The State of Madras vs Sri Ramakrishna Mills (Coimbatore) Ltd.

Ramakrishnan, J.—This appeal is filed by the State of Madras against the decision of the learned Principal Subordinate Judge of

Coimbatore in O. S. No, 161 of 1958 on his file. The plaintiff in the suit was Sri Ramakrishna Mills, Coimbatore and the State of Madras was the

defendant. The suit was filed to recover a sum of Rs. 11.170 alleged by the plaintiff to have been paid under a mistake of fact and law as sales tax

to the defendant The plaint allegations for supporting the claim are briefly the following;

During the sales tax assessment year 1955-56, after the crucial date 6-9-1955, inter-State purchases or sales were not liable to be included in

the assessable turnover of a dealer for the purpose of levy of sales tax, by reason of the bar under Article 286(2) of the Constitution. During the

aforesaid period, the plaintiff had purchased goods worth Rs. 22,34,142-12-8 from Bombay and Ahmedabad, outside Madras State. The Sales

Tax on this turnover came to Rs. 11,170. By a mistake of fact and law, the plaintiff had Included, in his return for assessment of sales tax, the

abovesaid turnover, and did not claim exemption therefor. The Deputy Commercial Tax Officer, accepted the plaintiffs'' return and assessed him

by an assessment order passed on 30-10-1956 and which was served on the plaintiff on 24-11-1956. Under the relevant provision in the Madras

General Sales Tax Act, 1939, which was in force at the time the plaintiff was entitled to file an appeal to the Commercial Tax Officer within thirty

days from the above date. But by oversight, the plaintiff filed the appeal only on 7-5-1957, after the lapse of about six months. In the appeal, the

plaintiff raised the question of exemption on interstate purchases, but the Commercial Tax Officer dismissed the appeal, on the preliminary ground

that it was barred by time. The plaintiff then took the matter in further appeal, before the Sales Tax Appellate Tribunal, u/s 12-A of the Act; and, in

that appeal also, the Tribunal upheld the preliminary finding of the Commercial Tax Officer that the appeal was barred by time and that there was

no reason to excuse the delay. There is a revision to the High Court provided u/s 12-B of the Act, and the time limit for such revision is sixty days,

but the plaintiff did not adopt this remedy, instead, he issued a notice to the defendant u/s 80 of the Civil Procedure Code, for the purpose of filing

a suit. The notice was followed by the present suit claiming refund of Rs. 11,170 as the amount which had been paid by the plaintiff to the

Government by mistake of fact and law.

The plea of the defendant. State of Madras, before the learned Subordinate Judge, was that the suit was barred u/s 18-A of the Madras

General Sales Tax Act, 1939, and because of this bar the plaintiff was not entitled to the refund claimed.. There were also other pleas of fact, but

we are not concerned with those pleas, for the purpose of this appeal. We are only concerned with the plea of 8 legal bar to the maintainability of

the suit.

The learned Subordinate Judge, En his judgment, made reference to the fact that, on the evidence adduced by the plaintiff, it was clear that the

turnover in question represented purchase of cotton between 19-9-1955 and 31-3-1956 from dealers outside Madras State and therefore, would

be hit by Article 286(2) of the Constitution. This position was not seriously challenged by the defendant in, the Lower Court viz., that the turnover

related to inter-State transactions. In regard to the bar of suit u/s 18-A of the Act, the learned Subordinate Judge purported to follow the decisions

in Mossa Mohamed Sons v. State of Andhra Pradesh (1960) 11 STC 460 (Andh Pra); Sales Tax Officer, Banaras and Others Vs. Kanhaiya Lal

Mukundlal Saraf, and State of Andhra Pradesh v. Sri Krishna Cocoanut Co., (1960) 11 STC 687 (Andh Pra) and distinguished S.S. Palanisami

Nadar Vs. The State of Madras, . He held that the suit was maintainable and gave a decree for the plaintiff as prayed for. The State of Madras has

come in appeal against the said decision of the learned Subordinate Judge.

As mentioned already, the only point for consideration in this appeal is whether the suit claim is barred u/s 18-A of the Madras General Sales

Tax Act, 1939. That section reads:--

No suit or other proceedings shall except as expressly provided in this Act, be instituted in any Court to set aside or modify any assessment made

under this Act.

This provision as well as the analogous provision in Section 67 of the Indian Income Tax Act, 1922, and provisions in other enactments which

are differently worded but intended to bring about an analogous result, for instance, Section 188 of the Sea Customs Act, have been the subject-

matter of several decisions of the Privy Council as well as the Supreme Court. The principles laid down in these decisions have been summarised in

a recent decision of the Supreme Court in Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, . Broadly stated, the principles

of these decisions, so far as the point at issue in the present appeal is concerned, appear to be the following. (1) The Sales Tax authority has

jurisdiction to decide whether a transaction of sale (or purchase) falls within the State of Madras and therefore, falls within the jurisdiction of the

sales tax authority to assess it. In the same category will fall a decision as to whether a sale (or purchase) takes place outside the State or in the

course of inter-State trade or in the course of import or export attracting the bar under Article 286 of the Constitution. These questions involve a

decision of the fact as well as of law and they are within the exclusive jurisdiction of the sales tax authority. Even If the sales tax authority arrives at

an erroneous decision on these points, the remedy of the aggrieved party is the remedy provided in the Sales Tax Act, by way of appeal, further

appeal and revision to the High Court. The effect of Section 18-A is that the aggrieved party cannot by-pass these provisions and seek remedy by

way of suit under the common law, and urge that what has been paid by him is one paid under a mistake of fact and law and therefore, refundable

under the general principle stated in Section 72 of the Indian Contract Act. (2) Under the scheme of the Sales Tax Act, the assessing authority is

also given power to decide the jurisdictional question which arises in such cases, namely whether a sale takes place inside the State, in which event

alone the sales tax authority of the State has got jurisdiction to assess it; or whether the sale takes place outside the State or in the course of inter-

State trade or commerce, or in the course of import or export, in which case, under Article 286 of the Constitution, the Sales Tax Officer of the

State loses the power to assess the transaction. It is erroneous to hold that the moment a question of jurisdiction in this sense is raised, in

assessment proceedings, the issue falls outside the purview of the sales tax authority, and should be agitated in a separate suit. (3) But where the

question raised is the vires of a provision in the Sales Tax Act or statutory Rules under that Act, the decision on that question will be outside the

purview of the hierarchy of tribunals and Courts which are constituted under the Act. The principle involved here is that a tribunal, which is a

creature of a particular statute, cannot question the very vires of that statute. The same bar will also affect higher Civil Courts which have been

conferred jurisdiction under the special Act to correct the decision of the lower tribunals.

We will briefly refer to the several authorities from which the above principles can be gathered. In Firm and Illuri Subbayya Chetty and Sons Vs.

The State of Andhra Pradesh, the assessing authority wrongly assessed to tax certain ground-nut transactions of the dealer on his sales, whereas

under the Sales Tax Act the turnover is assessable only on purchase. Subsequently the dealer filed a suit to recover the amount wrongly collected.

The Supreme Court held that the assessment in question, though erroneous in point of law, was an assessment under the Act within the scope of

Section 18-A and therefore, the jurisdiction of the Civil Court is barred. The Supreme Court referred to certain observations in AIR 1940 105

(Privy Council) viz.,

It is also well settled that even if jurisdiction is so excluded (under the provisions of Section 188 of Sea Customs Act) the Civil Courts have

jurisdiction to examine into cases where the provisions of the Act have not been complied with, or the statutory tribunal has not acted in conformity

with the fundamental principles of judicial procedure.

The Supreme Court observed that these observations were somewhat wide in their nature, and they held that non-compliance with the provision of

the Statute, to which reference was made by Privy Council, must be non-compliance with such fundamental provisions of the statute, as would

make the ""entire proceedings"" before the appropriate authority illegal and without jurisdiction. Learned Counsel Sri M. S. Venkatarama lyer,

appearing for the respondent urged that the sales tax authority has, in the present case, failed to comply with Article 286(2) of the Constitution and

that this must be considered as non-compliance with a fundamental provision of the statute, as would make the entire proceedings before the

appropriate authority, illegal and without jurisdiction. We are unable to agree. Before the Sales Tax authority could come to a conclusion that the

transaction is hit by Article 286 of the Constitution there is necessarily an anterior stage in the proceedings involving an examination of the details of

the transaction, and it is only after it has decided on such examination that the sale is outside the State, can it decide that the transaction should not

be taxed. But, If, in the course of the same enquiry, it comes to the conclusion that the evidence shows that it is a sale inside the State, it has

jurisdiction to assess it. It is not, therefore, a case where the ""entire proceedings"" before the authority are illegal and without jurisdiction.

On the other hand, the relevant principle to apply, for the purpose of jurisdiction in such a case, is the one which the Supreme Court laid down

in Kamala Mills Ltd. Vs. State of Bombay, where the facts are analogous to those In the present case. The assessing authority included, in the

assessed turnover, outside sales of the dealer between 26th January 1950 and 31st March, 1951. After the judgment of the Supreme Court in The

Bengal Immunity Company Limited Vs. The State of Bihar and Others, was pronounced on 6-9-1955. the dealer filed a suit for the recovery of

the amount on outside sales that had been illegally levied, as it was opposed to Article 286 of the Constitution. The period of the transactions in

that case was covered by the President''s Ordinance validating the sales tax collected by the authorities, in accordance with the principles laid

down bv the earlier Supreme Court in the United Motors case. But the Supreme Court in Kamala Mills Ltd. Vs. State of Bombay, clearly stated

at p. 619 of the Report (STC) = (at p. 1946 of AIR) that they were examining the case not from the point of view of validity conferred by the

Ordinance but they were considering it as a general question affecting other disputes between the assessees and the respective States where

through mistake tax was collected or paid in regard to transactions which were really outside sales and were strictly not liable to be taxed. Sri

Viswanatha Sastri who appeared before the Supreme Court for the dealer put forward an argument similar to the one put forward by Sri M. S.

Venkatarama lyer. in this case that a transaction which is exccpted from as-sesssment either by virtue of Article 286 or by virtue of any specific

statutory provision cannot be validly assessed, and an assessment made in respect of it cannot claim the status of an assessment made under the

Act within the meaning of Section 20 of the Bombay Sales Tax Act (corresponding to Section 18-A) and that a suit would, therefore, be

competent to challenge such an invalid assessment. The Supreme Court repelled this argument by observing that, if, the appropriate authority has

been given jurisdiction to determine the nature of the transaction and proceed to levy a tax in accordance with its decision on the first issue, then

the decision on the first issue cannot be said to be a decision on a collateral issue, and even if the said issue is erroneously determined by the

appropriate authority, the tax levied by it in accordance with its decision cannot be said to be without jurisdiction. They therefore, held that even if

a mistake was committed by the assessing authority in assessing the transaction, which would be hit by Article 236 of the Constitution, the decision

was within the jurisdiction and the assessment could claim the protection of Section 20 of the Bombay Sales Tax Act.

The Supreme Court in the above case made a reservation that they were not dealing with the scope and effect of the High Court''s jurisdiction

under Article 226 and they also left open the question whether the taxing authority would be competent to decide the question about the validity of

the taxing provision itself.

This last mentioned question was considered by the Supreme Court in K.S. Venkataraman and Co. Vs. State of Madras, and they held that

the authority created by a statute cannot question the vires of that statute or anv of the provisions thereof under which it functions. In the above

case, the Supreme Court had to consider a transaction which was admittedly a works contract. Under tha Sales Tax law in force before the

decision of the Madras High Court in Cannon Dunkerley and Co. v. State of Madras, (1954) 5 STC 216 : AIR 1954 Mad 1130 turnover under

works contract was assessable. But the Madras High Court held in that decision that the inclusion of works contract in the definition of sales was

ultra vires, and this decision was confirmed by the Supreme Court in The State of Madras Vs. Gannon Dunkerley and Co., (Madras) Ltd., . The

Supreme Court held, in such circums-stances, that, if the charging section was ultra vires, the assessment made thereunder could not be said to be

made under the Act and that it was really an assessment outside the Act The Supreme Court held that Section 18-A was not a bar to the

maintainability of a suit in such a case. Though Sri M. S. Venkatarama lyer wanted to rely on the above observations clearly these observations are

not applicable to the circumstances of the present case. There is no question here of any charging section being itself ultra vires. What is in issue

here is the assessment being illegal on a proper consideration of the facts and circumstances of the transaction, and the application of Article 286 of

the Constitution to It thereafter. This is quite a different thing from the charging provision itself being ultra virea.

We have referred earlier to a summary of the principles of the earlier decisions on the subject given in the recent decision of the Supreme

Court in Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, . That was a case where the Sales Tax authority in Madhya

Pradesh assessed a dealer in beedies to sales tax u/s 3 of the Madhya Bharat Sales Tax Act (Act 30 of 1950). Under the above section and

further notifications issued by the Government tax was imposed at different rates on tobacco imported from outside the State on the importers at

the point of import. But tax was not levied on sale or purchase of tobacco of similar kind locally acquired in Madhya Bharat. The taxing provisions,

in the above circumstances, were struck down by the High Court because it was hit by Article 301 of the Constitution and the decision of the High

Court was confirmed by the Supreme Court in State of Madhya Pradesh Vs. Bhailal Bhai and Others, . Thereafter the dealer filed suits for

recovery of the illegal tax collected. The Supreme Court in Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, referred to the

earlier decision in State of Madhya Pradesh Vs. Bhailal Bhai and Others, striking down the charging section as being opposed to Article 301 of the

Constitution, and held that the principle decided in Venkataraman''s case would be directly applicable, and therefore, it held that the suit was

maintainable. In the course of the judgment in Dhulabhai and Others Vs. The State of Madhya Pradesh and Another, the Supreme Court observed

at p. 434 (of STC) = (at p. 90 of AIR):

Questions of the correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not He if

the orders of the authorities are declared to be final or there is an express prohibition in the particular Act.

At page 435, while referring to the assessment in that particular case in the context of the charging section being ultra vires, the Supreme Court

observed:--

In notifying the rate, provision was made for rates in respect of importers, the point of time being the import. As the import itself ...............

postulated movement of goods, the matter 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.

Learned Counsel Sri M. S. Venkatarama Ayyar appearing for the respondent, has used the above observations as support for an argument that,

where an assessment is opposed to the provisions of the Constitution (in this case Article 286(2)) a civil suit would lie. But this argument involves

taking some portions of the observations extracted above out of their context When the Supreme Court referred to the unconstitutionality of the

assessment, what was meant was assessment under a charging section which is hit by the Constitution, for example, the provision contained in the

Madhya Bharat Sales Tax Act assessing importers but exempting local products, or the provision in Cannon Dunkerley''s case assessing works

contracts which did not involve sales and was therefore, ultra vires, or a provision to assess hire purchases which have been held to be not sales

for the purpose of the Sales Tax. These are clearly cases where the charging provision was declared unconstitutional. There-1 fore, when the

Supreme Court in Dhula-bhai''s case referred to the unconstitutionality of an assessment as offending Article 301 of the Constitution, the

observations were made in the context of the unconstitutionality of the charging section. But they did not have in view an assessment which

becomes illegal only because the turnover in question cannot be assessed by reason of the bar under Article 286 of the Constitution. A decision of

the Sales Tax Authority on that point, according to the principles laid down in Kamala Mills Ltd. Vs. State of Bombay, is one within the exclusive

jurisdiction of the taxing authority and cannot be challenged in an independent suit.

We, therefore, allow the appeal with costs.