Refundable contingency deposits are not tax collection and cannot trigger unlawful tax recovery provisions.

Amounts taken by a dealer as refundable contingency deposits during the operation of a stay order do not amount to collection by way of tax or purporting to be tax where they are to be adjusted or returned depending on the taxability of the transaction. Section 18 of the Karnataka Sales Tax Act, 1957 applies only to excess or unauthorised tax collection, and Sections 18-A and 18-AA operate only when that contravention exists. Money held in a fiduciary capacity as a custodian or trustee is not treated as tax collection. On that basis, Section 18-AA was not attracted and the demand orders were quashed.

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Issues: Whether amounts collected by a dealer as contingency deposits during the operation of a stay order, and intended to be adjusted or returned depending on the taxability of the transaction, amount to collection by way of tax or purporting to be tax so as to attract Sections 18, 18-A and 18-AA of the Karnataka Sales Tax Act, 1957.

Analysis: Section 18(1) prohibits collection by way of tax or purporting to be tax only when the amount collected exceeds the rate at which the dealer is liable to pay tax, or where tax is collected in respect of a transaction on which no tax is payable. Sections 18-A and 18-AA operate only when there is such contravention of Section 18. A mere deposit taken under an understanding that it will be returned if the levy is held inapplicable does not have the character of tax collection. Such money is held in a fiduciary capacity, the dealer being only a custodian or trustee for the depositor, and the amount cannot be treated as collected tax or as a sum purported to be tax. The statutory scheme therefore does not permit invocation of Section 18-AA where there is no excess collection or unauthorised collection within Section 18.

Conclusion: The contingency deposits collected by the petitioner did not constitute collection of tax or an amount purporting to be tax, and Section 18-AA was not attracted. The impugned demand orders were liable to be quashed.

Ratio Decidendi: A sum received as a refundable contingency deposit, held only pending determination of tax liability, is not a collection by way of tax or purporting to be tax for the purposes of the prohibition and recovery provisions governing unlawful tax collection.

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