No Acts & Articles mentioned in this case
A
KASTURJ LAL HARLAL
v.
STATE OF U.P. & ORS.
r~
OCTOBER 29, 1986
B [P.N. BHAGWATI, C.J. RANGANATH MISRA,
V. KHALID, G.L. OZA AND M.M. DUTT, JJ.]
U. P. Sales Tax Act, 1948: s.29-A-Provision for refund to buyers
of amount realised as tax by a dealer-Whether constitutionally valid.
c
Section 29-A of the U.P. Sales Tax Act, 1948 Inserted hy s.17 of
--{_ the U.P. Taxation Laws (Amendment) Act, 1969 provided for refund of .,....
the amount, realised by a dealer as tax on sale of goods and deposited
under sub-s.(4) or sub-s.(5) of s.8-A of the Act, to the person from
whom such dealer had actually realised the same, and to no other
"' person.
D
Coal became a taxable commodity under the U.P. Sales Tax Act
for the first time on
!st
October 1965. The appellants, _who were
registered as dealers in coal under the Act,
on the assumption that sales tax -?'as p_ayable by them on sale of coal from and after I st October
1965, collected amounts by way of sales tax from the purchasers and
E submitted their returns for the assessment year 1965-66 after depositing
a sum representing the amont of tax payable by them in accordance
' with their returns. The Sales Tax Officer, however, found that no sales
tax was payable by the appellants on sale of coal under the Act. The
appellants thereupon claimed refund
of the amount deposited but the
Sales Tax Officer rejected their claim under s.29-A of the Act.
-F
A Writ Petition challenging the correctness of that order and the
-~ constitutional vires ofs.29-A was rejected by the High Court.
Dismissing the appeal
by certificate, the Court,
~
G HELD: Section 29-A of the U.P. Sales Tax Act, 1948 introduced
by s.!'7 of the U.P. Taxation Laws (Amendment) Act, 1969 falls within
the legislative competence of the State Legislature and is constitution-
ally valid. [90F, 89F]
Clause
(3) of
Art.246 of the Constitution read with Entry 54 in
-.J
H List U of the Seventh Schedule thereto empowers the State Legislature
86
-
)..-.
KASTURI LAL HARLAL "-STATE OF U.P. (BHAGWATI. CJ.] 87
to make laws with ~peel to taxes on the sale or purchase of goods. An
Entry in a Legislative List must he read in its widest amplitude and the
legislature must
he held to have power not only to
legislate with respect
to the subject matter of tile entry but also to make ancillary or inciden
tal provision in aid of the main topic of legislation. Taking over of sums
collected
by
dealers from the public under guise of tax solely with a view
to returning them to the buyers so deprived is necessarily incidental to
tax on the sale and purchase of goods. The enactment of s.29-A can thus
he said to he justified as exercise of an ancillary or incidental power of
legislation under Entry 54. [89G, 900, 89H] '
R.S. Joshi
v; Ajit Mills, (1978] 1SCR338, followed.
Ashoka Marketing Ltd. v. State of Bihar & Anr., [
1970] 3 SCR
455, dissented from.
R.
Abdul Qader & Co. v. Sales Tax Officer, Hyderabad,
(1964] 6
SCR 867, Orient Paper Mills Ltd., v. State of Orissa & Ors., (1962] 1
SCR 549 and State of Orissa v. Orissa Cement Ltd. & Ors., (1985]
Suppl. SCC 608, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1862
(NT) of 1971.
From the Judgment & Order dated 13.7.1970 of the High Court
of Allahabad at L~cknow Bench in Writ Petition No. 849/70.
Ms. Lira Goswami and D.N. Mishra for the Appellants.
A.O. Singh, Mrs. Ashok K. Gupta, Raj Singh Rana, Mrs. S.
Dikshit and B.P. Maheshwari for the Respondents.
The Judgment of the Court was delivered by
A
B
c
D
E
F
BHAGWATI, _CJ. This appeal by certificate raises a short ques
tion as to the constitutional validity of section 29-A of the U.P. Sales
Tax Act, 1948. This sectio~. which was introduced in the U.P. Sales G
Tax Act,
1948 by section 17 of the
U.P. Taxation Laws (Amendment)
Act, 1969, has been held to be constitutionally valid
by a Division
Bench
of the Allahabad High Court on 13th July
1970. The appellants
question the correctness
of this view taken by the High Court.
The appellants
carry
on' businef' as dealers in coal and they are
H
,
A
B
c
D
E
F
G
88 SUPREME COURT REPORTS (1987] l S.C.R.
registered as such under the U.P. Sales Tax Act, 1948. Prior to 1st
October 1965, there was no sales tax levied on sale of coal and for the
first time on
1st October 1965, coal became a
taxabl~ commodity
under the U.P. Sales Tax Act, 1948. The appellants, proceeding on the
footing that sales tax
was payable by them on sale of coal from and
after 1st October
1965, collected amounts by way of sales tax from the
purchasers and submitted their returns for the assessment year
1965-66
after depositing a sum of
Rs.10,073.86 representing the amount of tax
payable
by them in accordance with their returns. It was, however,
found as a result of the assessment order made by the
Sales Tax Officer
on 28th March 1970 that no sales tax was payable by the appellants on {
sales of coal under the U.P. Sales Tax Act, 1948. The appellants there-· . .,,__
upon claimed refund of the sum of Rs. 10,073.86 but the Sales Tax
Officer rejected the claim made
by the appellants on the ground that
by reason
of section 29-A. no refund was claimable by the appellants
and .the only persons entitled to claim refund were those from whom
the appellants had collected the tax. This order made
by the
Sales Tax
Officer was challenged
by the appellants by filing a writ petition in the
High
Court of Allahabad and the principal ground on which the cor-
rectness of this order
was challenged was that section 29-A was ultra
vires as being outside the legislative competence of the
State Legisla-
ture. The High Court negatived this challenge and upheld the constitu-
tional validity of section 29-A and on this view, sustained the order
made by the Sales Tax Officer. The appellants thereupon preferred the
present appeal after obtaining certificate of fitness from the High
Court.
It is necessary at this stage to set out the relevant provisions of
the U.P. Sales Tax Act, 1948 as they stood at the material time. Sub
section (4) of section 8-A made the following provision:
"(4) Without prejudice to the provisions of clause (f) of
section 14, the amount realised by any person as tax on sale
of any goods, shall, notwithstanding anything contained
in
any other provision of this Act, be deposited by him in a
Government treasury within such period as
may be pres
cribed, if the amount
so realised exceeds the amount pay
able as tax
in respect of that sale or if no tax is payable in
respect
thereof."
Sub-section (5) was added in section 8-A by section 11 of the U.P.
,
-
H Taxation Laws (Amendment) Act, 1965 and it read as follows:
KASTUR! LAL HARLAL 'v. STATE OF U.P. (BHAGWATI, CJ.] 89
"(5) Where a dealer is found not liable to be assessed to A
tax by reason
of his turnover being less than the amount
specified in
or under section 3, or sub-section (I) or (2) of
section 18, but has realised any tax as such in respect of
such turnover, he shall, notwithstanding anything
con-·
tained in this Act, be liable to pay the same to the State
'B
Government and shall deposit it into the treasury within
30 days of the date of the order by which he was found not
so liable, unless it has already been so deposited."
)-
_Since, having regard to the judgment of this Court, in R. Abdul Qader
& Co. v. Sales Tax Officer, Hyderabad, (1964) 6 SCR 867 it was doubt-
ful
whether sub-sections (4) and (5) of section 8-A, standing by C
themselves, would fall within the legislative competence of the State ~ Legislature. Section 29-A was inserted in the U.P. Sales Tax Act, 1948
by section 17 of the Taxation Laws (Amendment) Act 1969:
)··
Refund in Special Cases-Notwithstanding anything con
tained in-this Act or in any other law for the time being in D
force
or in any judgment, decree or order of any court,
where any amount
is either deposited or paid by any dealer
or other person under sub-section (4) or sub-section (5) of
section 8 A, such amount
or any part thereof shall on a
claim being made in that behalf in such form and within
such period as may be prescribed, be refunded to
the· E
person from whom such dealer
or the person had actually
realised such amount
or part, and to no other
person."
The question is whether this section, as it stood at the material time in
the form in which it was introduced by section 17 of the U.P. Taxation
Laws
(Amendment) Act, 1969, was within'the legislative competence F
of the State Legislature.
The only entry under which section 29-A was sought to be brought
was Entry 54 in List II
of the Seventh Schedule to the Constitution.
Clause (3)
of Article 246 read with this entry empowers the State Legis
lature to make laws with respect to taxes on the sale
or purchase of G
goods.
It is now well settled that an entry in a Legislative List must be
read in its widest amplitude and the legislature must be held to have
power
not only to legislate with respect to the subject matter of the
entry
but also to make ancillary or incidental provision in aid of the
main
topic of legislation. Can section
29-A be justified as exercise of H
an ancillary
or incidental power of legislation under Entry 54? Now,
90 SUPREME COURT REPORTS [ 1987] l S.C.R.
A this question is no longer res integra. It stands concluded by the deci
sion
of this Court in R.S. Joshi v. Ajit
Mills, [1978] I SCR 338. It is no
doubt true that the decision of this Court in Ashoka Marketing Ltd. v.
State of Bihar & Anr., [1970] 3 SCR 455 does seem to indicate that a
provision such
as s. 29-A would not be justifiable as an exercise of
incidental
or ancillary power. There also, the impugned legislative
B provision, namely, section 20-A of the Bihar
Sales Tax Act was very
similar to section 29-A and this Court held that it· fell outside the
legislative competence of the State Legislature. The Court in Ashoka
Marketing Ltd,
's case (supra) did not follow the decision in
Orient
Paper Mills Ltd. v. State of Orissa & Ors., [1962] 1 SCR 549 where a
similar provision was attacked on the same ground bllt the attack
was
C repelled by the Court. If the decision in Ashoka Marketing Ltd. 's case
(supra) were to be regarded
as good law, section 29-A would have to
be struck down as being outside the legislative competence of the
State
Legislature. But this Court in R.S. Joshi's case (supra) clearly and
categorically disapproved of the decision
in Ashoka Marketing
Com
pany's case and reaffirmed the view taken in Orient Paper Mill's case
D (supra). The Court held that the taking over of sums collected
by
dealers from the public under guise of tax solely with a view to return
them to the buyers so deprived
is necessarily incidental to 'tax on the
sale and purchase of goods'.
Such a provision is manifestly a consumer
protection measure since "while suits against dealers to recover paltry
sums
by a large number of customers would lead to endless and expen-
E sive litigation, a simpler process of returning those sums
on application
by the relevant purchasers would protect the common buyer while
depriving the dealers of their
unjust-gains." This Court in a subse
quent decision in State of Orissa v. Orissa Cement Ltd. & Ors., [1985]
Suppl, S.C.C. 608 also took the same view and pointed out that the
decision in
Ashoka Marketing Ltd. 's case (supra) was expressly dis-
F sented from
by the decision in R.S. Joshi's case (supra). The decision
in
R.S. Joshi's case (supra) must, therefore, be regarded as laying
down the correct law on the subject and
if that be so, it is obvious that
section 29-A must be held to fall within the legislative competence of
the
State Legislature and its constitutional validity must be upheld.
G The appeal must, therefore,
be dismissed, but since it was filed at
H
a time when the position in law was nebulous and had not been finally
settled
by the decision in R.S. Joshi's case (supra) we would direct that
there shall be no order
as to costs.
P.S.S. Appeal dismissed.
The Supreme Court’s decision in Kasturi Lal Harlal v. State of U.P. & Ors. remains a cornerstone judgment, profoundly shaping the understanding of the Legislative Competence of State governments in India. This case analysis, available on CaseOn, delves into the constitutional validity of statutory provisions designed to prevent unjust enrichment, clarifying the scope of Ancillary Powers in Taxation. The Court examined whether a state legislature, empowered to tax the sale of goods, could also legislate on the refund of amounts erroneously collected by dealers from consumers under the guise of tax.
The central legal question before the Supreme Court was whether Section 29-A of the U.P. Sales Tax Act, 1948, was constitutionally valid. Specifically, was the State Legislature competent to enact a law that directed the refund of amounts mistakenly collected as sales tax to the actual purchasers, rather than to the dealer who had collected and deposited the money with the government?
The primary source of the state's legislative power is Article 246(3) of the Constitution of India, read with Entry 54 in List II (the State List) of the Seventh Schedule. This entry grants State Legislatures the exclusive power to make laws concerning “taxes on the sale or purchase of goods.”
It is a well-established principle of constitutional interpretation that legislative entries must be given their widest possible meaning. This means that the power to legislate on a particular subject includes the power to enact provisions that are ancillary or incidental to the main subject. Such ancillary provisions are meant to make the primary legislation effective, prevent its evasion, and address related matters that arise from its implementation.
Section 29-A stipulated that where a dealer collected an amount as tax but it was later found that no tax was payable, any refund of that amount would be made directly to the person from whom it was collected (the consumer), and “to no other person.”
The appellants, Kasturi Lal Harlal, were registered dealers in coal. When coal became a taxable commodity for the first time on October 1, 1965, they began collecting sales tax from their purchasers, assuming it was legally due. They duly deposited this amount (Rs. 10,073.86) with the state treasury. However, the Sales Tax Officer later determined that no sales tax was actually payable on the sale of coal during that period. When the appellants claimed a refund, their request was denied based on Section 29-A. The authorities argued that the refund could only be claimed by the purchasers from whom the amount was collected. The appellants challenged this, arguing the state had no power to legislate on the fate of money that was not legally a 'tax'.
The Supreme Court acknowledged a history of conflicting judicial opinions on this issue. While the decision in Ashoka Marketing Ltd. v. State of Bihar suggested such a provision would be unconstitutional, an earlier ruling in Orient Paper Mills Ltd. v. State of Orissa had upheld a similar law. The Court resolved this conflict by decisively following its later judgment in R.S. Joshi v. Ajit Mills (1978), which had expressly disapproved of the view in Ashoka Marketing.
For legal professionals grappling with the nuances of ancillary legislative powers in tax law, understanding the line of reasoning from Orient Paper Mills to R.S. Joshi is crucial. CaseOn.in simplifies this process with 2-minute audio briefs, offering quick, insightful summaries of these specific rulings, helping you grasp complex precedents on the go.
The Court’s analysis centered on the true purpose and character of Section 29-A. It reasoned that the provision was not an attempt to levy a tax but was a measure incidental to the proper administration of sales tax law. The core justifications were:
The Court concluded that taking over sums collected by dealers under the guise of tax, with the sole objective of returning them to the buyers, was a legitimate exercise of the state's ancillary legislative powers under Entry 54.
The Supreme Court dismissed the appeal, holding that Section 29-A of the U.P. Sales Tax Act, 1948, was constitutionally valid. The Court affirmed that such a provision falls squarely within the legislative competence of the State Legislature as an ancillary or incidental power necessary for the effective and just implementation of its taxation laws. The judgment firmly establishes that the power to tax includes the power to legislate measures that prevent unjust enrichment and protect consumers who are impacted by the tax system.
This ruling is a critical read for both legal practitioners and students for several reasons:
The information provided in this article is for informational purposes only and does not constitute legal advice. For advice on any specific legal issue, you should consult with a qualified legal professional.
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