State taxing power cannot compel payment of amounts collected as tax unless they were legally exigible under the taxing law.

Section 11(2) of the Hyderabad General Sales Tax Act was held beyond the State Legislature's competence because a taxing entry authorises only measures necessary or incidental to the levy and collection of a lawful tax, not compulsory payment to the Government of amounts collected as tax though not legally exigible. The provision was not saved as a penalty, since it was not framed as punishment for breach of a statutory prohibition, and it could not be supported under the trade and commerce entry. Section 20(c), being consequential to section 11(2), also failed. The assessment was quashed to the extent founded on the invalid provision, and the assessee was not liable to pay over the collected amounts.

---

---

Issues: Whether section 11(2) of the Hyderabad General Sales Tax Act, No. XIV of 1950, which required persons who had collected amounts by way of tax otherwise than in accordance with the Act to pay them over to the Government, was within the legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution of India, or could be supported under Entry 26 of List II.

Analysis: The provision operated even where the amount collected was not exigible as tax under the Act, and therefore did not merely regulate the levy or collection of a tax lawfully due. The incidental and ancillary power attached to a taxing entry extends to measures necessary to levy and collect the tax and prevent evasion, but not to authorising the State to appropriate sums that are not taxes under the statute. The provision also could not be treated as a penalty, since it was not framed as punishment for breach of a statutory prohibition. Nor was it sustainable under Entry 26 of List II, which concerns trade and commerce and not the recovery of amounts wrongly realised as tax. Section 20(c), being consequential to section 11(2), could not stand independently.

Conclusion: Section 11(2) was beyond the legislative competence of the State Legislature and was invalid; section 20(c) fell with it. The assessee was not liable to pay over the amounts collected as tax for the relevant period.

Final Conclusion: The assessment was quashed to the extent based on the invalid provision, and the appeal succeeded with costs.

Ratio Decidendi: A State taxing entry permits only provisions necessary or incidental to the levy and collection of a lawful tax, and does not authorise compulsory payment to the Government of amounts collected as tax though not legally exigible under the taxing law.

---