Holding

A penalty under Section 15‑A(1)(qq) is leviable only when the dealer actually realises an amount as sales or purchase tax that exceeds the tax legally payable; excess realisation of price does not attract the penalty.

Summary

The appellant, Commissioner of Sales Tax, assessed a penalty on the respondent, a roller flour mill dealer, for allegedly realizing excess amounts as wheat purchase tax, sales tax, and octroi beyond what was legally payable under the U.P. Sales Tax Act. The dealer had been authorised by a government notification to recover proportionate amounts of these taxes in addition to the fixed ex‑mill price, but the revenue contended that the dealer had realized these amounts as tax in excess of liability, invoking Section 15‑A(1)(qq). The High Court held that the excess realization was of price, not tax, and therefore the penalty provision did not apply. On appeal, the Supreme Court affirmed that a penalty under Section 15‑A(1)(qq) is only applicable when the dealer actually realizes an amount "as" sales or purchase tax and that amount exceeds the tax legally payable. Since the dealer’s excess recovery was treated as price, not tax, the penalty was unwarranted. Consequently, the appeal was dismissed, upholding the High Court’s decision.

Issues considered

Whether the realization of amounts as wheat purchase tax, sales tax and octroi in excess of tax payable attracts penalty under Section 15‑A(1)(qq) of the U.P. Sales Tax Act.
Whether excess recovery of price under the notification can be treated as realization of tax for penalty purposes.
Interpretation of the phrase "realises any amount as sales tax or purchase tax" in Section 15‑A(1)(qq).

Legislation cited

Essential Commodities Act
U.P. Roller Flour Mills (Ex‑Mill Price Control) Order, 1975
U.P. Sales Tax Act, 1948s. 15A(1)(qq), s. 18(3), s. 8A(2)(b)
U.P. Sales Tax Rules, 1948s. Rule 41(7)

Subjects

sales taxpenaltyexcess realizationtax liabilityU.P. Sales Tax Actessential commoditiescontrol orderquasi‑criminal penalty

Judgment

COMMISSIONER OF SALES TAX U.P. LUCKNOW
A
v.
MOQL CHAND SHYAM LAL, BELANGANJ, AGRA

AUGUST 1, 1988

8 [SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.)

U.P. Sales Tax Act,. 1948/U.P. Sales Tax Rules, 1948: Sections
8A(2)(b), 18(3) and 15A(l)(qq)/Rule 41(7) and Notification No. ST
4602/29 dated June iB, 1975. Assessee-Dealer in wheat products-
Realised wheat sales tax, wheat purchase tax and octroi in addition (o
C sale price fixed by Government-Whether penalty can be levied for
realisation of excess amount.

The respondent-dealer who runs Roller Flour Mills was supplied
wheat by the Food Corporation of India and. Regional Food Controller
for the manufacture of Atta, Maida, Suji etc. The sale price of the
D wheat products was lixed by the State Government under the U.P.
Roller Flour Mills (Ex-Mill Price) Control Order, 1975. The notilica-
tion issued under the Control Order also authorised the mills to realise
iu addition to the lixed ex-mill price, the proportionate amount of
octroi, terminal tax, purchase tax or sales tax, etc. payable by the mills
on the wheat crushed. Accordingly, the respondent realised this
E amount. The respondent further realised the proportionate amount of
the wheat purchase tax and wheat sales tax and octroi, as consideration
of the sale price in addition to the sale price lixed by the State Govern-
ment. For this excess realisation, the Assistant Commissioner (Assess-
ment) imposed a penalty under section 15-A(l)(qq) of the U.P. Sales
Tax Act, 1948 treating it as realisation of tax in excess of tax payable.
F The respondent's appeals before the Deputy Commissioner (Appeals)
and the Tribunal failed. The High Court, however, allowed the revis-
ion.

Dismissing the appeal, it was,

G HELD: (1) Penalty under the Sales Tax Act is leviable for excess
realisation of tax. Therefore, realisation of the amount should be as tax
and not in any other manner. I753G J

(2) The excess amount charged was in contravention of the pro- t.
visions of the Control Order. But that alone was not suflicient for initia-
H lion or levy of penalty under sub-clause (qq) of section 15-A (1) of the
750
COMMR. OF SALES TAX"· MOOL CHAND [MUKHARJI, J.] 751

Act. The excess amount has to be realised as sales or purchase tax and
A
the tax so charged must have been in excess of tax payable. [754A-B]

(3) Realisation of excess amount is not impermissible hut what is
not permissible is realisation of excess amount as tax. [754EI

(4) The imposition of a penalty under the Act is qu•si criminal B
and unless strictly proved the assessee is not liable for the same. If the
' purchaser realises more money, that by itself will not attract the penal
provisions. [754F-G]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2551
(NT) of 1988.
c
From-the Judgment and Order dated 7.7.1982 of the Allahabad
.,, High Court in S.T.R. No. 33 of 1982.

A.K: Srivas!ava for the Appellant.
D
R.R. Agarwal and C.P. Pandey for the Respondent.

The Judgment of the Court was delivered by

SABYASACHl MlJKHAR.ll. J. Special leave granted. The
appeal is disposed of by the Judgment herein. E

The appeal relates to the assessment year 1976-77, period being
1.4. 76 to 3.1. 77 under the U .P. Sales Tax Act, l'J48 (hereinafter called
the Act). The dealer runs a Roller Flour Mills unclcr the name and
style of M/s. Moo! Chand Shyam Lal Roller Flour Mills, Agra in which
Atta, Maida, Suji, Bran and Refraction are manufactured. For the F
manufacture of Atta, Maida and Suji the wheat is supplied by the Food
Corporation of India and Regional Food Controller under the lJ .P.
Roller FlourMills (Regulation of use of Wheat) Order. The sale price
of the said wheat products i.e. Atta, Maida, Suji has been fixed by the
State Government from time to time· under U.P. Roller Flour Mills
(Ex-Mill Price Control) Order, 1975 under the notificatio11s issued by G
the Government. The State Government has further issued the notifi-
cation No. ST. 4602/29-Wheat-127/175 dated 28th June, 1975 under
the U .P. Roller Flour Mills (Ex-Mill Price) Control Order, 1975 fixing
i the ex-mill price of the sales of wheat products and also authorised the
mills in the said notification to realise the proportionate amount of
octroi, terminal tax, purchase tax or s<.1les tax, duty or l:xcisc duty H
'
r
752 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

payable by the mills on the wheat crushed in addition to the fixed
A ex-mill price. The dealers have realised the amount of the wheat pro- !
ducts as fixed by the U.P. Roller Flour Mills (Ex-Mill Price) Control
Order, 1975 and have also realised the amount of the wheat sales tax
or wheat 'purchase tax and octroi on the wheat used in the manufacture
of wheat products, for the sale of Atta, Maida, Suji, Bran and refrac-
'B tion in accordance with the aforesaid notification. The dealers have
further realised the ·proportionate amount of the wheat purchase tax
and wheat sales tax and octroi as consideration of the sale price in
additfon to the sale price fixed by the State Government on the sales of
wheat products. It is the case of the revenue that the amount of wheat
sales tax and wheat purchase tax as well as the octroi, paid by the
C dealers for the purposes of purchases of wheat, which was used for the
manufacture of wheat products, has been kept in the separate account
in the account books of the dealer. It is further the case of the revenue
that the amount of wheat sales tax and wheat purchase tax, which the !.S~

dealer paid for the purposes of purchase of wheat, was collected by the
dealer as part of the sale price of the wheat products. For the assess-
D ment year 1976-77 the assessment order was passed on 22nd February,
1979 under Rule 41(7) of the U .P. Sales Tax Rules read with section
18(3) of the Act for the period from 1.4. 76 to 3.1.77 by which the
assessing authority while passing the assessment order has accepted
the contention of the dealer that the amount of the wheat purchase
tax, wheat sales tax and octroi charged separately by the dealer in the
E cash memo of sale of Atta, Maida and Suji are the part of the turnover
and included in the disclosed turnover of the dealer. The assessing
authority in the regular assessment had treated I.his wheat purchase
tax, wheat sales tax and octroi which were paid by the dealer sep-
arately in the cash memos and the wheat products sold by the dealer,
as part of the ex-mill price of the wheat product. The assessing author-
F ity had imposed the tax on this amount treating it as a part of the
turnover of the dealer. But after the completion of the assessment, the
Assistant Commissioner (Assessment) iSsued a notice under section
15-A(l)(qq) of the Act to show cause as to why penalty should not be
imposed in respect of the realisation of wheat purchase tax and wheat
sales tax during the aforesaid period. A reply was filed by the dealer to
G the said notice. The Assistant Commissioner by his order dated 24th
February, 1979 imposed a sum of Rs.25,000 as penalty under section
15-A(l)(qq). Section 15-A(l)(qq) reads as follows:

"(qq) realises any amount as sales tax, or purchase tax,
where no sales tax or purchase tax is legally payable or in
H excess of the amount of tax, legally payable under this Act:
or"
:~
r
•(:
COMMR. OF SALES TAX v. MOOL CHAND IMUKHARJI, J.] 753

In the aforesaid circumstances after an inquiry as it may deem
A
necessary the assessing authorities may direct that such dealer shall
pay, by way of penalty, in addition to the tax, if any payable by him
m'entioned therein. Against the aforesaid order of the Assistant Com-
mi~ioner, the dealer filed an appeal before the Deputy Commissioner
(Appeals). The Deputy Commissioner (Appeals) dismissed the appeal
and confirmed the order of imposition of penalty.-Against the said B
order of the Deputy Commissioner (Appeals) the .dealer filed a second
appeal before the Tribunal. The Tribunal also upl)eld the order of the
lower authorities and dismissed the appeal. Against the judgment and
order passed by the Tribunal, the dealer moved the High Court by way
of a revision. The High Court allowed the revision.

The High Court held that on the facts found, it should be c
examined if the excess realisation was of sales or purchase tax thus
incurring penal liability under sub-clause (qq) of sub-section (1) of
section 15-A or it was excess.realisation of price over and above that
the assessee was entitled to charge from its customers under Notifica-
tion No. 4602 of the Essential Commodities Act. It was urged that the D
assessee did not commit any breach of the Act. It was contended that
the assessee was entitled to realise price and the purchase tax from
customers under notification but if it realised more than it was excess
realisation by way of price, there would be breach of the Control
Order for which no penalty could be levied under this Act. What the
assessee has realised from customers was price and not tax. Section E
15-A postulates as set out hereinbefore under clause (qq) certain con-
ducts. As it is apparent from the provisions set out above, that the
realisation must be by the dealer of the amount as sales tax or purchase
tax where no sales tax or purchase tax was legally payable or in excess
of the amount of tax legally payable under the Act. Therefore, it is
necessary that realisation must be of the sales tax or purchase tax, F
secondly, that realisation must be in excess and ,thirdly the amount of
tax should be legally payable under the Act. 'The High Court has
construed the expression "as" in the beginning of the sub-clause as
significant. Penalty is leviable for excess realisation of tax, therefore,
realisation of the amount should be as tax and not in any other manner.
Then excess should be over and .above the amount of tax legally pay- G
able. This expression obviously means tax payable under the Act,
rules or notification. Therefore, realisation by the assessee from
customers should not be of only sales or purchase but it should be of
the tax legally payable. If the purchaser realises more money that by
itself will not attract the penal provisions. In ihe instant case, the High
Court noted that it has been found that the dealer charged sales tax at H
754 SUPREME COURT REPORTS [1988] Supp. 1 S.C.R.

the rate of Rs.5 per quintal. There is no finding that it was in excess of
A
tax leviable or legally payable under the Act. The excess thus charged
was in contravention of the provisions of the notification. But that
alone was not sufficient for initiation or levy of penalty under sub-
clause (qq) of section 15-A(l) of the Act. It has to be realised as sales
as purchase tax and the tax so charged must have been in excess of tax
B payable. The assessing authorities have not found in the instant case
that Rs.5 per quintal was in excess of tax payable under the Act.
''
On behalf of the revenue, our attention was drawn to sub-clause
(b) of sub-section (2) of section 8-A of the Act. The said sub-clause
read as follows:
c "(b) Where sales tax is payable on any turnover by ·a
dealer (including a commission agent or any of the persons
mentioned in the Explanation to clause (c) of Section (2),
registered under this Act, such a dealer may recover an
amount, equivalent to the amount of sales tax payable,
D from the person to whom the goods are sold by him,
whether on his behalf or on behalf of his principal."

This is a method of realisation in case of indirect tax. Penalty can
be levied or is leviable for realisation of excess of tax legally payable
and not for contravention of section 8-A(2)(b). Realisation of excess
E amount is not impermissible but what is not permissible is realisation of
excess amount as tax. The High Court noted that the assessee did not
act fairly in this case. By way of price it realised from its customers
more than what is was entitled to under notification No. 4602 but in
order to avoid any consequences under the Essential Commodity such
as suspension or cancellation of its licence etc. the excess realisation
F was shown as amount covered by Explanation II of the Notification.
On these facts the High Court found that the provisions of section
15-A(l)(qq) were not applicable. It has to be borne in mind that the
imposition of a penalty under the Act is quasi criminal and unless
strictly proved the assessee is not liable for the same.

G In that view of the matter, the High Court was right in the view it
took. There is no scope for interference under Article 136 of the Con-
stitution. The appeal, therefore, fails and is dismissed accordingly.
There will be no order as to costs.
)
R.S.S. Appeal dismissed.