V. Ramaswami, J.:— This is an appeal under section 41 of the Pondicherry General Sales Tax Act (Act No. 6 of 1967), against the order of the Secretary to Government, Finance Department, Pondicherry, made under section 37 of that Act. The appellant is a private limited company carrying on business as dealer in automob les and spare parts at Pondicherry. For the assessment year 1966-67 the appellant reported a total and taxable turnovers of Rs. 7,53,199.58 and Rs. 5,50,275.17, respectively. Before the Joint Commercial Tax Officer, who was the assessing authority, the appellant claimed exemption in respect of a turnover of Rs. 33,862.82 representing two transactions of sale made on 2nd March, 1967, and 25th March, 1967. Though the assessing authority held that those transactions were not exempt and liable to sales tax, the Appellate Assistant Commissioner held that they were exempt from the levy of sales tax. The facts necessary for the claim of this exemption may now be noted.
2. The validity of the Pondicherry Sales Tax Act (Act No. 10 of 1965), which came into force on 1st April, 1966, was questioned before the Supreme Court and by its judgment in B. Shama Rao v. Union Territory Of Pondicherry [1967] 20 S.T.C 215 S.C. dated 20th February] 1967, the Supreme Court held that the Act was ultra vires of the powers of the Pondicherry Legislature. Thereafter the legislature passed the Pondicherry General Sales Tax Act (Act No. 6 of 1967) and this received the assent of the President of India on 2nd November, 1967, and it was published in the Pondicherry Gazette on 20th November, 1967. Section 1(3) provided that the Act shall have retrospective effect from 1st April, 1966. As seen from these facts, from 20th February, 1967, to 20th November, 1967, there was no General Sales Tax Act in force. The two transactions of sale of two Fiat cars took place in-between these two dates, on 2nd March, 1967, and 25th March, 1967. In respect of the first transaction of sale, in the sale bill the appellant after totalling the price of the vehicle as Rs. 16,896.96 added under the head “sales tax deposit” Rs. 1,689.70. On the same date it obtained what is styled as a letter of indemnity from the purchaser under which he has agreed that in case the Pondicherry Government demands from the seller at a later date sales tax on the said transaction the purchaser shall pay the amount immediately on demand. Later, on 24th May, 1968, the appellant in fact refunded the amount collected as sales tax deposit to the purchaser. In the second transaction dated 25th March, 1967, though the bill is similarly prepared and the amount was shown as sales tax deposit, the purchaser had not paid that money and he had simply executed the letter of indemnity as in the other case agreeing to pay sales tax in case the Pondicherry Government demanded at a later stage.
3. After the Pondicherry General Sales Tax Act (Act No. 6 of 1967) was published, the Government of Pondicherry issued a notification on 21st November, 1967, which read as follows:
“In exercise of the powers conferred by sub-section (1) of section 19 of the Pondicherry General Sales Tax Act, 1967 (Act No. 6 of 1967), the Lieutenant Governor, Pondicherry, is pleased to exempt the levy of tax under the provisions of the said Act in respect of every purchase and every sale effected by any dealer during the period commencing from 20th February, 1967, to 19th November, 1967, if the dealer proves to the satisfaction of the assessing authority that he has not collected any tax in respect of such purchase or sale.”
4. The assessee claimed that by virtue of this notification these two transactions of sale were not liable to be included in the taxable turnover of the assessee. This claim was rejected by the assessing authority on the ground that in one case the assessee had actually collected the tax and in the other case it had shown the sales tax in the bill itself and obtained an indemnity. The Appellate Assistant Commissioner, on the other hand, held that the amount was received only as a deposit and not as a tax and that it was also in fact refunded later on in the first case and no tax was collected at all in the latter case and, therefore, in terms of the order, the assessee would be entitled to the exemption claimed. Subsequently, purporting to exercise the powers under section 37, the Secretary to Government, Finance Department of Pondicherry, issued a notice to the appellant and, after following the prescribed procedure, held that the first transaction of sale dated 2nd March, 1967, was liable to be included in the taxable turnover and the exemption claimed was not applicable. Though the notice issued under section 37 required the appellant to show cause as to why the transaction of sale dated 25th March, 1967, should not also be included, ultimately confirming the order of the Appellate Assistant Commissioner, that was not included in the taxable turnover. The Secretary, Finance Department, took the view that only in cases where the assessee had not in fact collected any tax in respect of a transaction of purchase or sale that the exemption notified would apply and that in respect of the transaction dated 2nd March, 1967, there was in fact a collection of sales tax which took it out of the scope of the notification itself. In this connection, he also stated that the fact that the amount was refunded later on was immaterial and did not alter the situation. In support of his view, he also relied on the decision in Kassam and Co. v. State of Madras, and distinguished Kathan Nadar Company v. The State Of Madras [1963] 14 S.T.C 694., which was relied on by the Appellate Assistant Commissioner. It is against this order the appellant has preferred this appeal.
5. The main argument of the learned counsel for the appellant in this case was that the sum of Rs. 1,689.70 received by the appellant-company in respect of the transaction dated 2nd March, 1967, was only a deposit and not a collection of sales tax as such and this contention he wants to support by the heading given in the bill as “sales tax deposit” and the factum of receipt of the letter of indemnity executed by the purchaser on the same date. It was the case of the appellant from the very beginning that on the date when the transaction took place the position was that the Pondicherry Sales Tax Act (Act No. 10 of 1965) had been struck down by the Supreme Court as ultra vires and no sales tax law Was in force, but that there was apprehension that the State Legislature may enact some sales tax law which might or might not be of retrospective operation and that, in order to protect the appellant against any such possible law though, on that date, it was not entitled to collect tax, it received monies from the purchaser as sales tax deposit and also got the letter of indemnity executed by the purchaser. The amount of deposit also was calculated at 10 per cent of the price of the vehicle which was the rate of sales tax prescribed under the original Act, which was struck down. In those circumstances, we are not inclined to accept the view of the Secretary to Government that the amount was collected by the appellant as tax. In our view, the amount was collected by the appellant only as a deposit in order to enable enforcement of the indemnity executed by the purchaser without resorting to any legal proceedings or otherwise. Therefore, though by reason of the retrospective operation of the Pondicherry Act (Act No. 6 of 1967), with effect from 1st April, 1966, the sales tax liability shall be deemed to have in force even on 2nd March, 1967, when the transaction took place, the amount could not be said to have been collected as tax and, in fact, the facts showed that it was only a deposit. The refund of that money on 24th May, 1968, though after the Act came into force, would also go to show that the intention of the parties was not to treat that as a sales tax paid or collected but to treat the money as deposit to meet any possible contingency. On the facts, therefore, we are satisfied that no amount of sales tax was collected by the appellant and that, therefore, it was entitled to the benefit of exemption provided in the notification dated 21st November, 1967. It now remains to notice the decisions cited in the order of the Secretary to Government.
6. In support of his order, the Secretary to Government relied on Kassam and Co. v. State of Madras. In that case, the assessee, who was a dealer in cloth, claimed that he was not liable to be assessed in respect of certain transactions of sale by the levy of additional tax on the ground that the Government have waived the levy for the period from 1st January, 1957, to 17th December, 1957. At the relevant period, the sale of imported cloth was liable to sales tax both under section 3(1) and an additional levy under section 3(2). Though the additional tax was brought into force even with effect from 1st April, 1957, the imposition was announced long after that date. Probably with a view to meet the difficulties of the assessees who might not have collected the tax the Government appeared to have announced that they would waive the collection if the dealers had not collected it from the customers. The Government order itself was not produced before the court but a communication by the Deputy Commissioner of Commercial Taxes, Madurai, to, the Madurai Piece Goods Merchants Association, was relied on by the assessee in support of the claim of waiver. Regarding the condition that he had not collected the additional tax from the customers, the assessee contended that though he had collected the amount of additional tax at the rate of 8 per cent as prescribed in section. 3(2) he had noted it in his accounts as “contingent liability”. How the amount collected was shown in the bill issued by the assessee was not in evidence. On those facts, this court held that from the mere fact that he had accounted it as “contingent liability” will not detract from the fact that he has collected it as tax. But ultimately the decision was not based even on this reasoning. The assessee was held not liable to the benefit of the waiver on the ground that the waiver was not made in exercise of any statutory power and that the Government could not be forced to make a waiver. Only if it amounted to an exemption made under a valid provision of the Act, the assessee would be entitled to claim that exemption and since the waiver was not an exemption under the Act, the court or the tribunal could not enforce even if there was such a waiver. This decision therefore, in our view, has no application.
7. In the instant case, it is not a case of mere waiver but it is a case of exemption and if the assessee comes within the scope of the notification exempting the transaction from tax, he is entitled to claim such exemption and this court is bound to give the relief if the appellant comes within the scope of the exemption. We are also of the view that the other two decisions relied on by the Appellate Assistant Commissioner also have no relevance.
8. The decision in Kathan Nadar Company v. The State Of Madras related to a case where a particular transaction was not liable to sales tax at all and in respect of which a dealer had collected tax. The question for consideration was when he collected money by way of tax when the levy was not authorised, whether the Government is entitled to claim the money to be made over to the Government under section 8-B(2) of the Madras General Sales Tax Act, 1939. This court held that the expression “by way of tax” in section 8-B(2) would only refer levy legally made and not an unauthorised collection and that, therefore, that could not be subject to tax by the State Government.
9. The decision in State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd. is also of the same type as Kathan Nadar Company v. The State Of Madras. That was one under section 11(2) of the Mysore Sales Tax Act, corresponding to section 8-B(2) of the Madras General Sales Tax Act, 1939, and the transaction in dispute was a transaction of inter-State character under article 286(2) of the Constitution and another transaction in respect of which the dealer was not entitled to collect enhanced rate of tax. Therefore, both these decisions also do not help us for deciding the present case.
10. In the view, which we have already arrived at that the amount received by the appellant was only a deposit and not a collection of any tax, the appellant is entitled to the exemption under the notification of the Pondicherry Government dated 21st November, 1967. The order of the Secretary, Finance Department, is therefore liable to be set aside and it is accordingly set aside. The petition is allowed with costs. Counsel's fee Rs. 250.
11. Petition allowed.