SYMBIOSIS LAW SCHOOL, PUNE

PRINCIPLES OF TAXATION LAW –

CASE ANALYSIS BY IRAC METHOD

NAME: Kumar Writwik PRN: 16010125272

PROGRAM: BA-LLB (Hons.) SUBJECT: Principles of Taxation Law
DIVISION: “C” SEMESTER: 7th
Table of Contents
FACTS OF THE CASE – ................................................................. 3
PROCEDURAL HISTORY – .......................................................... 4
ISSUES RAISED –............................................................................ 4
RULES(PROVISIONS INVOLVED) – ........................................... 4
ANALYSIS – ..................................................................................... 4
CONCLUSION ................................................................................. 6
 NAME OF CASE – ORIENT PAPER MILLS V. STATE OF ORISSA (1962)
CITATION – (1962) 1 SCR 549, AIR 1961 SC 1438, MANU/SC/0066/1961, (1961)
12 STC 357.
DATE OF JUDGEMENT – 24 MARCH 1961
BENCH – J.C. Shah, Mohammad Hidayatullah, S.K. Das, J.L. Kapur, T.L.
Venkatarama Aiyyar.

FACTS OF THE CASE –

The Assesses Company is a Public Limited Company registered by the name of Orient Paper
Mills Ltd. Having a registered office at Brajrajnagar in the district of Sambalpur in the State of
Orissa. Assesses are involved in the business of manufacturing paper and paper Boards and is
a registered dealer under the Orissa Sales Tax Act, 1947. The Assesses used to collect tax under
Section 9-B of the Act from all the purchasers which they have to pay on their turnover, which
is collected by them on all sales effected by them including sales to other dealers outside the
state. The incident took place when the Assistant collector sales tax, assessed the assesses to
pay tax on their turnover which included outside sale made out of State of Orissa for 5 quarters
ending March 31, 1950, June 30, 1950, September 30, 1950, December 31, 1950 and March
31, 1951. The Assesses collected tax from the purchaser and paid the tax assessed. However,
the assesses relied on a Apex court judgment and filed a refund for the tax paid, under Section
14 of the Orissa Sales Tax Act. The Tax authorities refused the refund. Thereafter the assesses
moved to the high court claiming refund for the tax paid. The High court allowed the refund in
part by holding first two quarters barred by limitation and issuing order for refund of tax for
next three quarters. The parties filled an appeal before the Supreme Court by way of a Special
leave against the order of High Court. However, earlier the issues in the case was that of
Application of Section 14 to all claims for refund and the recovery of tax paid for first 2 quarters
was not barred by limitation. Both the parties were putting forward their side of arguments but
all these contentions become irrelevant as an amendment took place under the Orissa Sales Tax
(Amendment) act, 1958 which inserts Section 14-A under the act. Which raised a completely
different question of public importance for the Apex court to deal with hence making the
previous questions totally irrelevant.
PROCEDURAL HISTORY –
The assesses filled a refund under Section 14 of the act before the Assistant Sales Tax Officer
and the Board of Revenue which was refused by the Taxing authorities. Then the Assesses
moved to the High Court filling a writ for the enforcement of writ of certiorari and Mandamus
against the orders of the Taxing Authorities. The High Court relying on the period of limitation
prescribed under act, ordered the refund of tax for last 3 quarters and for the first 2 quarters it
was ordered that refund was barred by limitation. Thereafter, the assesses moved to Supreme
Court by way of special leave against the order of High Court.

ISSUES RAISED –
1. Whether State legislature is competent to legislate on the matters with respect to tax on
sale or purchase of paper and paper boards?
2. Whether Section 14-A of the Orissa Sales Tax (Amendment) Act, 1958 imposes a
reasonable restriction on the Fundamental Right of the Assesses guaranteed under
Article 19(1)(f) of the Indian Constitution ?

RULES(PROVISIONS INVOLVED) –
Section 14 of the Orissa Sales Tax Act, 1947 is involved in this case which talks about the
refund of tax and Section 9-B of the Orissa Sales Tax Act, 1947 which empowers the dealer to
collect tax from all the purchasers which they have to pay on their turnover, which is collected
by them on all sales effected by them including sales to other dealers outside the state. Then
comes the Section 14-A of the Orissa Sales Tax (Amendment) Act, 1958 which provides that
refund of tax paid which the dealer was not liable to pay, can only be claimed by that person
from whom the dealer has actually realised that tax. The case also involves some Articles of
Indian Constitution such as Article 19(1)(f) and Article 286(1)(a).

ANALYSIS –
In the three pages judgment headed by a 5 judges bench mainly two issues were taken up for
argument by both the parties. In Issue No.1, the counsel for the assesses held that both the
issues are interrelated to each other i.e. the new amendment act which inserts Section 14-A in
the act is void as legislature lacks competence and hence imposing a unreasonable restriction
on the Fundamental Right of the assesses under Article 19(1)(f) of the constitution. The
Assesses also contended that, before the amendment, tax paid by the dealer after collecting it
from purchaser and if there is any error of law the dealer himself can take the refund. But After
the insertion of this amending section it deprives the assesses from the common law right to
claim refund of the amounts paid as tax under an error of law which is recoverable by taxing
authorities. The assesses also argued that it is not the amending provision which takes away
the right to obtain the refund of tax but he contends that the Act is beyond the competence of
the legislature hence is void. On the other hand, the counsel for the State negating the
contention of assesses argues that State legislature is empowered under Schedule VII List II
Entry 54 of the constitution to legislate on the matters pertaining to taxes on sale or purchase
of paper and paper-boards. So the State argued that power to legislate with respect to tax
empowers state legislature to make laws for imposing tax, making machinery for collecting tax
and any other matter related to tax. Hence Counsel for state contends that legislature of Orissa
state was competent to exercise power in respect of all ancillary or subsidiary matters of
granting refunds of tax improperly or illegally collected. Hence, it may be any matter related
to the above mentioned heads in the schedule the legislature will have power to legislate on
such related matter. The State also contends that the heads mentioned under the relevant list of
the schedule acts as a periphery for the state legislature to function. State Counsel also argued,
since the state legislature is empowered to legislate in respect of refund of sales tax improperly
collected be granted, there is no implied or express limitation imposed on the power of
legislature therefore there is no reason left to exclude the power to declare that refund shall be
claimable only by the person from whom the dealer has actually realised the amount.
In Issue No.2, the State argued that fundamental right of assesses under Article 19(1)(f) is
subject to reasonable restriction mentioned under Article 19(5) of the Constitution meaning
thereby reasonable restriction imposed on the right in the interest of general public. The counsel
for the State also clarified a point as to the applicability of the amending Act as it is expressly
mentioned under the Act that it has retrospective application hence it will apply to all the cases
before the amending act. The State argued that Section 9B(1) of the act empowers the registered
dealer to collect tax from the purchasers. Hence amount deposited belonged to purchasers and
not the assesses. As per section 9B(3) of the act the amount realised by any dealer as tax on
sale of any goods be deposited with the government if the amount so realised exceed the
amount payable as tax or no tax is payable. As in the present case the Assesses collected the
tax which was not levied in respect of the sales from purchaser hence under Section 9B(3) there
arose a statutory obligation to deposit the amount realised which is not payable as tax to the
Government of Orissa as deposit. Meaning thereby as there is no beneficial interest of dealer
in the amount so deposited so to prevent the dealer from making profit out of the tax collected
the legislature enacted a Section 14-A under the amending act that the amount so deposited can
be claimable only by the person who had paid amount to the dealer and not the dealer himself.
Hence the State Counsel concludes that restriction imposed on assesses right to obtain refund
is in the interest of general public and hence is reasonable in nature. While On the other hand,
the counsel for Assesses contends that the restriction imposed is unreasonable in nature as the
assesses remains under the danger to repay the amount realised from the purchaser but they
cannot refund the amount themselves because of this amended section. In the present case, as
per Section 9B of the act the assesses where made to pay the tax under the order of assessment
to the state but as there was an error of law and the assesses paid excess of amount of tax which
was lawfully recoverable from purchasers as tax hence as requirement of section 9B is
complied with the amount remained deposited with the state. During the obligation, if there is
any demand from any purchaser to restore the amount which was realised by the assesses then
the assesses will become helpless as by the application of the amended section the dealer will
be stuck between the duty to repay the realised amount from the purchaser and the statutory
obligation under the amended section by which the dealer is restricted from claiming refund.

CONCLUSION –
It is submitted that the court decided in favour of State of Orissa and rejected the Contentions
given by the Assesses. In the First Issue, the Apex Court relied on the contention of the State
that State legislature is competent to legislate under specified Schedule of the constitution with
respect to all the matters which are ancillary or subsidiary to granting refunds of tax improperly
or illegally collected. Hence held that state of Orissa acted under the periphery maintained
under the Schedule 7 of the Constitution and the law legislated by the State is therefore valid.
On the Second Issue, the court supported the contention of State and held that Article 19(1)(f)
of the assesses is not violated as the restriction imposed by Section 14-A of the Orissa sales tax
(Amendment) Act, 1958 is reasonable. Hence out of 5 appeals, Appeals No. 273 and 274 will
be dismissed while Appeal No. 275 to 277 will be allowed. Therefore, the ultimate finding of
the Apex Court is that 14-A of the Orissa Sales Tax (Amendment) Act, 1958 is valid as it is
within the legislative competence of State legislature and imposes a reasonable restriction on
the Assesses fundamental right under Article 19(1)(f) of the Constitution in the interest of
general public. Therefore the legal principle evolved in the case is that refund of tax paid which
dealer was not entitled to pay can only be claimed by the person from whom the dealer has
actually realised that amount.
In the present day scenario the case has changed drastically as various Constitutional provisions
and State Tax Act with which this case deals has been changed. Under the Constitution (44th
Amendment) Act 1978, the fundamental right guaranteed under Article 19(1)(f) has been
omitted. However the right has been inserted under Article 300(A) of the constitution. Hence
making it a Statutory or constitutional right in place of Fundamental Right. In a case after the
amendment act, a section was struck down as ultra vires being violative of the fundamental
right guaranteed under Article 19(1)(f) of the Constitution, was held to be no longer good law
as the proviso stands revived by the Doctrine of Eclipse in view of the deletion of sub-clause
(f) of Article 19(1) by section 2 of the Forty-Fourth Amendment Act, 19781. In another case it
was held that that the right to acquire, hold and dispose of the property has ceased to be a
fundamental right under the Constitution of India, but it continues to be a legal or constitutional
right that no person can be deprived of his property save and except by and in accordance with
law2. Hence the Fundamental right involved in the present case is no longer a fundamental right
but still it is a right guaranteed under the constitution of India.
Earlier the State legislature has the competency to legislate on matters related to tax but now
the situation has changed with the coming of the Constitution (6th Amendment) Act, 1956
which brings taxes on inter-state sales and purchases of goods other than newspaper within the
exclusive legislative and executive powers of the union. The Entry 54 of Union list was omitted
and a new entry was introduced under union list by Entry 92A. However, the Constitution (6th
Amendment) Act, 1956 also omitted the explanation attached to Article 286(1) of the
Constitution. But that omission of explanation does not bring any change in the Application of
Section 286(1). A larger bench ruled by majority that an inter-State sale or purchase continues
to be so irrespective of the State where the sale can be held to be located under the general law
or by the fiction created by the explanation appended to clause (1) of Article 286. The situs of
a sale or purchase is wholly irrelevant so far as its inter-State character is concerned3. In a
Constitutional Bench case it was held that there is no manner of doubt that the bans imposed
by Articles 286 on the taxation powers of the State are independent and separate and would

1
Ramcharan v. Resident Deputy Collector, Yeotmal, S.C.A. No. 795 of 1967
2
Indian Handcrafts Emporium v. Union of India, (2003) 7 SCC 589
3
The Bengal Immunity Company Limited Vs. The State of Bihar and Ors., 1955 (2) SCR 603
operate irrespective of the language in which an Entry in List-II of Seventh Schedule has been
couched to spell out express prohibition in that regard4.
The Provision involved with respect to Section 14-A of the Orissa Sales Tax (Amendment)
Act, 1958 is also omitted. Hence, the principle evolved on the basis of Section 14-A is of no
use but still this three page judgment of Supreme Court has been used in various cases for
gaining clarity on different issues5.

4
Ram Narain Sons Ltd. & Ors. Vs. Asst. Commissioner of Sales Tax & Ors., 1955 (2) SCR 483
5
Sahakari Khand Udyog Mandal Ltd. vs. Commissioner of Central Excise and Customs, Civil Appeal Nos.
6832 and 6833 of 1999, Kisan Sahakari Chini Mills Ltd. vs. Commissioner of Central Excise, Meerut-II, Central
Excise Appeal No. 66 of 2013