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TMI Blog1968 (4) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... they could not even proceed to assess the party - Appeal allowed. - C.A. Nos. 260, C.A. Nos. 261, C.A. Nos. 262, C.A. Nos. 263 of 1967 - - - Dated:- 5-4-1968 - HIDAYATULLAH M., BACHAWAT R.S., VAIDIALINGAM C.A, HEGDE K.S. AND GROVER A.N. JJ. B. Sen, Senior Advocate (I.N. Shroff with him), for the respondents in all the appeals. M.C. Setalvad, Senior Advocate (Rameshwar Nath and Mahinder Narain of Rajinder Narain and Co. with him), for the appellants in all the appeals. -------------------------------------------------- The judgment of the Court was delivered by HIDAYATULLAH, C.J .-These are four appeals by certificates against the common judgment of the High Court of Madhya Pradesh (Indore Bench), dated 16th December, 1964/5th January, 1965, dismissing the suits filed by the appellants to recover sales tax alleged to be realized illegally from them by the State of Madhya Pradesh, the respondent in these appeals. The suits were earlier decreed by the District Judge, Ujjain. The facts in the suits are common and were as follows: The appellants are dealers in tobacco and have their places of business at Ujjain. They purchase and sell tobacco used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: "17. Bar to certain proceedings.-Save as is provided in section 13, no assessment made and no order passed under this Act or the Rules made thereunder by the assessing authority, appellate authority or the Commissioner shall be called into question in any Court, and save as is provided in sections 11 and 12 no appeal or application for revision shall lie against any such assessment or order." The State also pleaded that as appeals against the assessments were pending before the Sales Tax Appeal Judge the plaintiffs were not entitled to file the suits. By his judgment the District Judge following State of Tripura v. The Province of East Bengal' and Bhailal Bhai Gokul Bhai v. State of M.P. [1960] 11 S.T.C. 511; 1960 M.P.L.J. 601.held that such a suit lay when a declaration was sought that the provisions of law relating to an assessment were ultra vires and demand was made for refund of amounts illegally collected under it. On the second point the District Judge held that section 21 of the Act, which allows the Commissioner or the appellate authority to order refund of tax wrongly paid did not apply since no such appeal was proved to have been filed and the tax was not wrongfully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a liability existing at common law, and that liability is affirmed by a statute which gives a special and peculiar form of remedy different from the remedy which existed at common law: there unless the statute contains words which expressly or by necessary implication exclude the common law remedy the party suing has his election to pursue either that or the statutory remedy. The second class of cases is, where the statute gives the right to sue merely, but provides no particular form of remedy: there, the party can only proceed by action at common law. But there is a third class, viz., where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it ... The remedy provided by the statute must be followed and it is not competent to the party to pursue the course applicable to cases of the second class." The view of Willies, J., was accepted by the House of Lords in Neville v. London 'Express' Newspaper Ltd. [1919] A.C. 368. To which category do such cases belong in India. The controversy in India has revolved round the principles accepted in Secretary of State v. Mask(2) and in Raleigh Investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the parties had gone to the High Court after a lapse of three years, the order of refund was questioned and not approved observing that the petitioners would be at liberty to seek such relief as they might be entitled to in a civil court if it was not barred by limitation. It will appear from this analysis of the case that this Court accepted the proposition that a suit lay. This it did without adverting to the provisions of the Act there considered to see whether the jurisdiction of the civil court was barred or not, either expressly or by necessary implication. This Court was, of course, not invited to express its opinion on the matter but only on whether the High Court in its extraordinary jurisdiction could order refund of tax paid under a mistake. Having held that in some cases the High Court should not order refund, this Court merely pointed out that the civil suit would be the only other remedy open to the party. The case cannot, therefore, be treated as an authority to hold that the civil court has jurisdiction to entertain such suits. We may now proceed to consider first the two cases of the Judicial Committee before examining the position under the rulings of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x of the Investment Company on the ground that the computation was under a provision of the Income-tax Act, which was ultra vires the Indian Legislature. One of the defences in the suit was that whether the said provision was ultra vires or not, the civil court was excluded from exercising its jurisdiction by section 226 of the Government of India Act, 1935, and section 67 of the Indian Income-tax Act. The provision in question was held ultra vires by the High Court and it further held that neither of the two provisions was a bar to the civil courts' jurisdiction. The Federal Court in disagreement held that section 226 of the Government of India Act, 1935, barred the jurisdiction and that the provision impugned was not ultra vires. The bar of section 67 of the Income-tax Act was not pressed before the Federal Court. When the case reached the Judicial Committee, the case was consider- ed under section 67 but not under section 226. The Judicial Committee was of the opinion that section 67 barred the jurisdiction. The Investment Company had raised the question before the Income-tax Authorities that Explanation 3 to para. 4(1) of the Income-tax Act, 1922, was ultra vires. This was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant the provenance of the assessment, and not the accuracy or correctness of the assessment or the machinery of the Income-tax Act or the result of the activity. There was no difference between an incorrect apprehension of the provisions of the Income-tax Act and the invalidity of a provision. The Judicial Committee explained that if this were not so all questions of the correctness of the assessment under the Income-tax Act could be brought before the court and the section rendered otiose. The section made no distinction between an inquiry into the merits of the assessment and jurisdiction to embark on an enquiry at all. The civil courts' jurisdiction in either case was invoked as to the correctness of the assessment and the language of the section precluded consideration of jurisdiction in such circumstances. The Income- tax Act having a suitable and adequate machinery, jurisdiction to question the assessment otherwise than by that machinery was, therefore, held barred. The Judicial Committee even doubted whether a provision such as section 67 was at all necessary in the circumstances. Both these cases thus appear to be decided on the basis of provisions in the relevant Acts fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same was again reiterated in C. T. Senthilhathan Chettiar v. State of Madras, in the following words: " ..... this Court has held in Venkataraman and Co. v. State of Madras that the authorities under a taxing statute are not concerned with the validity of the taxing provisions and the question of ultra vires is foreign to the scope of their jurisdiction. As no such point could be raised before the Income-tax authorities, neither the High Court nor the Supreme Court can go into these questions in a revision or reference from the decision of those authorities. This case was followed in Commissioner of Income-tax v. Straw Products." (emphasis supplied) The party was left to "appropriate proceedings" without specifying what they would be. Perhaps a suit was meant. "It follows that the question of ultra vires of the taxing laws is always open to the civil courts for it cannot be the implication of any provision making the decision final that even void or invalid laws must be enforced without any remedy. Therefore, in Pabbojan Tea Co. Ltd. v. Deputy Commissioner, Lakhimpur(5), after quoting the observations of Viscount Simonds (Pyx Granite Co. Ltd. v. Ministry of Housing and L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 I.T.R. 311. and State of Tripura v. The Province of East Bengal [1951] S.C.R. 1; 19 I.T.R. 132., Subba Rao, J., pointed out that the suit was held maintainable in the latter and there was nothing in the former to support the contention that the question of ultra vires of a statutory provision could be canvassed only through the machinery provided under the statute. Referring next to the case of Firm of Illuri Subbayya Chetty and Sons [1964] 1 S.C.R. 752; 14 S.T.C. 680., the learned Judge said that the question whether section 18-A of the Madras General Sales Tax Act, 1939, could apply where a particular provision of the Sales Tax Act was ultra vires was left open (see page 243). The learned Judge next quoted the opinion of the majority in Bharat Kala Bhandar Ltd. V. Municipal Committee, Dhamangaon [1965] 3 S.C.R. 499; 59 I.T.R. 73. , to the following effect: "But, with respect we find it difficult to appreciate how taking into account an ultra vires provision which in law must be regarded as not being a part of the Act at all, will make the assessment as one 'under the Act'. No doubt the power to make an assessment is conferred by the Act and, therefore, making an assessment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Courts into which it is not necessary to go' here and on the strength of some observations, which supported his view, stated his view in the following words: "The legal position that emerges from the discussion may be summarized thus: If a statute imposes a liability and creates an effective machinery for deciding questions of law or fact arising in regard to that liability, it may, by necessary implication, bar the maintainability of a civil suit in respect of the said liability. A statute may also confer exclusive jurisdiction on the authorities constituting the said machinery to decide finally a jurisdictional fact thereby excluding by necessary implication the jurisdiction of a civil court in that regard. But an authority created by a statute cannot question the vires of that statute or any of the provisions thereof whereunder it functions. It must act under the Act and not outside it. If it acts on the basis of a provision of the statute, which is ultra vires, to that extent it would be acting outside the Act. In that event, a suit to question the validity of such an order made outside the Act would certainly lie in a civil court." As the head-note correctly states th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1939, made orders of the taxing authorities final but the Act applied only to sales within the Presidency of Madras and not outside it. There was at that time no provision to oust the jurisdiction of the civil courts. Section 18-A of which we have spoken earlier and on which most of the cases turned, was added much later. Many of the remedies such as were considered in Raleigh Investment Co.'s case' and Venkataraman's case were also added at the same time as section 18-A. The question thus had to be decided without an express provision ousting the jurisdiction of the civil court and without the adequate machinery for raising such an issue before the authorities. The only provision which had to be considered was section 11(4), which provided "every order passed in appeal under this section shall, subject to the powers of revision conferred by section 12, be final". The fundamental provision of the Madras General Sales Tax Act, 1939 (as it then stood), was that the sales must be within the Presidency of Madras. The authorities ignoring these provisions held that the outside sales were taxable. Relying upon the dictum of the Judicial Committee in Mask and Co.'s case, as applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax on a commodity which was not taxed at all or was exempt. In the present case, the taxing of sales which did not take place within the State was a matter wholly outside the jurisdiction of the taxing authorities and in respect of such illegal action the jurisdiction of the civil court continued to subsist. In our judgment, the suits were competent." This case was, therefore, stronger than any so far noticed because of the absence of section 18-A and the elaborate machinery for adequate remedy was introduced later and the tax was illegally collected ignoring the fundamental provisions of the Madras General Sales Tax Act, 1939. However, in State of Kerala v. Ramaswami Iyer and Sons (although it was not pointed out what express provision or clear intendment in the Madras General Sales Tax Act, 1939, as it then stood, barred a civil suit) Basappa's case was declared to be wrongly decided. But in that very case the learned Judges considered a rule which gave exemption but held that it did not give protection because it was enacted after the account period. What if it had been enacted before? The observations in Basappa's case that if a commodity was not taxable at all or was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided by sections 12-A, 12-B, 12-C and 12-D for special appeals, including an appeal to the High Court, the highest civil court in the State, laying down further that the appeal should be heard by a Division Bench. In the light of this elaborate machinery the question of alternative remedy was approached. It was also pointed out that the assessee-firm had itself included these transactions in its returns. Having conceded that tax was payable and not having raised the issue before the appellate authorities constituted under the said Act, it was held that the firm could not be allowed to raise the issue in a suit. This was enough to dispose of the appeal to this Court. The Constitution Bench, however, went on to examine the rulings of the Judicial Committee in Mask and Co.'s [1940] 67 I.A. 222., and Raleigh Investment Co.'s [1947] 74 I.A. 50; 15 I.T.R. 332. cases. Dealing with the former case, this Court pointed out that non- compliance with the provisions of the statute meant non-compliance with such fundamental provisions of the statute as would make the entire proceedings before the appropriate authority illegal and without jurisdiction. The defect of procedure must also be fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m shall be called into question in any civil court, and save as is provided in sections 21 and 22, no appeal or application for revision shall lie against any such assessment or order." The suit was dismissed on the preliminary point arising from this bar. A Letters Patent Appeal in the High Court of Bombay also failed. The case came before this Court on a certificate. It was referred to a Special Bench because section 20 was challenged as unconstitutional because it barred a suit even where the assessment was unconstitutional. This Court held that as there was adequate remedy to raise the question before the authorities by asking for rectification of the assessment, the section could not be said to deprive him of remedy in such a way as to render the section itself unconstitutional as was hinted in Raleigh Investment Co.'s case [1947] 74 I.A. 50; 15 I.T.R. 332., about section 67 of the Indian Income-tax Act. We are not concerned with that question. The next question which was considered was whether the jurisdiction conferred on the taxing authorities included the jurisdiction to determine the nature of the transaction, or was the decision about the character of the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is adequate remedy to do what the civil courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure. (2) Where there is an express bar of the jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court. Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be deter- mined by the tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not. (3) Challenge to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fell within Article 301 and as trade and commerce is declared to be free throughout the territory-of India, it became unfree by reason of the tax. The tax would therefore have ex facie offended Article 301. This could however be avoided if the tax was saved by Article 304(a). That required that similar goods manufactured or produced in Madhya Bharat had to bear an equal tax. Such equal tax was not imposed; hence the notifications were struck down as making discrimination and rendering trade and commerce unfree. This was the effect of Bhailal's case[1964] 6 S.C.R. 261; 15 S.T.C. 450.No doubt the Madhya Bharat Sales Tax Act contained provisions for appeal, revision, rectification and reference to the High Court. The notifications being declared void the party could take advantage of the fact that tax was levied without a complete charging section. This affected the jurisdiction of the tax authorities because they could not even proceed to assess the party. The question was one falling in categories Nos. 3 and 4 rather than in category No. 2 above. It was directly covered by the decision of this Court in Venkataraman's case [1966] 2 S.C.R. 229; 17 S.T.C. 418. read with Circo's Coffe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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