decided in favour of the assessee.

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Issues: Whether amounts collected by a dealer by way of tax on sales in the course of import into the territory of India could be forfeited under section 37 of the Bombay Sales Tax Act, 1959.

Analysis: The statutory scheme limited the State's taxing power to sales or purchases within the State, and section 75 expressly reflected the constitutional bar against taxing sales in the course of import. The earlier Division Bench ruling had held that the State Legislature lacked competence to extend forfeiture under section 37 to collections made on transactions outside its taxing field. The Court rejected the contention that the earlier discussion was obiter and held that the same provisions and constitutional limitations governed the present case. The forfeiture provision was therefore required to be read down so as to operate only on transactions exigible to tax.

Conclusion: Forfeiture of the amounts collected on import sales was not valid, and the issue was answered against the department and in favour of the assessee.

Ratio Decidendi: A State taxing statute cannot, even by incidental or ancillary power, authorise forfeiture of amounts collected as tax on transactions which the State has no constitutional competence to tax.

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