Forfeiture of wrongly collected sales tax upheld where later legal change made the levy non-exigible and retention unjust

Tax collected on SIM cards, though lawful when received, became forfeitable once the levy was later held non-exigible, because the collection fell within the mischief of Section 22(2) and attracted Section 46A of the Kerala General Sales Tax Act. Forfeiture under Section 46A was treated as distinct from penalty and did not require proof of contumacious conduct or mens rea, which remained relevant only to penalty. Applying unjust enrichment, the dealer could not retain amounts collected from consumers as tax without authority of law, and the sums were required to be forfeited to the Government.

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Issues: (i) Whether tax collected by a registered dealer on SIM cards, which was lawful at the time of collection but later rendered non-exigible, could be forfeited under Section 46A of the Kerala General Sales Tax Act, 1963. (ii) Whether forfeiture under Section 46A requires proof of contumacious conduct or mens rea. (iii) Whether the collected amount could be retained by the dealer or had to be forfeited to prevent unjust enrichment.

Issue (i): Whether tax collected by a registered dealer on SIM cards, which was lawful at the time of collection but later rendered non-exigible, could be forfeited under Section 46A of the Kerala General Sales Tax Act, 1963.

Analysis: The collection, though valid when made on the basis of then-prevailing legal position, became one collected in respect of a transaction not liable to tax after the later declaration of law by the Supreme Court. Such collection fell within the mischief of Section 22(2) of the Kerala General Sales Tax Act, 1963 and attracted the forfeiture mechanism under Section 46A. The provision was treated as operating on the character of the collection, not merely on the legality of the dealer's conduct at the earlier point of time.

Conclusion: Forfeiture under Section 46A was held to be permissible and valid.

Issue (ii): Whether forfeiture under Section 46A requires proof of contumacious conduct or mens rea.

Analysis: Section 46A was held to contain two distinct consequences: a penalty limb and a forfeiture limb. While penalty depends on culpable conduct, forfeiture is an enabling consequence attached to illegal collection and does not necessarily require mens rea. The Court relied on the settled distinction between penalty and forfeiture and held that the absence of deliberate wrongdoing did not defeat forfeiture where the collection itself became impermissible in law.

Conclusion: Mens rea was not held to be a necessary condition for forfeiture, though it remained relevant to penalty.

Issue (iii): Whether the collected amount could be retained by the dealer or had to be forfeited to prevent unjust enrichment.

Analysis: The Court applied the doctrine of unjust enrichment and held that tax collected from consumers did not belong to the dealer. Since the levy was later found impermissible, the dealer could not retain the collections, nor could a refund be claimed by the dealer after passing on the burden. Any reimbursement, if at all, would lie in favour of the consumer through the statutory mechanism. Section 46A was therefore read as a device to prevent retention of amounts collected as tax without authority of law.

Conclusion: The amount was required to be forfeited to the Government and could not be retained by the dealer.

Final Conclusion: The reference was answered in favour of the Revenue by upholding forfeiture under Section 46A of the Kerala General Sales Tax Act, 1963, while leaving the revisions to be considered by the Division Bench in light of that answer.

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