Unauthorised collection of sales tax by a bank cannot be retained without proof of remittance to the Government.

A nationalised bank could not validly collect sales tax on sale of goods because, under the Banking Regulation Act and the Karnataka Sales Tax Act, a banking company not authorised as a registered dealer or within the specified exempt categories had no power to collect such tax. The bank also failed to prove that the amount collected from the purchaser had been remitted to the State Government, as no receipt or supporting material was produced and the evidence suggested non-remittance. In the absence of proof of payment into the treasury, retention of the collected amount would amount to unjust enrichment, so refund was warranted and the purchaser's claim succeeded.

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Issues: (i) whether a nationalised bank, though not a registered dealer, could validly collect sales tax on sale of goods conducted by it; and (ii) whether the bank had proved that the tax collected from the purchaser had been paid to the State Government so as to defeat a claim for refund.

Issue (i): whether a nationalised bank, though not a registered dealer, could validly collect sales tax on sale of goods conducted by it.

Analysis: Section 8 of the Banking Regulation Act, 1949 prohibits a banking company from directly or indirectly dealing in the buying or selling of goods except in limited circumstances connected with realisation of security or specified banking business. On that footing, the bank conducting the sale of goods could not be treated as a dealer for the purpose of collection of tax. Under Sections 18 and 19 of the Karnataka Sales Tax Act, 1957, a person who is not a registered dealer liable to pay tax cannot collect tax, while the power to collect tax despite lack of registration is confined to the Central Government, State Government, statutory bodies and local authorities. A nationalised bank, though an instrumentality of the State for Article 12 purposes, is neither the State nor a statutory body within Section 19.

Conclusion: the bank was not entitled to collect sales tax from the purchaser.

Issue (ii): whether the bank had proved that the tax collected from the purchaser had been paid to the State Government so as to defeat a claim for refund.

Analysis: The bank asserted that the amount collected had been remitted to the Government, but no receipt or other material was produced to substantiate that claim. The evidence of the bank's manager indicated that the amount had not been remitted when the notice was received. In the absence of proof of payment into the treasury, retention of the collected amount by the bank would result in unjust enrichment.

Conclusion: the bank failed to prove payment of the collected tax to the State Government, and refund was therefore warranted.

Final Conclusion: the purchaser's claim succeeded, the trial court's decree was set aside, and the suit was decreed as prayed for with costs left to be borne by the parties in the appeal.

Ratio Decidendi: a banking company that is not within the categories authorised by the sales tax statute cannot collect sales tax on its sale of goods, and any collected tax cannot be retained absent proof of remittance to the Government.

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