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A. Kunju Moideen Kunju v. State Of Travancore Cochin .
Summary of the Opinion — Menon, J.
Factual and Procedural Background
The petitioner is a dealer in gunny bags, vegetables and related items who sold both within and outside the State during 1951–1952. The Sales Tax Officer (3rd counter-petitioner) assessed his intra-State turnover at Rs. 97,880-2-0 and taxed him Rs. 1,536-12-3 by an order dated 14-11-1953, an amount the petitioner has paid. By the same order the officer directed payment of Rs. 3,386 which the petitioner had collected from customers on sales outside the State up to 19-1-1952.
The petitioner appealed to the Appellate Assistant Commissioner (2nd counter-petitioner); the appeal was dismissed by order dated 30-3-1954. The petitioner then filed the present Original Petition seeking certiorari (or other appropriate writ) to quash the two orders (the assessment and the demand to pay Rs. 3,386). The single legal issue identified by the court was whether the Rs. 3,386 collected on outside sales, which did not attract sales tax under the Act, had to be paid over to the Government under section 11(2) of the Travancore-Cochin General Sales Tax Act, 1125.
The Appellate Assistant Commissioner’s order recorded the appellant’s arguments (including reliance on Article 286(1)(a) of the Constitution and on Supreme Court authority that tax is payable to state of delivery), and concluded that collections made by the dealer under the Travancore-Cochin General Sales Tax Act were for and on behalf of the State and therefore had to be paid over; the appeal was dismissed. The present court heard the parties, considered prior decisions, and framed two precise questions for determination before remitting the matter back to the Appellate Assistant Commissioner.
Legal Issues Presented
- Can the petitioner’s averment that the collection (Rs. 3,386) was made solely as a precautionary measure and on the understanding that the amounts collected will be refunded if no liability to sales tax accrued in this State or the State of Madras be accepted as true?
- If the answer to question 1 is affirmative, will such a collection amount to a collection “by way of tax” within the meaning of Section 11 of the Travancore-Cochin General Sales Tax Act, 1125?
Arguments of the Parties
Petitioner’s Arguments
- The petitioner asserted (in affidavit para. 5) that the amount taxed (Rs. 3,386) was collected on the definite understanding that it would be returned to customers if it was ultimately found that the sales were not liable to be taxed.
- On appeal before the Appellate Assistant Commissioner the appellant submitted he was not liable to pay sales tax to this State on sales outside the State under Article 286(1)(a) of the Constitution; reliance was placed on Supreme Court authority that tax is payable to the State of delivery only, and that the collections were made as a precautionary measure.
- The appellant also contended that Section 11(2) could not properly be invoked by the Sales Tax Officer because the collections were not a collection under the Travancore-Cochin General Sales Tax Act in the relevant sense (i.e., the appellant asserted a protective/precautionary collection which ought not to be treated as tax payable to this State).
Department / Respondent’s Arguments
- The Sales Tax Officer and the Department maintained that rules required all taxes realized on the strength of a Registration Certificate issued from this State to be remitted into the treasury, and that it was not proper for the dealer to retain the sales tax realised for outside sales. Consequently notice of demand for Rs. 3,386 was issued.
- The Department relied on High Court authority (e.g., Velayudhan; K.J. Mathew) to the effect that tax collected under the Travancore-Cochin General Sales Tax Act is collected for and on behalf of the State and must be paid over; such collections do not belong to the dealer.
- In the counter-affidavit the Department denied the petitioner’s averment about an understanding to refund: “Averments in para 5 are denied. The alleged understanding referred to therein on the face of it is impossible and against all provisions of the Sales Tax Law”.
- The State (and Advocate General of Madras in a decision referred to) took the position that if a purchaser who paid tax establishes a claim for refund the State would entertain and grant a refund—i.e., the remedy for a purchaser is a refund application to the State.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Supreme Court decision referred to as the "Bombay case" (no full citation provided in the opinion) | Principle that the State in which goods are delivered for consumption alone is entitled to the sales tax on goods so delivered pursuant to sales. | The court acknowledged this principle but distinguished it: the Appellate Assistant Commissioner had not levied tax on inter-State turnover but had called upon the dealer to pay tax that he had collected under S.11(2) of the Act; thus the Supreme Court principle did not determine the question whether collected sums must be remitted under s.11(2). |
| Velayudhan v. Agrl. Income-tax and Sales Tax Officer, Perumbavoor (High Court) | Held that tax collected under the Travancore-Cochin General Sales Tax Act from purchasers is immune from further levy and is collected for and on behalf of the State; the dealer's obligation is to hand it over to the State; no part belongs to him. | The Appellate Assistant Commissioner treated this ruling as supportive of the department's position; the present court noted that the ruling was "more in favour of the department than to the appellant" and that collections made under the Act had to be paid over to the State. |
| K.J. Mathew v. The Sales Tax Officer, Alwaye (High Court) | Authority for the proposition that amounts collected by way of sales tax must be paid over to the State when collected under the Travancore-Cochin Act. | The Appellate Assistant Commissioner relied on this decision to support the conclusion that the amount collected should be paid over to the State; the present court referenced it in support of treating collections as payable to the State when collected under the Act. |
| (1954) 5 STC 382 (Mad) (Madras High Court) | A Madras High Court decision that, according to the opinion, reached a conclusion favourable to the petitioner's contentions in that jurisdiction (the petitioner relied on it). | The present court stated that, after study, it could not find its way to adopt the conclusion reached in that decision and therefore declined to follow it. |
| (1954) 5 STC 58 (TC)(B) (a view taken by one of the bench) | A view supporting the proposition that any amount collected by way of tax that the dealer obtained from customers on the ground that it was sales tax is a collection which must be handed over to the State under the Act. | The court cited this view as aligning with its interpretation of Section 11(2) and as supporting the conclusion that collections characterized as tax must be remitted to the State. |
Court's Reasoning and Analysis
The court's analysis centered on the meaning and effect of Section 11 of the Travancore-Cochin General Sales Tax Act, particularly sub-section (2). Section 11(1) restricts who may collect tax and conditions of collection; Section 11(2) provides that every person who has collected any amount by way of tax under the Act shall pay over all amounts so collected to Government and, in default, those amounts may be recovered as if they were arrears of land revenue.
The court reasoned that, as a matter of statutory construction, "any amount collected by way of tax" means any amount obtained from customers on the basis that it was sales tax due on the transactions—whether the tax was in fact due under the Act or not. Therefore, if the petitioner collected the Rs. 3,386 from purchasers by representing it to be sales tax, that collection falls within the language of s.11(2) and must be paid over to the State.
The court considered but declined to follow a contrary conclusion reached in a Madras High Court decision (1954) 5 STC 382 (Mad). It explained that, after studying that judgment and hearing counsel, the bench could not adopt its conclusion and instead preferred the view that a collection characterized as tax triggers the operation of s.11(2).
However, the court emphasized that the crucial factual question of whether the petitioner’s collection was in fact "by way of tax" (as opposed to a precautionary collection to be refunded) had not been determined by the Appellate Assistant Commissioner in his order dated 30-3-1954 (Ext. B). The appellant had averred an understanding to refund, and the Department's counter-affidavit merely denied that averment without the Appellate Assistant Commissioner making an on-the-merits determination of that factual issue.
Because the appellate order did not address these two formulated questions (existence of the refund/precautionary understanding; and whether such a collection, if established, amounted to a collection "by way of tax" within s.11), the court concluded that the appellate order must be quashed and the papers remitted to the Appellate Assistant Commissioner for fresh determination on the basis of explicit findings on those questions.
The court expressly declined to decide ancillary issues, such as whether the petitioner would be bound to return amounts on a purchaser's demand based on mistake of law, leaving such matters for a later stage.
Holding and Implications
Holding: The Original Petition is allowed to the extent indicated by quashing the Appellate Assistant Commissioner’s order dated 30-3-1954 and remitting the papers to him for fresh determination on the two specific questions formulated by the court. The order was made without any order as to costs.
Implications:
- Direct effect: The appellate order is quashed and the matter is remitted to the Appellate Assistant Commissioner to determine (a) whether the collection of Rs. 3,386 was made solely as a precautionary measure on the understanding of refund, and (b) if so, whether that collection nevertheless amounted to a collection "by way of tax" under s.11 of the Travancore-Cochin General Sales Tax Act, 1125.
- If the Appellate Assistant Commissioner finds that the sums were collected "by way of tax", the court’s reasoning indicates those sums would have to be paid over to the State under s.11(2); conversely, if he finds the collection was not "by way of tax", s.11(2) would not apply.
- The court declined to adopt a conflicting Madras High Court decision (1954) 5 STC 382 (Mad), but did not purport to lay down a novel, binding ratio beyond its statutory interpretation of s.11(2) applied to the facts; in this sense no sweeping new principle beyond that statutory construction was established by the order.
- No costs were awarded in the circumstances.
Order accordingly.
Menon, J.:— Paragraphs 1 and 2 of the petitioner's affidavit sum up the facts of the case as follows:
“1. I am the petitioner in the above Original Petition. I am a dealer in gunny bags, vegetables etc. My dealings are both within and outside the State. During the year 1951–1952 the assessable turnover of my sales within the State was found by the 3rd counter-petitioner as Rs. 97,880-2-0 and was assessed to pay by way of sales tax an amount of Rs. 1,536-12-3 by proceedings dated 14-11-1953. I have already paid the said amount.
2. By the same proceedings I was also directed to pay an amount of Rs. 3386 which I had collected from my customers on sales outside the State till 19-1-1952, during the period for which, the assessment was made. I preferred an appeal before the 2nd counter-petitioner against the order of the 3rd counter-petitioner dated 14-11-1953. That appeal was dismissed by order dated 30-3-1954.”
2. And the prayer in the petition is for a writ of certiorari or other appropriate writ or direction-quashing the two orders mentioned above. The relevant portion of the order of the 3rd counter-petitioner dated 14-11-1953 (Ext A) is in the following terms:
“He has realised sales-tax at 3 pies till 19-1-1952 for sales outside the State. His only authority for the same is his Registration Certificate of this State. He has no Registration Certificate in Madras State where his goods have been sold. Rules lay down that all taxes realised on the strength of file Registration Certificate issued from this State has to be remitted into the treasury.
Further it is not proper on his part to retain the sales tax of Rs. 3,386/- realised by him for outside sales. Notice of demand will therefore be issued for payment of sales-tax realised by him, viz., Rs. 3,386/-, on outside sales although the turnover viz., Rs. 3,51,148/- is not assessable.”
3. And the appellate order of 30-3-1954 (Ext. B) reads as follows:
“The appellant is a dealer in empty gunnies, tins, vegetables etc. He was selling goods-both within and outside the State. During the year 1951–1952 the appellant has collected sales-tax to the extent of Rs. 3,386 on inter-state sales. The Sales Tax Officer has demanded the tax so collected. This appeal is filed against the above demand.
Heard the Advocate for the appellant. It if submitted that the appellant is not liable to par-sales tax to this State on sales outside the State under Article 286(1)(a) of the Constitution of India.
According to the Supreme Court decision he is liable to pay the tax in question to the State of delivery only and that the tax was collected as a precautionary measure as the law was not certain then.
It is also contended that the Sales Tax Officer is not justified in demanding the tax under S. 11(2) of the Act, because S. 11 of the Act does not apply as this is not a collection under the Travancore-Cochin General Sales Tax Act.
It is also submitted that the collection was made as a precautionary measure, and if it is not found due the amount has to be refunded to his customers, or if demanded, to the Madras State where the goods have been delivered for consumption in pursuance of the sale.
The Advocate has also referred to the judgment of our High Court in Velayudhan v. Agrl. Income-tax and Sales Tax Officer, Perumbavoor wherein it is decided that the tax collected under the Travancore-Cochin General Sales Tax Act from his purchasers is immune from further levy of sales tax, as the collection is made by him for and on behalf of the State and his obligation is to make it over to the State on whose behalf he makes the collection. No part of the money collected by way of sales tax belongs to him.
Considering the facts of this case under appeal, the above ruling is more in favour of the department than to the appellant, because the collections under reference were made by him for and on behalf of the State and his obligation is to make it over to the State on whose behalf he makes the collection.
According to the judgment of the Supreme Court in Bombay case, it is true, the State in which the goods are delivered for consumption is alone entitled to get the sales tax on the goods so delivered in pursuance of sales effected. But the sales tax officer has levied no tax on the turnover of inter-State or outside sales, but has called upon him to pay tax collected by him under, S. 11(2) of the Act.
It is seen that the appellant actually collected this tax under the Travancore Cochin General Sales Tax Act long before the judgment of the Supreme Court and the amount has been collected by him by way of sales tax from his customers for and on behalf of the Stat so the tax so collected has to be paid over to this State. It is so held by our High Court in K.J Mathew v. The Sales Tax Officer, Alwaye.
The contention that the tax collected by the appellant from his customers is beyond the scope of the provisions of the Travancore-Cochin General Sales Tax Act is also not tenable, because the appellant is empowered to collect sales tax under S. 11 of the Act only.
In the result, the appeal is dismissed.”
4. Section 11 of the Travancore Cochin General Sales Tax Act, 1125, provides:
“(1) No person who is not a registered dealer shall collect any amount by way of tax under this Act; nor shall a registered dealer make any such collection except in accordance with such conditions and restrictions, if any, as may be prescribed:
Provided that Government may exempt persons who are not registered dealers from the provisions of this sub-section until such date as may be prescribed.
(2) Every person who has collected or collects any amount by way of tax under this Act on or after the date prescribed under the proviso to sub-cl. (1) shall pay over to Government all amounts so collected by him if they are in excess of the tax, if any, paid by him for the period during which collections were made; and in default of such payment, the amounts may be recovered as if they were arrears of land revenue”
5. And the sole question for determination in this case is whether the sum of Rs. 3,386/- collected by the petitioner from the purchasers in respect of sales outside the State, which admittedly do not attract any sales tax under the enactment, has to be paid over to the Government under the provisions of sub-section (2) of section 11”. All that could be urged in favour of the petitioner's contention has been urged with success before the Madras High Court in (1954) 5 STC 382 (Mad)(A). After studying the judgment carefully and hearing Mr. K.K Mathew on behalf of the petitioner we regret to say with great respect, that we cannot find our way to adopt the conclusion reached in that decision.
6. As we read the Act any amount collected by way of tax, that is, any amount that the petitioner obtained from his customers on the ground that it was the sales tax due on the transactions—whether such a tax was actually due on the sales or not—is a collection which has to be handed over to the State under the provisions of the Act. In other words, we see no reason to depart from the view that one of us has taken in (1954) 5 STC 58 (TC)(B).
7. The question as to whether the petitioner is bound to return the amount in case his customer demands it back on the ground that it was paid under a mistake of law or whether the petitioner could claim a statutory immunity in respect of such demands is not a matter that arises for decision at present.
8. We may mention in passing, however, that the position taken up by the State before us and by the learned Advocate General of Madras in the decision mentioned above was that if the person who paid the tax applies for a refund and establishes his claim therefor the same will be given by the State.
9. In the light of what is stated above the petitioner must fail, if the sum of Rs. 3,386/- was collected by him by way of tax, even though the transactions as such did not attract any sales tax under the Travancore Cochin General Sales Tax Act, 1125. The question of fact, however, as to whether his collection was by way of tax or otherwise has not been determined by the Appellate Assistant Commissioner in his order dated 30-3-1954 (Ext. B).
10. In para. 5 of his affidavit the petitioner has stated:
“The amount now taxed is collected on the definite understanding that it will be returned to the customers from whom it was collected, in case it is ultimately found that the sales effected are not liable to be taxed and demand for the same is being made by the customers”.
11. The counter-affidavit on behalf of the Department deals with this averment only as follows:—
“Averments in para 5 are denied. The alleged understanding referred to therein on the face of it is impossible and against all provisions of the Sales Tax Law”.
12. Ext. B makes it quite clear that the petitioner did contend before the Appellate Assistant Commissioner that the collection was made as a precautionary measure and that if no tax liability accrued in this State or the State of Madras where the goods were delivered for consumption in pursuance of the sale, the amounts collected had to be refunded. There is nothing in the Appellate Order to show that this contention was denied by the Department at that stage or that the Appellate Assistant Commissioner considered the question on its merits.
13. The questions arising on this aspect of the case can be formulated as follows:—
(1) Can the petitioner's averment that the collection was made solely as a precautionary measure and on the understanding that the amounts collected will be refunded if no liability to sales tax accrued in this State or the State of Madras be accepted as true? and
(2) If the answer to question No. 1 is in the affirmative will such a collection amount to a collection “by way of tax” within the meaning of Section 11 of the Travancore Cochin General Sales Tax Act, 1125?
14. These two questions have not been considered by the Appellate Assistant Commissioner and in view of this his order in appeal must be quashed and the papers sent back to him for fresh determination on the basis of his conclusions on the questions mentioned above. The Original Petition will stand allowed in the manner and to the extent indicated above; but in the circumstances of the case without any order as to costs.
15. Order accordingly.
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