V.P Mohan Kumar, J.:— The question that is raised in these writ petitions relates to the validity of the claim made by the respondents under section 18-AA of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as “the Act”). The brief facts relevant for the issue are as follows:

The petitioners herein allege that it is a dealer registered under the Act and that its business, inter alia, deals with financing of new entrepreneurs to organise their business by purchasing machineries, etc. The modus of financing in this behalf is that, depending on the requirement of such persons the petitioner purchases the machineries and the petitioner in their turn sell the same to the said entrepreneurs who take the same under hire-purchase agreement. Earlier, invoking the then section 5-C of the Act, as it stood then, the respondent had taken steps to assess these transactions to sales tax which steps were challenged by the petitioner before this Court. In the said proceedings, this Court initially stayed the enforcement of the section by its interim order dated December 4, 1993. The petitioner continued its business and in doing so, it collected an amount described as contingent deposit. This deposit, it was claimed, was intended to offset the tax liability if arising in the event the court upholds the validity of section 5-C of the Act and alternatively to be returned to the customers if otherwise. This Court by the judgment in Shetty Leasing Company case, reported in [1996] 100 STC 533 dated November 21, 1995, struck down the section. Subsequently an amended section 5-C was introduced with effect from April 1, 1996. The petitioner has filed W.P No. 34727 of 1996 challenging the amended section as well and the same is pending. The present proceedings were initiated by the first respondent under section 18-AA of the Act to recover the said collection made by the petitioner as if section 5-C is in force on the ground that the said collection contravenes the provisions of section 18(1) of the Act and that the collected amount purports to be tax payable by the purchaser.

2. Annexures B, B1, B2 and annexure C are the notices issued by the first respondent under section 18-AA(2)(ii) of the Act for the alleged default committed by the petitioner for not remitting the amount collected as required under section 18-AA(1) of the Act, within 20 days of the collection of the amount purporting to be by way of tax in contravention of section 18 of the Act. The demand relates to the years 1994–95, 1995–96 and 1996–97. Annexures C, C1 and C2 are the replies submitted by the petitioner. Overruling the objection, the first respondent passed orders on January 22, 1998, annexures D, D1 and D2, directing them to remit the amount indicated therein, which represents the amount collected by the petitioner as contingency deposit which is equal to the tax liability. In this behalf, the order, inter alia, stated thus:

“From the above enumerations, it is proved beyond doubt that the assessee, though it has collected tax on lease rentals for the years in question, it has not paid the same to the department. In view of the foregoing reasons, the assessee is liable to pay the taxes so collected by them to the tune of Rs. 9,34,571 for the assessment year 1994–95 to the department under section 18-AA. It is also to be taken note that the assessee who did not make known the fact of collection of tax in the guise of contingency deposit to the department, did not also obviously reveal this fact before the honourable High Court of Karnataka and thereby succeeded in securing stay against enforcing section 5-C of the KST Act, 1957.”

(Underlining* for emphasis)

3. These orders are impugned in these proceedings. Though several details have been urged in the pleadings of both sides, it is not necessary to detail the same now for the purpose of considering the contentions urged by the respective sides in these writ petitions. The arguments centres round the interpretation to be placed to sections 18(1) and 18-AA(1) of the Act.

4. I have heard Mr. Sarangan, learned Senior Counsel for the petitioner, as also Mrs. S. Sujatha, learned Government Pleader appearing for the respondents, at length.

5. To appreciate the rival contentions of the counsels, it may be profitable if we refer to the statutory provisions. Section 18 of the Act provides, inter alia (omitting details not relevant for the purpose) that a registered dealer shall not collect any amount by way of tax or purporting to be tax in excess of the rates or the rates provided in the statute. Section 18-A provides for the penalty for the contravention of section 18. These provisions are followed by section 18-AA which provide for payment and disbursement of amount collected in contravention of section 18 of the Act. A closer look at the sections would disclose that these sections form a group in themselves; first the prohibition; next the penal consequence for the violation, and the third the remedial measures. Sections 18-A and 18-AA are dependent on section 18 for their existence. De hors section 18, these sections have no field to operate. Therefore, these sections have to be taken together and construed to understand its scope. section 18(1)(a) and (b) reads thus:

“18. Collection of tax by dealers.—(1)(a) A person who is not a registered dealer liable to pay tax shall not collect any amount by way of tax or purporting to be by way of tax under this Act; nor shall a registered dealer collect any amount by way of tax or purporting to be by way of tax at a rate or rates exceeding the rate or rates at which he is liable to pay tax under the provisions of this Act.

(b) No person shall collect any amount by way of tax or purporting to be by way of tax in respect of sales of any goods on which no tax is payable by him under the provisions of this Act.”

6. First, by virtue of section 18(1)(a), a dealer is enjoined not to collect any amount by way of tax or any amount purported to be tax in excess of the notified rate. In order to attract this section, primarily the dealer should indulge in a transaction which attracts tax liability or disputed tax liability. In a case of the transaction which attracts tax liability, there cannot be any difficulty. But when it comes to the case where the collection is with respect to disputed tax, the collection is claimed to be purported levy of an amount that is equivalent to tax.

7. What does the parent section 18 postulate ? It is an embargo against collection of any amount either as tax or purporting to be tax contravening the statutory mandate. In other words, no levy or collection of any amount exceeding the rate or rates at which he is liable to pay the tax, can be made by a dealer. To put it differently, the levy of tax or amount purporting to be tax shall not be in excess of the rate of tax indicated in the statute. Therefore, when does any violation of section 18(1)(a) take place ? It occurs when a dealer collects any amount by way of tax or purporting to be by way of tax at a rate exceeding the rate at which he is liable to pay tax under the provisions of the Act. This is in essence the prohibition mentioned in section 18(1)(a). Sub-clause (b) prohibits collection of tax by the dealer in a transaction of sale in respect of which no tax is payable. We need not concern ourselves about that sub-section at this stage and we will advert to it later. As regards sub-sections (2) and (3) are concerned, they are not relevant for the adjudication of the present dispute. Now sections 18-A and 18-AA would step in, when there is a violation of section 18 of the Act, and going by the allegation, it is attracted according to the respondents, as there is a violation of section 18(1)(a). According to me, these sections stand attracted only if the dealer has collected any amount by way of tax or amount purported to be tax which is in excess of the rate at which he is liable to pay the tax. If so, the basic ingredient of the infraction would be that it must be either tax or an amount purported to be tax which is in excess of the rate of tax stipulated under the Act.

8. Now, would there be a violation of section 18(1)(a) of the Act if the dealer collects only the amount by way of tax or purporting to be by way of tax at the prescribed rate at which he is liable to pay tax under the Act. I do not think that then there would be any violation of section 18(1). The violation, according to me, steps in only when the dealer collects tax or amount purported to be tax in excess of the rates at which he is liable to pay tax. There cannot be any contravention of section 18, if the dealer collects tax or amount purported to be by way of tax, if it equals the rate at which he is liable to pay tax under the Act. This would be clear if we advert to sections 18-A and 18-AA. Section 18-A provides that the assessing authority may impose penalty at one and half a times of “such amount”. “Such amount” can only represent the amount collected in excess of the rates at which he is liable to pay tax under the provisions of the Act. This inference can be drawn by referring to sub-clause (b) as well. Sub-clause (b) to section 18(1) covers all cases where tax is collected by the dealer in respect of sales with respect to which tax is not leviable under the Act. It does not make any distinction of equivalent collection or excess collection, as the very collection is unauthorised. The intention of the Legislature is clear in that the dealer shall not collect any amount other than at the rate prescribed under the statute. To put it differently, the combined effect of section 18(1)(a) and (b) is that the dealer is entitled to collect only what he is authorised to collect as per the statute.

9. section 18-AA declares that if the dealer collects the amount “knowingly or unknowingly”, he shall pay the entire amount collected to the assessing officer within the time stipulated under sub-section (1). But when the collection by the dealer is tax or amount purported to be equivalent to tax, there is no case of treating the said collection to be either “knowingly or unknowingly”. It cannot be said in such cases that the dealer has collected tax or amount purported to be by way of tax “knowingly or unknowingly”. Besides there is no need to invoke section 18-AA of the Act when a dealer collects tax equivalent to the rate at which he is liable to pay or an amount purporting to be by way of tax, which is at the rate prescribed at which he is liable to pay. Hence the making over would be only of the excess amount collected contravening section 18(1)(a) or section 18(1)(b). What section 18 frowns upon is the collection of excess amount by way of tax or any excess amount purported to be tax. Thus section 18-AA and the conjoint sections, i.e, sections 18 and 18-A is intended to cover a totally different area and not the one in question.

10. The question then is whether the assessing officer can lay his hands on the amount collected by the dealer purporting it to be by way of tax invoking section 18-AA. We will presently examine as to what is the meaning of the expression “amount purported to be tax”.

11. This expression had come up for consideration in several judicial pronouncements. We may advert to only a few of them. In Dyavakkalavar and Company v. Commercial Tax Officer, [1970] 26 STC 558, this Court stated thus:

“The word ‘deposit’ means ‘entrustment’. When a dealer collects any amount professing to be by way of tax, the customer who pays the amount does not deposit the amount with the dealer. The dealer gathers the money as tax. But where the customer in order to meet a contingency deposits any amount with the dealer, there is only the entrustment of the amount and the position of the dealer is in the nature of a trustee for the amount. The taking of deposit by a dealer cannot be construed as collection of any amount by way of tax or purporting to be by way of tax.”

12. In other words, the relationship of the dealer with the purchaser in such cases is not that of an agent of the State collecting the stipulated tax and the payee of tax; and the payment of a sum by the purchaser thus collected is not collection of an amount purporting it to be tax.

13. The next decision relevant in this behalf is that of the Supreme Court in State of Mysore v. Mysore Spinning and Manufacturing Co. Ltd., [1960] 11 STC 734. Examining a similar contention, their Lordships stated thus:

“…………Where an amount is received merely by way of deposit, on the express understanding or undertaking as in these cases, the company held the money as a mere custodian, and on the fulfilment of the condition became a trustee for the depositor. It is sufficient to state that when once the tax authorities determined that the proceeds of the sales in question were not within the taxable turnover of the company, the beneficial ownership became vested in the depositors and the company ceased to have any right to continue to hold the moneys. The fact that the physical control of the moneys passed from the ‘depositor’ to the ‘dealer’ did not render the receipt a ‘collection’ within section 11(2) of the Act.”

14. This judgment spotlights the fiduciary relationship arising in such cases. Mere collection of the money is not sufficient to infer there is “collection” of tax. If the said amount is held with an understanding that it would be returned to the payer in the eventuality of there being no liability to pay tax such a deposit cannot be characterised as a collection purported to be tax. There is no collection in the eye of law, but only retention of the amount for and on behalf of the vendee who was liable to tax.

15. The next authority that may be referred is again the decision of the Supreme Court in Jos hi, Sales Tax Officer v. Ajit Mills Limited reported in [1977] 40 STC 497. Therein their Lordships stated thus in this behalf:

“Section 37(1) uses the expressions, in relation to forfeiture, ‘any sum collected by the person…………shall be forfeited’. What does ‘collected’ mean here ? Words cannot be construed effectively without reference to their context. The setting colours the sense of the word. The spirit of the provision lends force to the construction that ‘collected’ means ‘collected and kept as his’ by the trader. If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about taxability or was ready to return it if eventually it was not taxable, it was not collected. ‘Collected’, in an Australian Customs Tariff Act, was held by Griffith, C.J, not ‘to include money deposited under an agreement that if it was not legally payable it will be returned’: (Words & Phrases, P. 274). We therefore semanticise ‘collected’ not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer.”

16. Section 37(1) referred to therein stated that “any sum collected by a person by way of tax…… shall be forfeited….”. The expression to be interpreted was the word “collected”. The interpretation therefore to be placed on the similar expression found in section 18(1) cannot bear a different connotation.

17. We may again advert to section 18(1)(b). As referred to earlier, the said sub-section operates in a different field altogether. It prohibits the collection of tax with respect to a sale, which transaction is not taxable under the statute. In the present case, no tax or amount purported to be tax has been collected with respect to a sale of any goods on which no tax is leviable under the Act. The transaction in dispute is characterised as a sale and the statute levies fixed rate of tax as well. As such, sub-section (b) has no field to operate.

18. We will now examine the fall-out of these discussions on the case in hand. Firstly, there was no excess collection of any amount purporting to be tax in excess of the rate stipulated under the Act. The situation was that at the relevant time operation of section 5-C of the Act, which cast the liability, stood stayed as far as the petitioner was concerned. If so, the collection made by the petitioner is not collection of tax or an amount purported to be tax within the meaning of section 18(1) of the Act. It can at best be a “contingency deposit” whose ownership always dwelt with the purchaser (depositor) and the dealer holding the sum only as a trustee. In such an event, there is no contravention of section 18 of the Act in which event alone section 18-AA can be invoked. In these circumstances, the petitioner is entitled to succeed. The writ petitions are allowed. The impugned orders annexures D, D1 and D2 are accordingly quashed. No costs.

19. Writ petitions allowed.