Holding

Section 29-A (unamended) of the U.P. Trade Tax Act is constitutionally valid and within the State Legislature’s competence, requiring excess tax to be deposited with the Treasury and not refunded to the dealer.

Summary

Swadeshi Polytax Ltd., a dealer of polyester staples fiber, collected sales tax in excess of the prescribed rate and deposited the amount with the Government Treasury. The dealer sought a refund of the excess amount, but the Trade Tax Tribunal ordered a refund contrary to Section 29-A of the U.P. Trade Tax Act, which mandates that such excess must be deposited with the Treasury and can be refunded only to the party from whom it was collected. The Allahabad High Court had struck down Section 29-A as unconstitutional, relying on earlier decisions. On appeal, the Supreme Court examined the constitutional validity and legislative competence of the unamended Section 29-A under Entry 54 of List II. The Court held that the provision is within the State Legislature’s power, remains valid, and therefore the excess tax must be retained in the Treasury as no claim for refund was made by the original payers. Consequently, the Court set aside the Tribunal and High Court judgments and restored the order of the Commissioner (Appeals). The appeal was allowed.

Issues considered

The constitutional validity of Section 29-A of the U.P. Trade Tax Act, 1948.
Whether the State Legislature has competence to enact a provision directing dealers to deposit excess tax collected.
The effect of the amendment to Section 29-A (1971) on the provision’s validity and whether re‑enactment is required.
Whether excess tax collected can be refunded to the dealer or only to the original party from whom it was collected.

Legislation cited

Constitution of Indias. Article 141
U.P. Trade Tax Act, 1948s. 29-A

Subjects

Section 29-AU.P. Trade Tax Actexcess taxrefundlegislative competenceconstitutional validitysales taxpublic interesttrustdeposit

Judgment

COMMISSIONER OF SALES TAX, U.P. A
v.
M/S SWADESHI POLYTAX LTD., GHAZIABAD

SEPTEMBER 28, 2005.

[S.N. VARIAVAANDTARUN CHATTERJEE,JJ.] B

Taxation:

U.P. Trade Tax Act, 1948-Section 29A (prior to 1971 amendment):
c
Tax collected in excess ofprescribed limit by the dealer-Held: Required
to be deposited in Government treasury-Order of refund of excess amount
to the dealer is not correct-It could only be refimded to party from whom
it was wrongly collected

Provision requiring the dealer lo deposit in Government treasury the D
tax collected in excess of prescribed limit-Constitutionality of-Held:
Constitutionally valid

Constitution of India, 1950-Artic/e 141-Provision declared invalid
by High Court-On appeal, Supreme Court declared it valid-Binding effect- E
Held: Appeal is a continuation of same proceeding and the finality could
only be given by judgment of Supreme Court-As the said provision is held
valid, it always remained on the statute, hence need not again be legislated.

In terms of Section 29-A ofU.P. Trade Tax Act, 1948, a dealer is required
to deposit excess tax recovered from its customers in the Government Treasury. p
Respondent, a dealer of Staples Fiber had collected tax in excess of prescribed
limit. Assessing Officer ordered the amount to be deposited in Government
treasury. Appellate authority upheld the same. On appeal, Trade Tax Tribunal
directed the refund of excess amount to the respondent. In an earlier decision,
Allahabad High Court had struck down Section 29-A as invalid. High Court
relied upon the said earlier decision and dismissed the revision. G
In appeal to this Court, Revenue challenged the constitutionality of
Section 29A of U.P. Trade Tax Act and legislative competence of the State
Legislature to make a provision directing the dealer to deposit the amount of

663 H
664 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A tax collected by him from a customer in excess of the prescribed tax.

Allowing the appeal, the Court

HELD: Even though the High Court had held Section 29A of U.P. Trade
Tax Act to be unconstitutional, in the Appeal carried to this Court it was
B declared that the Section was within the legislative competence of the State
Legislature. The Appeal is a continuation of the same proceeding and the
finality could only be given by the Judgment of this Court. Thus unamended
Section 29-A always remained on the statute book and required no re-
enactment. Under the unamended Section 29-A the amount cannot be refunded
C to the Respondent. It could only be refunded to the party from whom it was
wrongly collected. No such party has made such a claim for refund. Therefore,
directing this amount to be deposited in the Treasury was correct.
[669-D-E-Ff

Assistant Commissioner (Judicial), Sales Tax and Ors. v. Kheria
D Brothers and Anr., [19991 8 sec 137, relied on.

State a/UP. and Anr. v. Annapurna Biscuit Manufacturing Co., (1974(
3 SCC 121, Overruled.

Abdul Quader & Co. v. Sales Tax Officer, Hyderabad, (1964( 6 SCR
E 867; Ashoka Marketing Ltd. v. State o/Bihar and Anr., (1970) 1SCC354; R.
S. Joshi, Sales Tax Officer, Gujarat and Ors. v. Ajit Mills Limited and Anr.,
etc., (1977( 4 SCC 98; Mis Kasturi Lal Har/al v. State o/U P. and Ors., (1986)
4 SCC 704; Orient Paper Mills Ltd. v. State of Orissa, (1962( 1 SCR 549;
State of Orissa v. Orissa Cement Ltd., [1985) Supp. SCC 608; Behram
Khurshed Pesikaka· v. The State of Bombay, 11955) 1 SCR 613; Saghir Ahmad
F v. The State o/U P. and Ors. (1955) l SCR 707; Deep Chandv. State of UP.
and Ors. AIR (1959) SC 648; Mahendra Lal Jaini v. The State of VIiar
Pradesh and Ors., (19631
I
Supp. l SCR 912 and B. Shama Rao v. The Union
Territory of Pondicherry, (196712 SCR 650, referred to.

G CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3742 of2000.

From the Juqgment and Order dated 13.10.98 of the Allahabad High
Court in S.T.R. No 1 I I I 7 of I 990.

Ms. Shobha Dikshit, Rajeev Kumar Dubey and Kamlendra Mishra for
H the Appellant.
COMMISSIONER OF SALES TAX, U.P. v. SWADESHI POLYTAX LTD. [VARIAVA,J.] 665

Manoj Goel, Shuvodeep Roy and Ms. Abha R. Sharma for the A
Respondent.

The Judgment of the Court was delivered by

S.N. VARIA VA, J. This appeal is against the Judgment dated 13th
October, 1998 passed by the Allahabad High Court. B
Briefly stated the facts are as follows.

The Respondent is a manufacturer and dealer of Polyester Staples Fiber.
It had collected, from its customers, tax in excess of what was prescribed. It
is an admitted position that these amounts were deposited with the Government. C
The Respondent had challenged the assessment and its Appeal was allowed.
As the tax liability was held to be lower, the concerned Officer passed an
Order of refund but directed that the amount be deposited in the Treasury
in view of Section 29-A of the U.P. Trade Tax Act.

In the Appeal, the Deputy Commissioner (Appeals) granted relief to the D
extent of Rs. 417 but confirmed the Order of the Assessing Authority directing
deposit of the balance amount. The Respondent then filed an Appeal before
the Trade Tax Tribunal who directed refund of the excess amount in spite of
the provisions of Section 29-A of the U.P. Trade Tax Act. The Revision filed
by the Appellant was dismissed by the High Court by the impugned judgment. E
The High Court followed two earlier Judgments of that Court one of which
was the case of one Kheria Brothers. In this case, relying on the Ju?gment
of this Court in the case of State of UP. and Anr. v. Mis Annapurna Biscuit
Manufacturing Co., reported in [1974] 3 SCC 121, the Allahabad High Court
struck down Section 29-A as being beyond the legislative competence of the
State Government. At the time the impugned Judgment was passed an Appeal, F
against the High Court's Judgment in Kheria Brothers case was pending in
this court.

At this stage Section 29-A must be set out. Section 29-A reads as
follows:-
G
"Where any amount is realized from any person by any dealer
purporting to do so by way of realization of tax on the sale of any
goods to such person, such dealer shall deposit the entire amount so
realized into the Government Treasury, within such period as may be
prescribed notwithstanding that the dealer is not liable to pay such H
666 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A amount as tax or that only a part of it is due from him as tax under
this Act."

Section 29-A set was amended on 22nd August 1971 to read as follows:-

"29-A. (I) Where any amount is realized from any person by any
B dealer purporting to do so by way of realization of tax on the sale of
any goods to such person, such dealer shall deposit the entire amount
so realized into the Government treasury, within such period as may
be prescribed, notwithstanding that the dealer is not liable to pay
such amount as tax or that only a part of it is due from him as tax
under this Act.
c
(2) Any amount deposited by any dealer under sub-section (I) shall,
to the extent it is not due as tax, be held by the State Government in
trust for the person from whom it was realized by the dealer, or for his
legal representatives, and the deposit shall discharge such dealer of
the liability in respect thereof to the extent of the deposit.
D
(3) Where any amount is deposited by any dealer under sub-section
(I), such amount or any part thereof shall, on a claim being made in
that behalf in such form as may be prescribed, be refunded, in the
manner prescribed, to the person from whom such dealer had actually
realized such amount or part, or to his legal representatives, and to
E no other person:

Provided that no such claim shall be entertained after the expiry of
three years from the date of the order of assessment or one year from
the date of the final order on appeal, revision or reference, if any, in
respect thereof, whichever is later.
F
Explanation.- The expression 'final order on appeal, rev1s1on or
reference' includes an order passed by the Supreme Court under
Article 32, Article 132, Article 133, Article 136 or Article 137, or by the
High Court under Article 226 or Article 227 of the· Constitution."

G The constitutional validity of the amended provision was challenged.
The Allahabad High Court held the amended Section 29-A to be ultra vires
the power of the State Legislature to enact and declared the provision to be
unconstitutional. This Court in Mis Annapurna Biscuit Manufacturing Cos.
case (supra) upheld the decision of the Allahabad High Court and held the
H amended Section 29-A to be unconstitutional. The Court relied upon the
:::I
.\

COMMISSIONER OF SALES TAX, U.P. v. SWADESHIPOL YTAX LTD. [VARIAVA,J.J 667

decision of this Court in the case of Abdul Quader & Co. v. Sales Tax Officer, A
Hyderabad, reported in [1964] 6 SCR 867, wherein it was observed as follows:-

"The provision however is attempted to be justified on the ground
that though it may not be open to a State Legislature to make provision
for the recovery any amount which is not a tax under Entry 54 of List
II in a law made for that purpose, it would still be open to the B
Legislature to provide for paying over all the amounts collected by
way of tax by persons, even though they really are not exigible as tax,
as part of the incidental and ancillary power to make provision for the
levy and collection of such tax ......................... But where the legislation
under the relevant entry proceeds on the basis that the amount C
concerned is not a tax exigible under the law made under that entry,
but even so lays down that though it is not exigible under the law,
it shall be paid over to Government, merely because some dealers by
mistake or otherwise have collected it as tax, it is difficult to see how
such a provision can be ancillary or incidental to the collection of tax
legitimately due under a law made under the relevant taxing entry." D

In Mis Annapurna Biscuit Manufacturing Co's case reliance was also
placed upon the observations of this Court in the case of Ashoka Marketing
ltd v. State of Bihar and Anr., reported in [1970] l SCC 354, to the following
effect:-
E
"A provision which enables the dealer to pass on the liability for
payment of tax is incidental to legislation for sales-tax. But we are
unable to hold that a provision under which a dealer is called upon
to pay to the State an amount which has been collected by him on
a representation - express or implied - that an equal amount is payable
by him under the Bihar Sales Tax Act, is a provision incidental to the F
power t~ levy 'tax on sale or purchase of goods' within the meaning
of Entry 54, List II of the Seventh Schedule. Entry 54, List II of the
Seventh Schedule comprehends the power to impose tax, to prescribe
machinery for collecting the tax, to designate officers by whom the
liability may be imposed and to prescribe the authority, obligation and G
indemnity of the officers. The State Legislatures may under Entry 54,
List II be competent to 'enact a law in respect of matters necessarily
incidental to 'tax on the sale and purchase of goods'. But a provision
compelling a dealer who has deliberately or erroneously recovered an
amount from the purchaser on a representation that he is entitled to
recover it to recoup himself for payment of tax, to pay over .that H
668 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A amount to the State cannot, in our judgment, be regarded as necessarily
incidental to Entry 54, List II. In effect the provision is one for levying
an amount as tax which the State is incompetent to levy. A mere
device cannot be pennitted to defeat the provisions of the Constitution
by clothing the claim in the form of a demand for depositing the
money with the State which the dealer has collected, but which he was
B not entitled to collect."

Thereafter a seven Judge bench of this Court in the case of R.S. Joshi, Sales
Tax Officer, Gujarat and Ors. v. Ajit Mills Limited and Anr., etc., reported in
(1977] 4 SCC 98 disapproved of Abdul Quadir's and Mis Annapurna Biscuit
C Manufacturing Cos' cases. In this case, the question, under the Bombay
Sales Tax _Act, was whether the State Legislature had legislative competence
to make a provision directing a dealer to deposit the amount of tax collected
by him from a customer in excess of the prescribed tax. It was held that such
a provision would be within the legislative competence as a punitive measure
to protect public interest in the enforcement of fiscal legislation. It was held
D that this was within the implied powers of the State Legislature.
Following R.S. Joshi 's case, a Constitution Bench of this Court upheld
the constitutional validity of Section 29-A (as it stood prior to its amendment)
in the case of Mis Kasturi Lal Har/al v. State of U.P. and Ors., reported in
(1986] 4 SCC 704. The Constitution Bench noted that this question stood
E concluded by R.S. Joshi 's case (supra). It also took note of Ashoka Marketing's
case (supra) and observed that the decision in Ashoka Marketing's case did
not follow an earlier decision in Orient Paper Mills Ltd. v. State of Orissa,
reported in [I 962] I SCR 549. It was held that R.S. Joshi 's case disapproved
of the decision in Ashoka Marketing's case and reaffirmed the view taken in
p Orient Paper Mills 's case. The Constitution Bench also took note of a
subsequent decision in the case of State of Orissa v. Cement Ltd., [1995]
Supp. SCC 608, wherein also Ashoka Marketing's case was held to have been
dissented in R.S. Joshi 's case. The Constitution Bench of this Court upheld
the constitutionality of the unamended Section 29-A and held that it was
within the legislative competence of the State Legislature to enact.
G
The Appeal in Kheria Brothers case thereafter reached hearing before
a two-Judge Bench of this court which referred the matter to a three Judge
Bench in view of the above mentioned decisions of this court. However
subsequently a three Judge Bench of this Court has allowed the Appeal in
the decision reported in [ 1999] 8 SCC 13 7. The three Judge Bench has held
H that the Judgment in Mis Annapurna Biscuit Manufacturing Cos' case stands
COMMISSIONER OF SALES TAX, UP. v. SWADESHIPOLYTAXLTD. [VARIAVA,l.] 669

overruled. We are in agreement with this view. A
Faced with this situation, it was submitted by Mr. Goel that even if the
decision in Annapurna Biscuit's case is held to be erroneous, the position will
be that amended Section 29-A having declared to be void and beyond the
legislative competence, cannot revive by itself. It was submitted that the
Section can only revive if it is re-enacted. In support of this submission, B
reliance was placed upon certain observations made in the case of Behram
Khurshed Pesikaka v. The State of Bombay, reported in [1955) l SCR 613;
Saghir Ahmad v. The State of UP. and Ors., reported in [l 955) I SCR 707;
Deep Chand v. State of UP. and Ors., reported in AIR (1959) SC 648;
Mahendra Lal Jaini v. The State of Uttar Pradesh and Ors., reported in [1963) C
Sopp. I SCR 912 and B. Shama Rao v. The Union Territory of Pondicherry,
reported in [ 1967) 2 SCR 650.

We do not agree with this submission. However, in our view, it is not
. at all necessary to go into this submission. In this case, we are concerned
with the unamended Section 29-A. Even though the Allahabad High Court D
· had held this provision to be unconstitutional, in the Appeal carried to the
Court it has been declared that the Section was within the legislative
competence of the State Legislature. The Appeal was a continuation of the
same proceeding and the finality could only be given by the Judgment of this
Court. Thus in any view of the matter it will have to be held that unamended
section 29-A always remained on the statute book and required no re- E
enactment. Thus, even if the submission of Mr. Goel is accepted, the effect
would be that it is only the amended Section 29-A which might require re-
enactment and in its absence the unamended section 29-A would continue to
be valid and effective. In that event the amendments of 1971 would be deemed
never to have taken place. Even under the unamended Section 29-A the F
amount cannot be refunded to the Respondent. It could only be .refunded to
the party from whom it was wrongly collected. No such party has made such
a claim for refund. Therefore, directing this amount to be deposited in the
Treasury was correct. We however clarify that we are not in agreement with
the submission that amended Section 29-A would require re-enactment.
G
In this view of the matter, we set aside the impugned Judgment and the
Judgment of the Trade Tax Tribunal and restore the Order of the Commissioner
(Appeals), Ghaziabad.

The Appeal is accordingly allowed with no order as to costs.

D.G. Appeal allowed. H