A) ABSTRACT / HEADNOTE

The Supreme Court in The State of Bihar v. Rai Bahadur Hurdut Roy Moti Lall Jute Mills & Others addressed the constitutional validity and procedural compliance concerning forfeiture of tax collected on inter-state sales under the Bihar Sales Tax Act, 1947. The respondent jute mills, a registered dealer, sold goods outside Bihar and collected sales tax from buyers. The Bihar Sales Tax authorities held this as a contravention of Section 14A read with Rule 19 of the Rules under the Act and directed forfeiture. The High Court struck down the forfeiture order, holding the proviso to Section 14A ultra vires the Constitution under Articles 20(1) and 31(2). Upon appeal, the Supreme Court upheld the High Court’s decision but on different grounds. It ruled that since the transactions were outside Bihar as per Section 33(1)(a)(i), and thus outside the scope of the Act, the proviso to Section 14A could not apply. Hence, the forfeiture was legally unjustified, irrespective of the constitutional challenge. The judgment clarifies the application of the Act to inter-State trade, especially in light of Article 286 and judicial precedent in State of Bombay v. United Motors (India) Ltd., [1953] SCR 1069.

Keywords: Bihar Sales Tax Act, forfeiture, inter-State sales, Section 14A, Rule 19, constitutional validity, Article 286, United Motors case

B) CASE DETAILS

i) Judgement Cause Title: The State of Bihar v. Rai Bahadur Hurdut Roy Moti Lall Jute Mills & Others

ii) Case Number: Civil Appeal No. 678 of 1957 (with Civil Appeals Nos. 546 of 1958 and 115 of 1959)

iii) Judgement Date: 26 November 1959

iv) Court: Supreme Court of India

v) Quorum: B.P. Sinha (C.J.), P.B. Gajendragadkar, K. Subba Rao, K.C. Das Gupta, and J.C. Shah, JJ.

vi) Author: Justice P.B. Gajendragadkar

vii) Citation: [1960] 2 SCR 331

viii) Legal Provisions Involved: Bihar Sales Tax Act, 1947, Sections 5, 6, 7, 8, 14A (Proviso), 33, Rule 19 (Proviso); Constitution of India, Articles 20(1), 31(2), 286, 226, 227

ix) Judgments Overruled: None

x) Related Law Subjects: Constitutional Law, Taxation Law, Administrative Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

This group of appeals examined the legality and constitutionality of forfeiture orders passed under the Bihar Sales Tax Act, 1947, in light of collections made by registered dealers on sales outside the State of Bihar. The dispute arose from the interpretation of Section 14A and Rule 19, vis-à-vis constitutional protections under Articles 20(1) and 31(2), and the federal limitation on State taxation under Article 286. The case gained complexity due to the Supreme Court’s earlier decision in State of Bombay v. United Motors (India) Ltd., [1953] SCR 1069, which shaped the understanding of inter-State sales taxation. The High Court had quashed the forfeiture orders and declared the relevant statutory provision unconstitutional. The State of Bihar appealed, raising a significant constitutional issue under Article 132(1).

D) FACTS OF THE CASE

The respondent, Rai Bahadur Hurdut Roy Moti Lall Jute Mills, a registered dealer under the Bihar Sales Tax Act, manufactured and sold jute products from Katihar, Bihar. Between April 1, 1950, and March 31, 1951, the respondent sold goods worth approximately ₹92,24,386 to buyers outside Bihar and collected ₹2,11,222 as sales tax from those buyers. Upon assessment in 1953, the Sales Tax Superintendent accepted that the goods had been despatched outside the State and therefore, under Section 33(1)(a)(i), these transactions were not taxable. However, a subsequent notice issued in 1954 invoked Section 14A read with Rule 19, alleging illegal collection of tax and ordered forfeiture of the collected amount. The respondent challenged this under Articles 226 and 227, and the High Court quashed the order, declaring the proviso to Section 14A unconstitutional.

E) LEGAL ISSUES RAISED

i) Whether the collection of sales tax by the respondent on inter-State sales violated the restrictions under Section 14A and Rule 19 of the Bihar Sales Tax Act?

ii) Whether the proviso to Section 14A of the Bihar Sales Tax Act was unconstitutional being in violation of Articles 20(1) and 31(2) of the Constitution?

iii) Whether the impugned transactions could be classified as allowable deductions under Rule 19, thereby invoking the penalty clause?

F) PETITIONER / APPELLANT’S ARGUMENTS

i) The counsels for Petitioner / Appellant submitted that the respondent collected sales tax on transactions not liable to tax, violating the proviso to Section 14A and Rule 19.

They contended that under Section 14A, only collections conforming to statutory restrictions were permissible. As the transactions were non-taxable inter-State sales under Section 33(1)(a)(i), no collection was permissible. Thus, the act of collection itself triggered forfeiture under the proviso. The counsel emphasized that the respondent misrepresented tax liability and improperly realised tax, which made forfeiture necessary to prevent unjust enrichment and protect the public interest. They claimed that tax collection without liability amounts to contravention regardless of the constitutional validity of the section.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondent submitted that the proviso to Section 14A was not attracted since the collections related to transactions outside the scope of the Act.

They argued that the sales were inter-State transactions, exempt from Bihar taxation under Section 33, which had retrospective effect. Hence, these sales were never subject to tax, and thus any collection could not be said to be in violation of any “restriction” under Rule 19. They further contended that even if the provision applied, the proviso to Section 14A was unconstitutional as it retrospectively penalised lawful actions, violating Articles 20(1) (protection against ex post facto laws) and 31(2) (protection against deprivation of property without compensation). The respondents maintained that the relevant rule did not treat exclusions under Section 33 as deductions within the meaning of Rule 19, which covered only Sections 6, 7, and 8.

H) RELATED LEGAL PROVISIONS

i) Bihar Sales Tax Act, 1947

• Section 5 – Levy of tax

• Section 6 – Exemption of tax on goods

• Section 7 – Exemption of dealers

• Section 8 – Points of taxation

• Section 14A – Collection of tax by dealers

• Section 33 – Non-taxability of inter-State sales

ii) Bihar Sales Tax Rules

• Rule 19 – Conditions for collection of tax

• Proviso to Rule 19 – Prohibition on tax collection on allowable deductions

iii) Constitution of India

• Article 20(1) – Protection against ex post facto laws

• Article 31(2) – Right to property

• Article 286 – Restrictions on taxation of inter-State trade

• Articles 226, 227 – Writ jurisdiction

• Article 132(1) – Certificate of substantial constitutional question

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that forfeiture under the proviso to Section 14A requires violation of specific conditions or restrictions under Rule 19. The impugned collections were from sales outside Bihar, which under Section 33, read with State of Bombay v. United Motors (India) Ltd. ([1953] SCR 1069), were outside the State’s taxing power.

Since such sales were not taxable under the Act, Rule 19 did not permit their classification as “allowable deductions.” Hence, there was no contravention of the rule or the section, and the forfeiture order was without legal basis.

b. OBITER DICTA

i) The Court noted the confusion that prevailed pre-United Motors decision, with many dealers and authorities treating such sales as taxable. Thus, tax collections in such cases may have been made under an erroneous but bona fide belief, further weakening any penal consequence.

c. GUIDELINES 

• Forfeiture under Section 14A can be imposed only if conditions in Rule 19 are violated.

• Collections made on sales not governed by the Act (such as inter-State sales under Section 33) do not attract Rule 19, and thus forfeiture cannot apply.

• A clear distinction must be made between deductions under the Act and exclusions arising from constitutional or statutory non-applicability.

• Courts must avoid deciding constitutional questions unless strictly necessary.

J) CONCLUSION & COMMENTS

This judgment marked a significant limitation on State tax authorities from overreaching into inter-State commerce. The Court took a pragmatic approach by refusing to invoke the constitutional question once it found no violation of the statutory rule. The decision reaffirmed judicial discipline by declining to indulge in constitutional analysis when the statutory interpretation sufficed. It preserved federal balance under Article 286 and protected dealers from retrospective forfeiture for actions not clearly prohibited at the time. This ruling remains a pivotal precedent for understanding the reach of State sales tax laws and the sanctity of inter-State commerce exemptions under Indian constitutional jurisprudence.

J) REFERENCES

a. Important Cases Referred

i) State of Bombay v. The United Motors (India) Ltd., [1953] SCR 1069
ii) Feroz Din v. State of West Bengal, 1959 SCR 295

b. Important Statutes Referred

i) Bihar Sales Tax Act, 1947 – Link to Act on Indian Kanoon
ii) Constitution of India – Article 286, Article 20(1), Article 31(2)
iii) Bihar Sales Tax Rules, 1949 – Rule 19