Holding

Section 29-A is a valid ancillary provision under Entry 54 of List II and is constitutionally valid.

Summary

The appellants, registered coal dealers under the U.P. Sales Tax Act, collected sales tax from purchasers after coal became taxable in 1965, but were later held not liable for tax and sought a refund of the amounts deposited. The Sales Tax Officer rejected the refund claim, relying on Section 29-A, which permits refund only to the persons from whom the dealer actually collected the tax. The appellants challenged the constitutional validity of Section 29-A, arguing it was beyond the State Legislature's competence. The Supreme Court held that Entry 54 of List II of the Seventh Schedule authorises the State to enact ancillary measures, and that refunding amounts collected by dealers to the original buyers is an incidental aspect of a tax on the sale of goods. Relying on the precedent set in R.S. Joshi v. Ajit Mills and rejecting the earlier view in Ashoka Marketing Ltd., the Court upheld Section 29-A as constitutionally valid and dismissed the appeal.

Issues considered

Whether Section 29-A of the U.P. Sales Tax Act, 1948 falls within the legislative competence of the State Legislature under Entry 54 of List II of the Seventh Schedule.
Whether the provision constitutes a valid ancillary or incidental measure to the tax on sale or purchase of goods.

Legislation cited

Constitution of Indias. Article 246(3), s. List II Entry 54
U.P. Sales Tax Act, 1948s. 29-A, s. 8-A(4), s. 8-A(5)
U.P. Taxation Laws (Amendment) Act, 1969s. 17

Subjects

sales taxrefundancillary legislationconstitutional validitystate legislative competenceEntry 54consumer protection

Judgment

KASTURJ LAL HARLAL
A
v.
STATE OF U.P. & ORS.
r~
OCTOBER 29, 1986

B [P.N. BHAGWATI, C.J. RANGANATH MISRA,
V. KHALID, G.L. OZA AND M.M. DUTT, JJ.]

U. P. Sales Tax Act, 1948: s.29-A-Provision for refund to buyers
of amount realised as tax by a dealer-Whether constitutionally valid.

Section 29-A of the U.P. Sales Tax Act, 1948 Inserted hy s.17 of
c the U.P. Taxation Laws (Amendment) Act, 1969 provided for refund of --{_ .,....
the amount, realised by a dealer as tax on sale of goods and deposited
under sub-s.(4) or sub-s.(5) of s.8-A of the Act, to the person from
whom such dealer had actually realised the same, and to no other

D
person. "'
Coal became a taxable commodity under the U.P. Sales Tax Act
for the first time on !st October 1965. The appellants, _who were
registered as dealers in coal under the Act, on the assumption that sales
tax -?'as p_ayable by them on sale of coal from and after I st October
1965, collected amounts by way of sales tax from the purchasers and
E submitted their returns for the assessment year 1965-66 after depositing
a sum representing the amont of tax payable by them in accordance
with their returns. The Sales Tax Officer, however, found that no sales '\
tax was payable by the appellants on sale of coal under the Act. The
appellants thereupon claimed refund of the amount deposited but the

F
Sales Tax Officer rejected their claim under s.29-A of the Act.

A Writ Petition challenging the correctness of that order and the
-
constitutional vires ofs.29-A was rejected by the High Court. -~
Dismissing the appeal by certificate, the Court, ~

G HELD: Section 29-A of the U.P. Sales Tax Act, 1948 introduced
by s.!'7 of the U.P. Taxation Laws (Amendment) Act, 1969 falls within
the legislative competence of the State Legislature and is constitution-
ally valid. [90F, 89F]

Clause (3) of Art.246 of the Constitution read with Entry 54 in -.J

H List U of the Seventh Schedule thereto empowers the State Legislature

86 \
KASTURI LAL HARLAL "- STATE OF U.P. (BHAGWATI. CJ.] 87

to make laws with ~peel to taxes on the sale or purchase of goods. An A
Entry in a Legislative List must he read in its widest amplitude and the
legislature must he held to have power not only to legislate with respect
to the subject matter of tile entry but also to make ancillary or inciden-
tal provision in aid of the main topic of legislation. Taking over of sums
collected by dealers from the public under guise of tax solely with a view
to returning them to the buyers so deprived is necessarily incidental to B
tax on the sale and purchase of goods. The enactment of s.29-A can thus
he said to he justified as exercise of an ancillary or incidental power of
legislation under Entry 54. [89G, 900, 89H] '
)..- .
R.S. Joshi v; Ajit Mills, (1978] 1SCR338, followed.
c
Ashoka Marketing Ltd. v. State of Bihar & Anr., [ 1970] 3 SCR
455, dissented from.

R. Abdul Qader & Co. v. Sales Tax Officer, Hyderabad, (1964] 6
SCR 867, Orient Paper Mills Ltd., v. State of Orissa & Ors., (1962] 1
SCR 549 and State of Orissa v. Orissa Cement Ltd. & Ors., (1985] D
Suppl. SCC 608, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1862
(NT) of 1971.

From the Judgment & Order dated 13.7.1970 of the High Court E
of Allahabad at L~cknow Bench in Writ Petition No. 849/70.

- Ms. Lira Goswami and D.N. Mishra for the Appellants.

A.O. Singh, Mrs. Ashok K. Gupta, Raj Singh Rana, Mrs. S.
Dikshit and B.P. Maheshwari for the Respondents. F

The Judgment of the Court was delivered by

BHAGWATI, _CJ. This appeal by certificate raises a short ques-
tion as to the constitutional validity of section 29-A of the U.P. Sales
Tax Act, 1948. This sectio~. which was introduced in the U.P. Sales G
Tax Act, 1948 by section 17 of the U.P. Taxation Laws (Amendment)
Act, 1969, has been held to be constitutionally valid by a Division
Bench of the Allahabad High Court on 13th July 1970. The appellants
question the correctness of this view taken by the High Court.

The appellants carry on' businef' as dealers in coal and they are H
,
88 SUPREME COURT REPORTS (1987] l S.C.R.

A registered as such under the U.P. Sales Tax Act, 1948. Prior to 1st
October 1965, there was no sales tax levied on sale of coal and for the
first time on 1st October 1965, coal became a taxabl~ commodity
under the U.P. Sales Tax Act, 1948. The appellants, proceeding on the
footing that sales tax was payable by them on sale of coal from and
after 1st October 1965, collected amounts by way of sales tax from the
B
purchasers and submitted their returns for the assessment year 1965-66
after depositing a sum of Rs.10,073.86 representing the amount of tax
payable by them in accordance with their returns. It was, however,
found as a result of the assessment order made by the Sales Tax Officer
on 28th March 1970 that no sales tax was payable by the appellants on {
sales of coal under the U.P. Sales Tax Act, 1948. The appellants there-· \ . .,,__
c upon claimed refund of the sum of Rs. 10,073.86 but the Sales Tax
Officer rejected the claim made by the appellants on the ground that
by reason of section 29-A. no refund was claimable by the appellants
and .the only persons entitled to claim refund were those from whom
the appellants had collected the tax. This order made by the Sales Tax
Officer was challenged by the appellants by filing a writ petition in the
D High Court of Allahabad and the principal ground on which the cor-
rectness of this order was challenged was that section 29-A was ultra
vires as being outside the legislative competence of the State Legisla-
ture. The High Court negatived this challenge and upheld the constitu-
tional validity of section 29-A and on this view, sustained the order
made by the Sales Tax Officer. The appellants thereupon preferred the
E
present appeal after obtaining certificate of fitness from the High ,
Court.

It is necessary at this stage to set out the relevant provisions of
the U.P. Sales Tax Act, 1948 as they stood at the material time. Sub-
section (4) of section 8-A made the following provision:
-
F
"(4) Without prejudice to the provisions of clause (f) of
section 14, the amount realised by any person as tax on sale
of any goods, shall, notwithstanding anything contained in
any other provision of this Act, be deposited by him in a
Government treasury within such period as may be pres-
G cribed, if the amount so realised exceeds the amount pay-
able as tax in respect of that sale or if no tax is payable in
respect thereof."

Sub-section (5) was added in section 8-A by section 11 of the U.P.
H Taxation Laws (Amendment) Act, 1965 and it read as follows:
KASTUR! LAL HARLAL 'v. STATE OF U.P. (BHAGWATI, CJ.] 89

"(5) Where a dealer is found not liable to be assessed to A
tax by reason of his turnover being less than the amount
specified in or under section 3, or sub-section (I) or (2) of
section 18, but has realised any tax as such in respect of
such turnover, he shall, notwithstanding anything con-·
tained in this Act, be liable to pay the same to the State
Government and shall deposit it into the treasury within 'B
30 days of the date of the order by which he was found not
so liable, unless it has already been so deposited."

_Since, having regard to the judgment of this Court, in R. Abdul Qader
)-
& Co. v. Sales Tax Officer, Hyderabad, (1964) 6 SCR 867 it was doubt-
ful whether sub-sections (4) and (5) of section 8-A, standing by C
themselves, would fall within the legislative competence of the State
~ Legislature. Section 29-A was inserted in the U.P. Sales Tax Act, 1948
by section 17 of the Taxation Laws (Amendment) Act 1969:

Refund in Special Cases- Notwithstanding anything con-
tained in-this Act or in any other law for the time being in D
force or in any judgment, decree or order of any court,
where any amount is either deposited or paid by any dealer
or other person under sub-section (4) or sub-section (5) of
section 8 A, such amount or any part thereof shall on a
)·· claim being made in that behalf in such form and within
such period as may be prescribed, be refunded to the· E
person from whom such dealer or the person had actually
realised such amount or part, and to no other person."

The question is whether this section, as it stood at the material time in
the form in which it was introduced by section 17 of the U.P. Taxation
Laws (Amendment) Act, 1969, was within'the legislative competence F
of the State Legislature.

The only entry under which section 29-A was sought to be brought
was Entry 54 in List II of the Seventh Schedule to the Constitution.
Clause (3) of Article 246 read with this entry empowers the State Legis-
lature to make laws with respect to taxes on the sale or purchase of G
goods. It is now well settled that an entry in a Legislative List must be
read in its widest amplitude and the legislature must be held to have
power not only to legislate with respect to the subject matter of the
entry but also to make ancillary or incidental provision in aid of the
main topic of legislation. Can section 29-A be justified as exercise of H
an ancillary or incidental power of legislation under Entry 54? Now,
90 SUPREME COURT REPORTS [ 1987] l S.C.R.

A this question is no longer res integra. It stands concluded by the deci-
sion of this Court in R.S. Joshi v. Ajit Mills, [1978] I SCR 338. It is no
doubt true that the decision of this Court in Ashoka Marketing Ltd. v.
State of Bihar & Anr., [1970] 3 SCR 455 does seem to indicate that a
provision such as s. 29-A would not be justifiable as an exercise of
incidental or ancillary power. There also, the impugned legislative
B provision, namely, section 20-A of the Bihar Sales Tax Act was very
similar to section 29-A and this Court held that it· fell outside the
legislative competence of the State Legislature. The Court in Ashoka
Marketing Ltd, 's case (supra) did not follow the decision in Orient
Paper Mills Ltd. v. State of Orissa & Ors., [1962] 1 SCR 549 where a
similar provision was attacked on the same ground bllt the attack was
C repelled by the Court. If the decision in Ashoka Marketing Ltd. 's case
(supra) were to be regarded as good law, section 29-A would have to
be struck down as being outside the legislative competence of the State
Legislature. But this Court in R.S. Joshi's case (supra) clearly and
categorically disapproved of the decision in Ashoka Marketing Com-
pany's case and reaffirmed the view taken in Orient Paper Mill's case
D (supra). The Court held that the taking over of sums collected by
dealers from the public under guise of tax solely with a view to return
them to the buyers so deprived is necessarily incidental to 'tax on the
sale and purchase of goods'. Such a provision is manifestly a consumer
protection measure since "while suits against dealers to recover paltry
sums by a large number of customers would lead to endless and expen-
E sive litigation, a simpler process of returning those sums on application
by the relevant purchasers would protect the common buyer while
depriving the dealers of their unjust-gains." This Court in a subse-
quent decision in State of Orissa v. Orissa Cement Ltd. & Ors., [1985]
Suppl, S.C.C. 608 also took the same view and pointed out that the
decision in Ashoka Marketing Ltd. 's case (supra) was expressly dis-
F sented from by the decision in R.S. Joshi's case (supra). The decision
in R.S. Joshi's case (supra) must, therefore, be regarded as laying
down the correct law on the subject and if that be so, it is obvious that
section 29-A must be held to fall within the legislative competence of
the State Legislature and its constitutional validity must be upheld.

G The appeal must, therefore, be dismissed, but since it was filed at
a time when the position in law was nebulous and had not been finally
settled by the decision in R.S. Joshi's case (supra) we would direct that
there shall be no order as to costs.

P.S.S. Appeal dismissed.
H