BAVA CHERIYAN v. MUNICIPAL COUNCIL, KOTTAYAM — 1966 DIGILAW 360 (KER)

Judgment :- 1. These two writ petitions are by two separate proprietors of cinema theatres in Kottayam. The respondents are the Municipal Council, Kottayam and the State of Kerala. The reliefs prayed in these writ petitions are: (1) to quash Exts. P-2 and P-5 orders of the respondent municipality; (2) for a writ of mandamus to the respondents directing them to refund the entertainments tax illegally collected from the petitioners from 14th March 1963 (three years prior to the filing of these writ petitions); and (3) for a writ of prohibition restraining the respondents from collecting any entertainments tax except in strict conformity with the provisions of S.5(1)(a) of the Kerala Local Authorities Entertainments Tax Act, 1961 (Act 20 of 1961) and the Rules framed thereunder. 2. S.3, 5(1) and 6(1) and (2) of the above Act read as follows: "3. General provisions regarding the levy of the tax and the rate of tax. Any local authority may levy a tax (hereinafter referred to as the entertainments tax) at a rate not less than ten per cent and not more than twenty-five per cent on each payment for admission to any entertainment. 5. (1) Admission of persons to entertainments subject to tax. (1) Save in the cases referred to in S.4, no person shall be admitted for payment to any entertainment where the payment is subject to entertainments tax, except (a) with a ticket stamped with an impressed, embossed, engraved or adhesive stamp issued by the local authority indicating the proper tax for such ticket; or (6) in special cases, with the approval of the local authority, through a barrier which, or by means of a mechanical contrivance which, automatically registers the number of persons admitted, unless the proprietor of the entertainment has made arrangements approved by the local authority for furnishing returns of the payments for admission to the entertainment and has given security approved by the local authority for the payment of the entertainments tax. 6. Manner of payment of tax. (1) The entertainments tax shall be levied in respect of each person admitted for payment and in the case of admission by ticket, shall be paid by means of a ticket referred to in clause (a) of sub-section (1) of S.5, and in the case of admission otherwise than by ticket, shall be calculated and paid on the number of admissions. (2) The entertainments tax in the case of admission otherwise than by ticket shall be recoverable from the proprietor." The above sections are practically reproduced from the provisions of the Travancore-Cochin Local Authorities Entertainments Tax Act, 1951 (Act 6 of 1951). The provisions of the said Act came up for consideration before a Full Bench of this Court is Ismail v. Commissioner, Mattancherry Municipal Council 1963 KLT.1080. It was ruled: "It seems to us implicit in the definition, that payment for admission is the totality of the payment made by a person for securing admission to an entertainment, without excluding any part of it without which he would not be admitted". It was further ruled: "The combined effect of S.5(1)(a) and S.6(1) as extracted, is that no person shall be admitted to an entertainment except on a ticket of admission, the full value of which is inclusive of the entertainments tax payable thereon which is indicated by the label issued by the local authority to be stamped on it. This is the manner as prescribed by the Act, for the collection of tax. In effect, in such cases the tax is passed on to the person admitted for payment to the entertainment and is collected by the proprietor by the sale of a ticket to him, stamped with the label issued by the local authority." (italics mine) 3. The respondent-municipality was admittedly not collecting the entertainment tax at the specified percentage (20 per cent) on the totality of the payment for admission, as explained in the above Full Bench decision. Subsequent to the decision, the Government of Kerala by Ext. P-1 order, dated 31st January 1965 circularised to the various Municipal Commissioners and other authorities the gist of the said decision, observing that it applied with equal force to the provisions of the Kerala Entertainments Tax Act also, and stressing that: "labels indicating the fax should be stamped on the tickets in accordance with S.5 (1) and the Rules, to make the levy valid. The ticket should contain the payment for admission and a label in the form embossed, impressed, engraved or adhesive stamp indicating the entertainment tax." The local authorities were instructed to observe the above procedure in the matter of levy of entertainment tax. Reciting the said order the respondent-municipality indicated to the petitioner by Ext. The ticket should contain the payment for admission and a label in the form embossed, impressed, engraved or adhesive stamp indicating the entertainment tax." The local authorities were instructed to observe the above procedure in the matter of levy of entertainment tax. Reciting the said order the respondent-municipality indicated to the petitioner by Ext. P-2, dated 23rd February 1966 that the entertainment tax was to be calculated on the total payment for admission inclusive of tax, and that the said procedure will be followed by the municipality from 1st June 1965. The petitioners replied on 25th February 1966 (copy Ext. P-3) stating that the matter had been placed in the hands of their legal adviser for opinion, and that having regard to the conduct of the parties, the petitioners having paid and the municipality having accepted the payments in full satisfaction, the further demand by the municipality was illegal. Reserving the petitioners' right to institute legal proceedings the petitioners were prepared as an interim arrangement to pay the tax at the proposed rate from the date of communication of Ext. P-2. After legal advice, the petitioners sent their further communication (copy Ext. P-4), dated 8th March 1966, stating that the municipality was entitled to collect the tax only in strict conformity with the provisions of S.5 (I) (a) of the Act and pointing out that the requirement of the section had not been complied with and that the petitioners were entitled to a refund even of the tax collected so far. This was replied to by a communication, dated 10th March 1966 (copy Ext. P-5) by which the petitioner was informed that the municipality had made the necessary arrangements to stamp the tickets in accordance with the provisions of the Act and the Rules, and insisting that the petitioner was liable to pay the balance of tax demanded. Exts. P-2 and P-5 orders of the municipality are sought to be quashed in this O. P. 4. The main contention urged by the petitioners' counsel was that there can be a collection of the entertainment tax only in accordance with the provisions of S.5 and 6 of the Act and that in the present case, the Municipality has not conformed to the said requirements. The sample tickets issued for admission to the cinema shows have been produced by the municipality along with its counter-affidavit in these O. Ps. as Ext. R-1. The sample tickets issued for admission to the cinema shows have been produced by the municipality along with its counter-affidavit in these O. Ps. as Ext. R-1. The same does not indicate the 'proper tax for such ticket', as required by S.5 (1) (a). Nor have they been stamped with an impressed, embossed, engraved or adhesive stamp as required again by the section. The sample tickets produced only bear the seal of the municipality, and only show that the value of the ticket is inclusive of the entertainment tax and surcharge. On the language of S.5 and 6 of the Act and on the ruling in Ismail v. Commissioner, Mattancherry Municipal Council 1963 KLT. 1080, I entertain no doubt that these sections constitute the procedure prescribed for the collection of the tax. Art.265 of the Constitution enacts that no tax shall be levied or collected except by authority of law. It follows therefore that the municipality was not entitled to collect the entertainment tax from the petitioners in these O. Ps. except in strict accordance with the provisions of S.5 and 6, and that the requirements of the sections have not been complied with. 5. The fact that in the decision reported in Ismail v. Commissioner, Mattancherry Municipal Council 19&3 KLT. 1080, no writ of mandamus was prayed for, for return of the tax collected, as in these writ petitions seems to me to make no difference. The Full Bench decision declared the law that S.5 and 6 of the Act provide for the levy of the entertainments tax and the manner of its collection. On that, it must follow that levy and collection otherwise than in accordance with the provisions of the Statute are illegal. 6. But the counsel for the respondent-municipality contended that the petitioners in these cases as the proprietors of the cinema house are statutory agents for the collection of the tax, and as such are bound to pay over the tax actually and admittedly collected by them, and a claim for refund to that extent at least, would be unsustainable. 6. But the counsel for the respondent-municipality contended that the petitioners in these cases as the proprietors of the cinema house are statutory agents for the collection of the tax, and as such are bound to pay over the tax actually and admittedly collected by them, and a claim for refund to that extent at least, would be unsustainable. The decision in Ismail v. Commissioner, Mattancherry Municipal Council 1963 KLT.1080, recorded agreement with the view expressed in Viswanathan v. The State of Madras represented by the Commissioner of Commercial Taxes, Board of Revenue, Madras (1961) II M. L. J. 294 to the effect that: "The management of a cinema house is made by the statute, an agent as it were, for the collection of the entertainments tax; once the collection was made and the amount paid to the Government, the agency would cease." In the light of the approval recorded by the Full Bench, of the Madras view, I must proceed on the footing that the petitioners are statutory agents for collection of the tax. Even so, the question arises whether there is an obligation on the part of the statutory agent to pay to the State, or Local Authority the entertainments tax, levied and collected from the customers otherwise than in accordance with the provisions of the statute. 7. In Mathew v. The Sale-tax Officer, Alwaye 5 S. T. C. 58 it was ruled by a single judge of the Travancore-Cochin High Court with respect to the provisions of the Travancore-Cochin General Sales-tax Act that the petitioner who collected sales-tax from his purchasers was bound to pay over the same to the State, even if the collection was illegal and cannot be justified as sales-tax. The decision records with gratification that the counsel for the petitioner did not find his way to dispute his liability to pay the amount to the State. In Tata Iron and Steel Co. Lid. v. The State of Madras 5 S. T. C. 382 the Travancore-Cochin decision was noticed and explained by the Madras High Court as having proceeded on a concession. In Tata Iron and Steel Co. Lid. v. The State of Madras 5 S. T. C. 382 the Travancore-Cochin decision was noticed and explained by the Madras High Court as having proceeded on a concession. Considering S.8B (2) of the Madras General Sales-tax Act as it then stood, which was analogous to the provision in the Travancore-Cochin Act, it was ruled that there was no obligation on a registered dealer who collected the sales-tax, to pay over the same, to the State, when the collection was illegal or cannot be justified as sales-tax. In Moideen Kunju v. The State of Travancore-Cochin and others 5 S. T. C. 462 the Madras decision was considered again by a Division Bench of the Travancore-Cochin High Court, and it was held there was no reason to re-consider the view in Mathew v. The Sales Tax Officer, Alwaye 5 S. T. C. 58. The position was reiterated by the Travancore-Cochin High Court again in The Cochin Coal Company v. State of Kerala 1 S. T. C. 731. The said decision was sustained by the Supreme Court in State of Kerala v. Cochin Coal Company AIR. 1961 S. C. 408 on a totally different point from what was dealt with in the High Court's judgment. Nothing was said by the Supreme Court on this aspect of the matter. 8. The Madras decision in Tata Iron and Steel Co. v. State of Madras 5 S.T.C. 382 was followed by the Mysore High Court in Minerva Mills Ltd. v. State of Mysore & another 7 S.T.C. 148 which again was sustained by the Supreme Court in State of Mysore v. Mysore Spinning & Manufacturing Co. 11 S.T.C. 734 without any expression of opinion on this question on the ground that, on the facts, there was actually no collection of the tax. The Madras view was followed by the Hyderabad High Court in Cement Marketing Co. v. A. V.R. Krishnamurthy 1 S.T.C. 762 which referred also to the Travancore-Cochin decisions in Mathew v. Sales Tax Officer, Alwaye 5 S. T. C. 58 and Kunju Moideen Kunju v. State of Travancore-Cochin 5 S. T. C. 462 and dissented from the same. It was followed again by the Patna High Court in State of Madras v. H. Kanchilal 7 S. T. C. 609. It was followed again by the Patna High Court in State of Madras v. H. Kanchilal 7 S. T. C. 609. My attention was drawn only to a decision of a single judge of the Kerala High Court in Brilliant Traders Ltd. v. Sales-tax Officer, Quilon 8 S. T. C. 42, affirming the Travancore-Cochin view in Mathew v. Sales Tax Officer, Alwaye 5 S. T. C. 58 and Kunju Moideen Kunju v. State of Travancore-Cochin 5 S. T. C. 462 and distinguishing or dissenting from the Madras view in Tata Iron and Steel Co.'s case 5 S. T. C. 382. 9. After the decision in Tata Iron and Steel Co. v. State of Madras 5 S. T.C. 382, S.8B(2) of the Madras General Sales tax Act, was amended by Madras Act 2 of 1957. S.8 B (2) as amended and re-enacted ran as follows: "Every person who has collected or collects any amount purporting to be by way of tax under this Act on or after the 1st day of April 1947 whether or not any tax is due from him under this Act in respect of the transaction in which he has collected or collects such amount shall pay over to the (State) Government within such time and in such manner as may be prescribed, all amounts so collected by him if they are in excess of the tax, if any, paid by him for the period during which the collections were made." The words underlined were newly added by the Amendment Act 1 of 1957. The effect of this amended provision fell to be considered in the Indian Aluminium Company Ltd. v. State of Madras AIR. 1963 Mad. 117. It was ruled that the Amending Act was within the legislative competence of the State, and an exercise of the legislature's subsidiary and ancillary powers to effectuate the existing Sales-tax Act. In Abdulkader and Co. v. Sales-tax Officer, 2nd Circle, Hyderabad AIR. 1964 SC. 922 the Supreme Court had occasion to consider the validity of S.11 (2) of the Hyderabad General Sales Tax Act, which enacted a pro vision, in substance similar to S.8 B (2) of the Madras General Sales Tax Act after its 1957 amendment. The legislation was sustained by the Andhra High Court, as an exercise of incidental and ancillary powers of legislation. The legislation was sustained by the Andhra High Court, as an exercise of incidental and ancillary powers of legislation. On appeal, the Supreme Court observed: "These incidental and ancillary powers have to be exercised in aid of the main topic of the legislation, which in the present case, is a tax on sale or purchase of goods. All powers necessary for the levy and collection of the tax concerned and for seeing that the tax is not evaded are comprised within the ambit of the legislative entry as ancillary or incidental. But where the legislation under the relevant entry proceeds on the basis that the amount concerned is not a tax exigible wider 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, We do not think that the ambit of ancillary or incidental power goes to the extent of permitting the legislature to provide that though the amounts collected may be wrongly by way of tax is not exigible under the law as made under the relevant taxing entry, it shall be paid over to Government, as if it were a tax. The legislature cannot under Entry 54 of List II make a provision to the effect that even though a certain amount collected is not a tax on the sale or purchase of goods as laid down by the law, it will still be collected as if it was such a tax. This is what S.11 (2) has provided. Such a provision cannot, in our opinion, be treated as coming within incidental or ancillary powers which the legislature has got under the relevant taxing entry to ensure that the tax is levied and collected and that its evasion becomes impossible. We are therefore of opinion that the provision contained in S.11 (2) cannot be made under Entry 54 of List II and cannot be justified even as an incidental or ancillary provision permitted under that entry." The Supreme Court noticed the decision of the Madras High Court in Indian Aluminium Co. v. State of Madras AIR. We are therefore of opinion that the provision contained in S.11 (2) cannot be made under Entry 54 of List II and cannot be justified even as an incidental or ancillary provision permitted under that entry." The Supreme Court noticed the decision of the Madras High Court in Indian Aluminium Co. v. State of Madras AIR. 1963 Madras 117 and observed: "That decision was with respect to S.8 B of the Madras General Sales-tax Act of 1939 as amended by Madras Act I of 1957. Though the words in S.8-B (2), were not exactly the same as the words in S.11 (2) with which we are concerned here, the provision in substance was to the same effect as S.11 (2). In view of what we have said above, that decision must be held to be incorrect." The above decision of the Supreme Court settled the position that any provision directing payment to the Government of amounts not exigible under the taxing statute as sales-tax, would be beyond the purview of Entry 54 of List II of the 7th Schedule of the Constitution. The reasoning seems to me to apply with full force to the position here. Entry 62 of List II of the 7th Schedule of the Constitution, provides for taxes on entertainments. The Kerala Act 20 of 1951 enacted under the said entry provided by S.5 and 6 thereof for the mode of levy and the manner of collection of the tax. It appears to me that any provision whether contained or implied in the Act directing payment to the State or Local Authority of amounts not exigible as entertainments tax under the provisions of the statute, would be beyond the purview of the Entry 62 of List II. I cannot therefore accept the argument that even viewed as statutory agents, the petitioners were bound to pay over the amounts collected by them otherwise than in accordance with the provisions of the Act, to the respondent. I am in agreement with the principle of the decision of the Madras High Court in Tata Iron and Steel Co. v. State of Madras 5 STC. 382 which seems to have been reinforced by the Supreme Court's pronouncement in Abdul Kader and Co. v. Sales Tax Officer, 2nd Circle, Hyderabad AIR. 1964 SC. 922. 10. I am in agreement with the principle of the decision of the Madras High Court in Tata Iron and Steel Co. v. State of Madras 5 STC. 382 which seems to have been reinforced by the Supreme Court's pronouncement in Abdul Kader and Co. v. Sales Tax Officer, 2nd Circle, Hyderabad AIR. 1964 SC. 922. 10. Although the petitioners are not bound to pay the amounts levied and collected as entertainment tax otherwise than in accordance with the provisions of the Act, the question whether they are entitled in these proceedings to refund of the amounts so paid, is a matter of some nicety and difficulty. The petitioners have restricted their claim to refund for a period of three years prior to the institution of these writ petitions. The basis of their claim seems to be that the collections were under a mistake of law. Assuming that any mistake of law on the part of the petitioners or the respondents or both, continued even after the Full Bench decision in Ismail v. Commissioner, Mattancherry Municipal Council 1963 KLT. 1080 there is neither averment nor proof how or when the mistake was discovered, so as to bring the entirety of the claim, within three years of the discovery of the mistake and therefore within Art.96 of the Indian Limitation Act, 1908, or the corresponding provision, if any, in the Act of 1963. It is difficult too, to sustain the petitioner's stand that the levy of entertainment tax on the totality of the payment for admission can be enforced against the petitioners only from the date of communication of Ext. P-2. The law having been declared by this Court, the petitioners were bound by the same. The claim for refund of tax collected seems to be singularly inappropriate for agitation in these proceedings. On behalf of the respondent-municipality, it was contended that even any illegal collection or profit made by the petitioners as statutory agents of the respondents was liable to be restored to them. For this, reliance was placed upon the principle on the decision in Reading v.The Attorney General 1951 AC. 507. The applicability of the principle of the said decision was considered by the Madras High Court in The Tata Iron and Steel Co. v. State of Madras 5 STC. For this, reliance was placed upon the principle on the decision in Reading v.The Attorney General 1951 AC. 507. The applicability of the principle of the said decision was considered by the Madras High Court in The Tata Iron and Steel Co. v. State of Madras 5 STC. 382 and the said High Court declined to extend the principle to the case of a registered or an unregistered dealer contemplated by S.8-B of the Madras General Sales-tax Act, The principle was accepted and applied by a learned judge of this Court (Iyengar, J.) to a similar situation in brilliant Traders Ltd. v. Sales tax Officer, Quilon 8 STC. 42. Whether a registered dealer under S.8-B of the Madras General Sales-tax Act can be regarded as a statutory agent at all was itself treated as a matter of some doubt by the Madras High Court in The Indian Aluminium Co. v. State of Madras AIR. 1963 Madras 117 in view of the observations made by the Supreme Court in George Oakes and Co. v. The State of Madras AIR. 1962 SC. 1037. In that case, the Supreme Court observed: "The true effect of S.8-B of the Madras General Sales-tax Act, 1939 and the Madras Genera] Sales-tax (Turnover and Assessment) Rules, 1939 is that (a) a registered dealer is enabled to pass on the tax. (b) an unregistered dealer cannot do so, and (c) the amount collected by way of tax is to be shown separately, for it has to be paid over to Government. This does not mean that it is incompetent to the legislature enacting legislation pursuant to Entry 54 in List II by suitable provision to make the tax paid by the purchaser to the dealer together with the sale price in consideration of the goods sold, a part of the turnover of the dealer; nor does it mean that in law the tax as imposed by Government is a tax on the buyer, making the dealer a mere collecting agency, so that the tax must always remain outside the sale price." (Italics mine.) 11. Having regard to the above observations, the exact jural relationship between the State, and the registered or unregistered dealer was left open by the Madras High Court in The Indian Aluminium Co. v. The State of Madras AIR. 1963 Madras 117. Having regard to the above observations, the exact jural relationship between the State, and the registered or unregistered dealer was left open by the Madras High Court in The Indian Aluminium Co. v. The State of Madras AIR. 1963 Madras 117. Even granting that the petitioners were statutory agents, and that the principle of Reading v. The Attorney-General 1951 AC. 507 is applicable to the collections made by them, these are matters more appropriate for agitation with fuller pleadings and materials, in a properly constituted suit. Proceedings under Art.226 cannot be substituted for a regular suit with a plea of adjustment or set off. I therefore decline to entertain or consider the petitioner's claim for refund of the collections made, in these proceedings. Nothing said herein should be taken as in any way precluding or prejudicing a full investigation and decision of the question in other appropriate proceedings. 12. I must notice a contention raised by counsel for the respondent-municipality that if the tickets had not been stamped, impressed, etc., as required by S.5(1) (a), the case must be one of "admission otherwise than by a ticket" within S.6(2) of the Act, and therefore the tax would, in any event be exigible from the proprietor. I have no hesitation in rejecting this plea. Non-compliance with S.5(1) of the Act, cannot obliterate the fact that admission to the entertainment was by tickets. It is also plain that the "admission otherwise than by ticket" is what is covered by a S.5 (1)(b), namely through a barrier or by means of a mechanical contrivance, or by S.4 which provides for composition and consolidated payment of tax. 13. In the result, as Exts. P-2 and P-5 orders have been issued by the respondent-municipality without complying with the provisions of S.5(1) and 6 of the Act, the said orders are quashed. The prayer for a writ of mandamus directing the respondents to refund the tax illegally collected from 14th March 1963, is declined as one hardly suited for agitation and adjudication in writ proceedings. I find no grounds to issue a writ of prohibition restraining the respondents from collecting the tax, except in strict conformity with the provisions of S.5(1) (a) of the Kerala Act 20 of 1961. The decision in 1963 KLT.1080 has declared the law, and the Government and the municipality have manifested their desire to conform to the law thus laid down. The decision in 1963 KLT.1080 has declared the law, and the Government and the municipality have manifested their desire to conform to the law thus laid down. (Vide Exts. P-1 and P-2). In the circumstances, no writ of prohibition is either called for or necessary. 14. These writ petitions are allowed to the limited extent of quashing Exts. P-2 and P-5 orders of the 1st respondent and dismissed otherwise for reasons noticed earlier. I make no order as to costs.