Citation Codes

Equivalent Citations

citation codes

Case Number

Appeal No. 397 of 1957 and Memorandum of Cross-objections

Attorney(S)

The 3rd Government Pleader and N. Krishnamurthy
N. Ramamohan Rao and A.V. Rangam

Judges

Chandra Reddy, C.J
Srinivasachari
Chandrasekhara Sastry, JJ.

Acts

section 18-A of the Madras General Sales Tax (IX of 1939) (hereinafter referred to as the Act).
provisions of the Sea Customs Act (VIII of 1878).11. Section 188 of the Sea Customs Act
provisions section 354 of the Madras District Municipalities Act
section 2(i) of the Madras General Sales Tax Act, 1939, sales
section 2(b) of the Madras General Sales tax Act (IX of 1939)
Sec. 2(b) and Sec. 8 of the Madras General Sales Tax Act.
section 16-A of the Madras General Sales Tax Act,
section 18-A of the Madras General Sale Tax Act
provisions of the Indian Income-tax Act, 1922,
section 67 of the Indian Income tax Act
INDIAN INCOME TAX ACT
section 72 of the Indian Contract Act.
SECTION 167 SEA CUSTOMS ACT
SEA CUSTOMS ACT
provision of the Income-tax Act
SECTION 72 CONTRACT ACT
Madras General Sales Tax Act.
section 15(b) of that Act
INCOME TAX ACT 1922
INCOME TAX ACT
Sales Tax Act

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Smart Summary

Structured Summary of the Opinion (Judgment delivered by Chandra Reddy, C.J.)

Factual and Procedural Background

The respondent is a firm of merchants dealing in groundnuts. For the accounting years 1952–1953 and 1953–1954 the firm submitted returns in Form 'A' and made tentative monthly payments of sales-tax which were later to be adjusted on finalisation of accounts. The firm paid the balance of tax for those years in September 1953 and June 1954 respectively.

More than a year after the last payment the firm instituted a suit (O.S. No. 10 of 1956) claiming a refund of Rs. 8,349 (Rs. 6,558 by way of tax and Rs. 1,791 as interest at 12% per annum). The basis of the suit was that the department had included in the firm's turnover sales of groundnuts that were exempt and had therefore collected tax unauthorisedly.

The defendant (revenue) pleaded that the suit was incompetent because of section 18-A of the Madras General Sales Tax Act (IX of 1939) and, in any event, asserted that the turnover represented purchases (not exempt sales) and that the assessment had been made on returns in Form 'A', so the plaintiff could not now re-characterise the nature of the turnover in the suit.

The trial Court (Subordinate Judge, Karnool) entered judgment for the plaintiff, concluding that the firm had included sales of groundnuts in the turnover in ignorance of the relevant rules and that the sales-tax authorities must be deemed to have collected tax illegally on those sales. The trial Court also overruled the objection as to maintainability, holding there was no express prohibition against bringing the suit.

The revenue appealed to this Court. The principal legal question — whether a suit is barred by section 18-A of the Madras General Sales Tax Act — was placed before a Full Bench because of perceived need to re-consider the earlier decision in State of Andhra Pradesh v. Sri Krishna Coconut Co.

Legal Issues Presented

Whether a suit (including a suit for refund of sales-tax alleged to have been illegally collected) is barred by section 18-A of the Madras General Sales Tax Act, i.e., whether civil Courts are excluded from entertaining suits that set aside or modify assessments made under the Act.
Whether the earlier Full Bench decision in State of Andhra Pradesh v. Sri Krishna Coconut Co. required reconsideration in light of other authorities addressing statutory schemes that provide an exclusive machinery of review.

Arguments of the Parties

Appellant (Government / Revenue) — Principal contentions

A civil Court has no jurisdiction to entertain the suit by reason of section 18-A of the Madras General Sales Tax Act; the Legislature introduced that provision to take away the jurisdiction of civil Courts because the Act creates a machinery for levy, collection and redress of grievances of assessees.
The scheme of the Act (appeal to Commercial Tax Officer or Deputy Commissioner, further appeal to Sales Tax Appellate Tribunal, and revision to the High Court) demonstrates legislative intent to oust civil jurisdiction to set aside or modify assessments made under the Act.

Respondent (Plaintiff / Firm) — Principal contentions

The suit was for recovery of taxes illegally collected because the turnover included sales of groundnuts that were exempt; hence the tax was unauthorised and refundable.
It was argued (by Sri Ramamohan Rao for the respondent) that section 18-A would operate only where the assessment could be justified under the Act — i.e., the phrase "made under this Act" refers to the provenance of the assessment and its conformity with statutory provisions, and so an assessment contrary to law would not be protected by section 18-A.
The respondent also invoked the equitable/private law remedy under section 72 of the Indian Contract Act (recovery for payment made under mistake), contending that mistake of law is covered and thus the money should be recoverable; reliance was placed on a decision (Sales-tax Officer v. Kanhaiaya Lal) supporting recovery for mistakes of law.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
State of Andhra Pradesh v. Sri Krishna Coconut Co.	Held that section 18-A did not apply because suits were not to "set aside or modify the assessment as contemplated by that section," and that such refund suits were cognisable by civil Courts (citing Secretary of State v. Mask & Co.).	The Full Bench in the present case distinguished and rejected that decision as not containing sound law, concluding it did not pay sufficient regard to the language of section 18-A or to decided authorities such as Secretary of State v. Mask & Co. and Raleigh Investment. The Court expressed dissent from that earlier ruling.
Secretary of State v. Mask & Co. (1940-2 M.L.J. 140; L.R. 67 I.A. 222 P.C.)	Where a statute creates obligations and provides a "precise and self-contained Code of appeal" and remedies, the party must adopt the remedies given by the statute and cannot go to civil Courts to challenge the administrative order.	The Court relied on the Privy Council's reasoning to support the view that where an Act sets up exclusive machinery for review and remedies, civil Court jurisdiction to challenge assessments is excluded. It used this authority to reject the contrary approach in State of Andhra Pradesh v. Sri Krishna Coconut Co.
Wolverhamption New Water Works Co. v. Hawkesford (Willes, J.)	Principle: "Where the statute creates a liability not existing at common law, and gives also a particular remedy for enforcing it... the party must adopt the form of remedy given by the statute."	Quoted in support of the principle that when a statutory regime provides particular remedies and a self-contained code, courts should require the statutory remedies to be used rather than civil suits.
Collector of Customs v. Lala Gopikishan	Another decision dealing with the Sea Customs Act and exclusion of civil Court jurisdiction where statutory appeal/revision machinery was available.	The Court noted this decision is to the same effect as Secretary of State v. Mask & Co., and that it did not advance the respondent's case.
Ganesh Mahadev v. Secretary of State for India (1918 I.L.R. 43 Bom. 221)	Held that where there has been no legal adjudication in accordance with the statutory procedure (e.g., confiscation without hearing), civil Courts may have jurisdiction to determine whether there was an adjudication; if there was an adjudication, civil Courts have no jurisdiction.	The Court considered the decision but held it did not support the respondent's position; it viewed the test suggested there as not consistent with later Privy Council authority (Raleigh Investment) and the present statutory scheme.
Raleigh Investment Co. v. Governor-General in Council (1947-2 M.L.J. 16; L.R. 74 I.A. 50)	Interpreting a provision (section 67) of the Indian Income-tax Act analogous to section 18-A: where the Act provides effective and appropriate machinery to raise legal complaints about an assessment, that machinery supports a construction denying civil Court jurisdiction to entertain an alternative remedy; "made under this Act" refers to provenance, not correctness in law.	Held to be directly analogous and controlling: the Court applied its ratio to conclude that section 18-A similarly ousts civil Court jurisdiction, and used the passage that "the phrase describes the provenance of the assessment" to reject the respondent's argument that an assessment that is illegal in law falls outside section 18-A.
Secretary of State v. Meyappa Chettiar (4 I.T.R. 341)	Referenced in Raleigh Investment as part of the procedural machinery enabling a case stated to the High Court on questions of law arising on assessment.	Used in the Court's discussion of Raleigh Investment to show the Income-tax Act contained effective machinery to raise legal issues and thus to justify construing a provision excluding civil jurisdiction.
Commissioner of Income-tax v. Tribune Trust	Statement of law that remedies open to a taxpayer (appeal against assessment or claim for refund) are to be found within the Act; the Act prescribes the remedy and the manner to enforce it.	The Court cited this authority to reinforce the conclusion that the statutory machinery is exclusive and that civil Courts are not available alternatives for challenging assessments.
Public Prosecutor v. Ramalingam	Full Bench dealing with section 16-A of the Madras General Sales Tax Act (similar to section 18-A) holding that objections that could have been raised before statutory tribunals could not be raised in criminal proceedings because the statute excluded such questioning.	Cited as supporting the view that statutory exclusions of jurisdiction are effective and that challenges to assessments must be made before the statutory tribunals, not in other fora.
Public Prosecutor v. Thimmaiah	Full Bench doctrine that once an impost is finally determined under the Act, it is not open to any Tribunal or Court to reopen the question except by using the statutory machinery.	Relied on to support the proposition that the Act's scheme precludes reopening assessments outside the prescribed forum.
Palanisami v. State of Madras	Ramaswami, J., expressed the opinion that section 18-A withdrew suits from the purview of civil Courts.	The Court regarded this as supportive of the interpretive stance that section 18-A ousts civil jurisdiction for challenges to assessments.
Radhakrishna Rao v. Province of Madras	Full Bench held that a commission agent who transfers property in goods and from whom buyer obtains delivery will fall within 'dealer' under the Madras General Sales Tax Act and be liable to sales-tax (subject to exemptions).	The Court used this decision to conclude that commission agents are within the statutory definition of 'dealer' and therefore liable to tax unless they obtain a licence/meet exemption conditions under section 8.
Sales-tax Officer v. Kanhaiaya Lal	Authority cited by the respondent for the proposition that mistake of law can support recovery under section 72 of the Indian Contract Act.	The Court accepted that mistake of law can ground recovery under section 72 but held that section 72 does not prescribe procedure or forum; thus even if a payment were recoverable under section 72, the remedy must be enforced through the statutory machinery rather than by an independent civil suit in these circumstances. Also noted that the plaint did not plead a recovery claim under section 72.

Court's Reasoning and Analysis

The Court began with a textual construction of section 18-A: "No suit or other proceeding shall, except as expressly provided in this Act, be instituted in any Court to set aside or modify any assessment made under this Act." From the language the Court concluded that a civil Court's jurisdiction to challenge an assessment is excluded where the Act provides the mode of challenging an assessment.

The Court addressed whether a suit for refund of tax alleged to have been illegally collected falls outside section 18-A. It held that such actions are governed by the section because, in substance, they involve the legality of the assessment: if the assessment is valid the levy cannot be characterised as illegal and no refund can be ordered. The Court emphasised substance over form: a refund suit necessarily requires adjudication on the legality of the assessment and therefore falls within the prohibition of section 18-A.

Turning to authority, the Court analysed earlier decisions. It considered Secretary of State v. Mask & Co. (Privy Council) to establish the principle that where a statute creates obligations and provides a precise, self-contained code of appeal and remedies, the statutory remedies must be exhausted and civil Courts cannot be resorted to as an alternative. The Court treated Collector of Customs v. Lala Gopikishan as consistent with that approach.

The Full Bench in State of Andhra Pradesh v. Sri Krishna Coconut Co. had taken a contrary view, but this Court examined the passages relied upon and found them not persuasive when read alongside the Privy Council rulings. In particular, the Court found that the passages about excluding civil jurisdiction only by explicit or clear implication (quoted from Mask & Co.) were being read too broadly by the earlier Full Bench.

The Court placed particular reliance on Raleigh Investment Co. v. Governor-General in Council, which dealt with section 67 of the Indian Income-tax Act (analogous to section 18-A). Raleigh held that where the Act itself provides an effective mechanism for raising questions as to the validity of a taxing provision, that machinery supports a construction that there is no alternative civil jurisdiction to inquire into the same subject-matter. The Privy Council in Raleigh also interpreted the phrase "made under this Act" as relating to the provenance of an assessment (use of the machinery), not to the assessment's correctness in law.

Applying Raleigh and related authorities, the Court concluded that section 18-A must be read to exclude civil Court suits that impugn assessments, including suits for recovery of money paid as tax where adjudication would require consideration of the assessment's legality. The Court warned that allowing the contrary view would permit repeated collateral challenges in inferior civil Courts even after statutory tribunals and appellate authorities have decided the issue, producing anomalous results.

The Court also considered and rejected the respondent's reliance on the Contract Act remedy (section 72). It accepted that mistake of law can ground recovery under section 72, but observed that section 72 does not prescribe procedure or forum; therefore the statutory machinery for tax matters remains the proper forum to seek repayment when the tax has been paid and the subject-matter falls within the Act's assessment scheme. The plaint in fact did not plead a cause of action under section 72.

Having decided the jurisdictional question against the respondent, the Court proceeded to the merits (as the trial Court had). The Court found the trial Judge's reasoning on the merits unsatisfactory: the plaintiff/firm had submitted returns in Form 'A', paid taxes voluntarily (final payments in 1953 and 1954), and had not availed itself of available statutory remedies by way of appeal. The plaint did not allege any mistake or other basis for recovery under section 72. Witness evidence indicated that the firm acted as purchaser/commission agent in transactions where growers brought goods to the firm's shop and sales were effected in the presence of sellers. The Court concluded the transactions were purchases subject to tax under the definitions and rules of the Act.

The Court analysed the statutory definition of 'dealer' (section 2(b)) which includes commission agents, and noted section 8 as the exemption mechanism (licence and accounting for known principals). The respondent had not obtained the licence or shown that accounts disclosed acting solely as commission agents for known principals; thus the exemption under section 8 did not apply and the turnover was exigible to tax. The trial Judge erred in ignoring these considerations and in treating the tax as illegally collected without evidence of mistake or other ground for relief.

On these grounds the Full Bench reversed the trial Court holding on both jurisdiction and the merits.

Holding and Implications

Core Ruling: Section 18-A of the Madras General Sales Tax Act bars suits in civil Courts that impugn an assessment made under the Act, including suits for refund of tax alleged to have been illegally collected; and the appeal is allowed.

Direct consequences in the present case: The appeal by the revenue was allowed with costs; the suit (O.S. No. 10 of 1956) was dismissed with costs; the memorandum of cross-objections claiming 12% per annum interest was dismissed with costs. The final notation in the opinion records: "Appeal allowed."

Immediate Practical Implications

Civil Courts are to refrain from entertaining suits that effectively seek to set aside or modify assessments made under the Madras General Sales Tax Act; parties must resort to the statutory machinery (appeal to Commercial Tax Officer/Deputy Commissioner, Sales Tax Appellate Tribunal, revision to High Court, and ultimately the Supreme Court where applicable).
The correctness in law of an assessment is to be litigated and resolved within the statutory appellate/revision framework rather than by collateral suits in ordinary civil Courts; mere allegation that tax was levied "wrongly" does not place the matter outside section 18-A if the assessment was made by use of the Act's machinery.
The decision expressly dissents from and disapproves the earlier Full Bench decision in State of Andhra Pradesh v. Sri Krishna Coconut Co., holding that that decision did not properly apply the relevant authorities.

Note: This summary is strictly confined to the material and statements contained in the provided opinion and does not add information from other sources.

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State Of Andhra Pradesh v. Firm Of Illur Subbayya Chetty And Sons, Carrying On Business At Kurnool Consisting Of The Following Partners

The Judgment of the Court was delivered by

Chandra Reddy, C.J

2. The main question that falls for determination in this appeal directed against the judgment and decree of the Subordinate Judge, Karnool, is whether a suit is burred by section 18-A of the Madras General Sales Tax (IX of 1939) (hereinafter referred to as the Act). The matter has been placed before a Full Bench as it was felt that State of Andhra Pradesh v. Sri Krishna Coconut Co. . 1960-A.L.T 639., rendered by a Division Bench of this Court required re-consideration.

3. The material facts of the case are within a short compass and may be briefly set out. The respondent is a firm of merchants carrying on business in groundnuts. For the accounting years 1952-1953, and 1953-1954, it submitted returns in Form ‘A’ and paid sales-tax tentatively every month which was to be adjusted after looking into the accounts of the firm and after determining the total taxable turnover of the amount of tax payable by the firm. Finally, the balance of tax was paid for the two accounting years in September, 1953 and June, 1954 respectively. The return submitted by the firm for 1952-1953 included an amount of Rs. 3,45,488-12-10 representing the purchase of groundnuts. More than a year after the last payment, the firm laid an action (O.S No. 10 of 1956) for refund, of Rs. 8,349 made up of Rs. 6,558 the amount paid by way of tax and Rs. 1,791 being the interest accrued thereon at twelve per cent, per annum, the basis of the suit being that the department included in the plaintiff's turnover sales of groundnuts which were exempted and collected taxes thereon unauthorisedly. The answer of the defendant was that the suit was incompetent, having regard to the provisions of section 18-A of the Act and that, in any event, the turnover in question represented the purchases of groundnuts made by the plaintiff, that the assessment was made on the basis of the returns submitted in Form ‘A’ and that consequently it was not open to the plaintiff to plead that he had furnished the department with sales turnover and not purchase turnover.

4. The trial Court entered judgment for the plaintiff in the view that the plaintiff included sales of groundnut in the turnover in ignorance of the rules relating to groundnut and that the sales-tax authorities must be deemed to have collected tax on the sales of groundnuts illegally. The trial Judge also overruled the objection relating to the maintainability of the suit being of opinion that the suit was maintainable because there was no express prohibition against filing of the suit. It is this judgment of the Subordinate Judge that is assailed before us.

5. The principal contention that is pressed upon us by the learned Government Pleader is that a civil Court has no jurisdiction to entertain the suit by reason of section 18-A of the Act. The learned Government Pleader urges that the Legislature introduced this provision of law in the year 1951 with the object of taking away the jurisdiction of a civil Court, as the Act has created a machinery for the levy and collection of tax and for dealing with the grievances of the assesses.

6. As the controversy centers round section 18-A, it is necessary to look at the terms of that section. It reads:

“No suit or other proceeding shall, except as expressly provided in this Act, be instituted in any Court to set aside or modify any assessment made under this Act.”

7. We will first consider the scope and ambit of the section unhampered by any decided cases. It is manifest from the language of the section that no challenge to an assessment could be entertained in the shape of a suit or any proceeding except in the manner provided in the Act. There is no other provision in the Act which confers a right of suit on an assessee. But the Act has provided remedies by way of appeal to the Commercial Tax Officer or the Deputy Commissioner of Commercial Taxes, as the case may be, a further appeal to the Sales Tax Appellate Tribunal and a revision to the High Court. Obviously, the Legislature wanted to oust the jurisdiction of Civil Courts to set aside or modify an assessment in view of the machinery expressly provided by the Act to impugn an assessment. The scheme of the Act Seems to be that all questions relating to the validity of an assessment should be agitated before a hierarchy of tribunals constituted for the purpose and they should not form the basis of proceedings in a civil Court which are likely to delay the levy and collection of the sales-tax. The section ex facie excludes the jurisdiction of a civil Court to set aside or modify an assessment.

8. The next question is, does a suit for refund of sales-tax alleged to have been illegally collected fall outside the purview of section 18-A of the Act? In our considered judgment, section 18-A applies to suits of that nature as well. Although the suit as framed is for recovery of amounts illegally collected by way of tax, it involves a question as to the validity of the assessments. If the assessment is not open to exception, the levy could not be characterised as illegal. If the impost could not be questioned as being illegal, the assessee could not get a refund of the amount. In other words, so long as the assessment stands, the tax collected on the basis of it could not be refunded. It is not so much the form as the substance of it that determines the nature of the suit. In a suit for re-payment of the money paid by an assessee, any Court or Tribunal has necessarily to adjudicate upon the legality of the assessment. On the language of that section, we are inclined to the view that section 18-A governs also a suit for refund of tax alleged to have been illegally collected from an assessee. To hold it otherwise, would be to deprive the section of its practical content. Further the acceptance of the opposite view will produce startling results. Even after objections to an assessment were disallowed by a tier of Tribunal and the High Court to which a revision lies against the order of the Sale Tax Appellate Tribunal or even by the Supreme Court on appeal therefrom, it would be open to the assessee to invite a District Munsif to adjudicate upon the same question already settled by the-highest Tribunal in the land. It is open to a civil Court even of the lowest cadre in such an event to come to a contrary conclusion. We do not think that such an anomalous position was contemplated by the Legislature. In our considered opinion, not only suits to set aside or modify an assessment but suits for recovery of money collected by way of sales-tax which involves the consideration of the legality of the assessment, fall within the prohibition enacted in section 18-A.

9. We will now turn to the decisions bearing on this topic. In State of Andhra Pradesh v. Sri Krishna Coconut Co., which led to the reference of the matter to the Full Bench, the suit was brought for refund of the sales-tax on the ground that the turn over was not exigible to sales-tax as it was covered by Article 286(1) of the Constitution. One of the points, that arose for decision in that case was whether the civil Court jurisdiction to entertain the suit was excluded by virtue of section 18-A of the Act. The learned Judges answered the question in the negative holding that

“section 18-A does not apply inasmuch as the suits were not to set aside or modify the assessment as contemplated by that section.”

and that such suits were cognisable by civil Courts, as laid down in Secretary of State v. Mask & Co. . 1940-2 M.L.J 140.

10. We shall see whether Secretary of State v. Mask & Co., lends any countenance to the proposition contained in State of Andhra Pradesh v. Sri Krishna Coconut Co. In that case, a firm of merchants with their head-office in the Province of Madras imported betel-nuts from Java into British India. The Customs Authorities assessed these consignments as boiled betel-nuts subject to duty and tariff value. The importers appealed to the Collector of Customs contending that the goods should be assessed at a lower rate, namely, as raw betel-nuts subject to duty ad valorem. The appeal was dismissed and the matter was taken in revision to the Government of India. The Government of India confirmed the order of the Collector. Thereupon, the merchants sought to recover the excess amount collected from them by levying duty upon the tariff value. Various issues were raised, one of which was whether the Court had jurisdiction to entertain the suit and whether it was barred by the provisions of the Sea Customs Act (VIII of 1878).

11. Section 188 of the Sea Customs Act recites:

“Any person deeming himself aggrieved by any decision or order passed by an officer of Customs under this Act, may, within three months from the date of such decision or order, appeal therefrom to the Chief Customs authority, or, in such cases as the local Government directs, to any officer of Customs not inferior in rank to a Customs Collector and empowered in that behalf by name or in virtue of his office by the local Government.

Every order passed in appeal under this section shall, subject to the power of revision conferred by section 191, be final.”

12. Having held that the decision of the Assistant Collector fell within the words of section 188 of that Act in view of the terms thereof, their Lordships proceeded to consider whether the order of the Collector dismissing the appeal under section 188 and affirmed by the Governor-General in Council on an application under section 191, excluded the jurisdiction of the civil Courts to entertain the suit. Their Lordships ruled that such a suit was incompetent as

“the jurisdiction of civil Courts is excluded by the order of the Collector of Customs on the appeal under section 188.”

13. It was observed by their Lordships that the Sea Customs Act contained a ‘precise and self-contained Code of appeal’ in regard to obligations created by the Act itself and as respects remedies to the aggrieved parties. They referred to the following principle with approval laid down by Willes, J., in Wolverhamption New Water Works Co. v. Hawkesford:

“Where the statute creates a liability not existing at common law, and gives also a particular remedy for enforcing it…………with respect to that class it has always been held that the party must adopt the form of remedy given by the statute.”

14. Their Lordships added:

“It is difficult to conceive what further challenge of the order was intended to be excluded other than a challenge in the civil Courts.”

15. Thus, it is plain that these remarks of the Judicial Committee are consistent only with the theory that when the Legislature created obligations and provided an exclusive Code for determination and also gave remedies, the party must avail himself of the remedies so provided and cannot have resort to an alternative jurisdiction.

16. Presumbly, it is the following passage that was the basis for the conclusion of the learned Judges in State of Andhra Pradesh v. Sri Krishna Coconut Co., that suits of this description are cognizable by a civil Court:

“It is settled law that the exclusion of the jurisdiction of the civil Courts is not to be readily inferred, but that such exclusion must either be explicitly expressed or clearly implied. It is also well-settled that even if jurisdiction is so excluded, 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 principle of judicial procedure………”

17. We do not feel that this passage could give rise to the argument that if an assessment is contrary to law, a suit could be entertained in a civil Court. The sentence that ‘where the provisions of the Act have not been complied with’ etc., may only mean that a suit is cognizable where the provisions leading up to the assessment have been disregarded, in other words, where the procedure laid down by the statute has not been complied with. Their Lordships would not have intended to lay down that every order of the tribunal not in conformity with law would furnish a basis for instituting a suit or a proceeding in a civil Court. In that very case, the order of the Customs Collector passed on appeal was challenged as being illegal. We are not persuaded that this pronouncement of the Privy Council establishes the proposition enunciated in State of Andhra Pradesh v. Sri Krishna Coconut Co.

18. Collector of Customs v. Lala Gopikishan relied on by the learned counsel for the respondent, which also dealt with, the provisions of the Sea Customs Act does not carry the matter any further. It is to the same effect as Secretary of State v. Mask & Co. . 1940-2 M.L.J 140, L.R 67 I.A 222 P.C.

19. The same could be said of Ganesh Mahadev v. Secretary of State for India . 1918 I.L.R 43 Bom. 221., called in aid by the respondent. The subject-matter of the appeal before a Bench of the Bombay High Court was an order of confiscation under the provisions of section 182 and of fine under section 167 of the Sea Customs Act. The Collector without taking any evidence himself and without hearing the plaintiff, passed the order. The plaintiff instituted a suit to recover the value of the silver con-confiscated and the amount of fine imposed. The trial Court dismissed the claim in the opinion that it had no jurisdiction to hear the suit and the Collector's decision was final. On appeal, the High Court held that the jurisdiction of the civil Court to try the suit was not excluded, if it appeared that there was no legal adjudication of the matter by the Collector in accordance with the provisions of the Sea Customs Act. The basis of the suit was that there was no adjudication as contemplated by the Sea Customs Act and it was as if that Act was not put into operation. It is in that context that the learned Judges of the Bombay High Court remarked that the question whether there had been a legal adjudication in accordance with the provisions of the Act was not a question excluded from the cognizance of the ordinary civil Courts. The learned Judges said:

“The case, therefore, must be remanded to have it determined in the first instance whether there has or has not been an adjudication. If there has been an adjudication, I think the civil Court has no jurisdiction.”

20. Even this test does not seem to be correct, having regard to the pronouncement of the Privy Council in Raleigh Investment Co. v. Governor-General in Council . 1947-2 M.L.J 16; L.R 74 I.A 50. That apart this case does not lend much assistance to the respondent.

21. We will now turn to Raleigh Investment Co. v. Governor-General in Council, which dealt with a provision of the Indian Income-tax Act and which is in pari materia with section 18-A of the Act. The facts of that case were these: Raleigh Investment Co. Ltd., brought an action on the original side of the High Court of Calcutta claiming a declaration that certain provisions of the Indian Income-tax Act, 1922, as amended in 1933 on which the assessment was based were ultra vires and as such the assessment was illegal, for repayment of the amount paid under protest and for an injunction restraining the Income-tax department from making the assessment in future. One of the issues raised related to the competency of the suit. The High Court of Calcutta decreed the suit disallowing the objection as to the maintainability of the suit. But this was reversed by the Federal Court on appeal. The Judicial Committee affirmed the decision of the Federal Court. The decision of their Lordships was founded mainly on section 67 of the Indian Income tax Act which runs as follows:—

“No suit shall be brought in any civil Court to set aside or modify any assessment made under this Act and no prosecution, suit or proceeding shall lie against any officer of the Government for anything in good faith done or intended to be done under this Act.”

22. The ratio decidendi of that case applies with full vigour to cases under section 18-A which, as we have already said, is analogous to section 67 of the other Act. While affirming the judgment of the Federal Court, their Lordships observed:

“In construing the section it is pertinent in their Lordships' opinion to ascertain whether the Act contains machinery which enables the assessee effectively to raise in the Courts the question whether a particular provision of the Income-tax Act bearing on the assessment made is or is not ultra vires. The presence of such machinery, though by no means conclusive, marches with a construction of the section which denies an alternative jurisdiction to enquire into the same subject-matter. The absence of such machinery would greatly assist the appellant on the question of construction and, indeed, it may be added that, if there were no such machinery and if the section affected to preclude the High Court in its ordinary civil jurisdiction from considering a point of ultra vires, there would be a serious question whether the opening part of the section, so far as it debarred the question of ultra vires being debated, fell within the competence of the Legislature.”

“In their Lordships' view, it is clear that the Income-tax Act, 1922, as it stood at the relevant date, did give the assessee the right effectively to raise in relation to an assessment made upon him the question whether or not a provision in the Act was ultra vires. Under section 30, an assessee whose only ground of complaint was that effect had been given in the assessment to a provision which he contended was ultra vires, might appeal against the assessment. If he were dissatisfied with the decision on appeal the details relating to the procedure are immaterial—the assessee could ask for a case to be stated on any question of law for the opinion of the High Court and if his request were refused, he might apply to the High Court for an order requiring a case to be stated and to be referred to the High Court (see sections 30 and Secretary of State v. Meyappa Ckettiar. (4 I.T.R 341 : I.L.R (1937) Mad. 211.) It cannot be doubted that included in the questions of law which might be raised by case stated is any question as to the validity of any taxing provision in the Income-tax Act to which effect has been given in the assessment under review. Any decision of the High Court upon that question of law can be reviewed on appeal. Effective and appropriate machinery is therefore provided by the Act itself for the review on grounds of law of any assessment. It is in that setting that section 67 has to be construed.”

23. Their Lordships seem to have been of opinion that an express provision might not be necessary to oust the jurisdiction of a civil Court to set aside or modify an assessment having regard to the scheme of the Act setting up a machinery for the levy and collection of taxes and for the enforcement of remedies available to an aggrieved assessee. Their Lordship added:

“The only doubt, indeed, in their Lordships' mind, is whether an express provision was necessary in order to exclude jurisdiction in a civil Court to set aside or modify an assessment.”

24. This reasoning of their Lordships is equally applicable to the Madras General Sales Tax Act. It contains provisions parallel to these to be found in the Indian Income-tax Act enabling the assessee to raise objections to the assessment by means of an appeal to the Commercial Tax Officer or the Deputy Commissioner of Commercial Taxes as the case may be, a further appeal to the Sales Tax Appellate Tribunal and a revision to the High Court. Any decision of the High Court on a question of law could also be reviewed on appeal by the Supreme Court. As under the Income-tax Act, there is a hierarchy of Tribunals created by the Sales-Tax Act before which the legality or the validity of an assessment could be agitated.

25. The following observations of their Lordships of the Privy Council in Raleigh Investment Co. v. Governor-General in Council, under the test as to the competence of a suit propounded in Ganesh Mahadev v. The Secretary of State, at page 228 of the report which has already been adverted to are sound.

“Second, on the appellant's construction, in order to ascertain whether a civil Court is barred by the section from reviewing an assessment brought before it, the legal merits of the assessment have first to be considered. For, if the assessment is determined to be right in law the jurisdiction of the civil Court to entertain the suit is excluded. The assessment is on the appellant's construction made under the Act. If, on the other hand, the assessment is determined to be wrong, the jurisdiction of the civil Court to entertain the suit arises. The result of an enquiry into the merits of the assessment is, on the appellant's construction, to determine whether jurisdiction existed to embark on the enquiry at all. Jurisdiction is made to depend not on subject-matter but on the correctness of the suitor's contention as respects subject-matter. The language of the section is inapt to justify any such capricious method of determining jurisdiction.”

26. After this pronouncement, it is difficult to posit that the jurisdiction of a civil Court to entertain a suit is left intact in casts of invalid or illegal assessments.

27. The statement of law contained in Commissioner of Income-tax v. Tribune Trust is to a similar effect. This is what their Lordships say:

“Their Lordships are of opinion that the only remedies open to tax payer, whether in regard to appeal against assessment or to claim for refund are to be found within the four corners of the Act. This view of his rights harmonies with the provision of section 67, to which reference has already been made, that no suit shall be brought in any civil Court to set aside or modify any assessment made under the Act. It is the Act which prescribes both the remedy and the manner in which it may be enforced.”

28. The judgment of the Madras High Court in Public Prosecutor v. Ramalingam, also supports the view indicated by us. That case had to deal with section 16-A of the Madras General Sales Tax Act, which is very much similar to section 18-A, which runs as follows:—

“The validity of the assessment of any tax, or of the levy of any fee or other amount made under this Act, or the liability of any person to pay any tax, fee or other amount so assessed or levied shall not be questioned in any criminal Court in any prosecution or other proceeding, whether under this Act or otherwise.”

29. It was laid down by the Full Bench that it was not open to a person prosecuted under section 15(b) of that Act for failure to pay the tax, to raise any objection which could have been raised before the Tribunals created by the statute by virtue of section 16-A of the Act. The doctrine of Public Prosecutor v. Thimmaiah, rendered by a Full Bench of this Court is in consonance with the principle of Public Prosecutor v. Ramalingam. It was decided in that case that when once the impost was finally determined as laid down in the Act, it was not competent for any Tribunal or Court to reopen the question in any proceeding, any mode of challenging the assessment otherwise than by the use of the machinery set up in the Act being inconsistent with the intention of the Legislature.

30. In Palanisami v. State of Madras, Ramaswami, J., of the Madras High Court expressed the opinion that section 18-A of the Madras General Sale Tax Act withdrew from the purview of civil Courts suits for setting aside or modifying assessments made under that Act.

31. The learned counsel for the respondent cited to us some decisions of the Madras High Court which construed the provisions section 354 of the Madras District Municipalities Act and which laid down that a suit could be filed in a civil Court notwithstanding the fact that the provisions of that Act were violated. Those cases are not in point because that very section required the provisions of the Act to be, in effect, complied with. The other rulings relied on by the learned counsel for the respondent do not have much bearing on the present enquiry and, therefore, they need not be adverted to in this context.

32. It was then contended by Sri Ramamohan Rao that section 18-A would come into operation only when the assessment could be justified with reference to the provisions of the Act. According to the learned counsel, this consequence flows from the expression “made under this Act”. The argument presented is that under the relevant rules, groundnut could be subject to tax only at the purchase point and not at the sale point and that it was not within the jurisdiction of the Sales-tax Officer to tax the turnover in dispute as it represented the sales of groundnut. We do not think that expression has the effect attributed to it. That only has relation to the actual existence of the assessment and not the accuracy of the assessment in point of law. It could not be posited that there is any lack of inherent jurisdiction in the Commercial Tax Officer in levying this tax. It is for the department to determine whether the turnover consisted of purchases or sales. It could not, therefore, be said that there is want of inital jurisdiction and the assessment is a nullity. At the most, such an assessment could be regarded as an illegal one.

33. While interpreting the expression “made under the Act” in Raliegh Investment Co. Ltd. v. Governor-General in Council, their Lordships said:

“The phrase describes the provenance of the assessment. It does not relate to its accuracy in point of law. The use of the machinery provided by the Act, not the result of that use, is the test.”

34. These remarks of their Lordships contain the answer to the contention of the respondents. The mere fact that tax was levied wrongly or without justification would not take it out of sweep of section 18-A of the Act. The alleged illegality of an assessment does not go to the root of the jurisdiction of the Tribunals which under the Act are invested with jurisdiction in that behalf. The Bench decision in State of Andhra Pradesh v. Sri Krishna Coconut Co., which gives some support to the stand taken by the respondent did not pay sufficient regard to the language of the section or to the reasoning of the Privy Council in Secretary of State v. Mask & Co.. Further, the attention of the learned Judges does not seem to have been drawn to the Privy Council ruling in Raleigh Investment Co. v. Governor-General in Council, or to the Full Bench diction of this Court in Public Prosecutor v. Thimmaiah. In the circumstances, we fell that State of Andhra Pradesh v. Sri Krishna Coconut Co., does not contain sound law and we express our dissent therefrom.

35. Lastly, it was maintained by Sri Ramamohan Rao, learned counsel for the respondent, that as the disputed transactions were comprised in the turnover under a mistake of law, the respondent could claim the benefit of section 72 of the Indian Contract Act. It is urged that section 72 does not confine to mistake of fact but takes in mistakes of law also within its scope. To support this proposition, reliance is placed on Sates-tax Officer v. Kanhaiaya Lal. That position is now incontestable. However, that does not in any way concern the present controversy, since the question here is not whether any payment made by mistake could be recovered by virtue of section 72 of the Contract Act. That section does not prescribe the procedure or the forum for enforcing that right. That section is not in any way inconsistent with the concept of exclusion of jurisdiction of civil Courts in certain contingencies. Even in such cases, resort could he had to the Tribunals set up under the Act for repayment of money paid by mistake.

36. Moreover, there is no scope for invoking section 72 of the Contract Act in this case, having regard to the fact that no such case it set up in the plaint.

37. The trial Judge relied on some rulings of the Madras High Court in support of his conclusion that section 18-A of the Act did not relate to refund of taxes illegally collected. The learned Judge erred in relying upon these cases, as they dealt with section 18 of the Act which enact:

“No suit shall be instituted against the State Government and no suit, prosecution or other proceeding shall be instituted against any officer or servant of the State Government in respect of any act done or purporting to be done under this Act, unless the suit, prosecution or other proceeding is instituted within six months from the date of the act complained of.”

38. It is seen that section 18 does not enact any prohibition against institution of suits or proceedings in a civil Court. It prescribes only certain limitations. In fact, that section denotes that suits could be instituted within a limited period. Therefore, the decisions rendered with reference to that section can have no material bearing on the enquiry relating to section 18-A of the Act. Finally, we hold that suits of all descriptions which impugn an assessment are hit at by section 18-A of the Act. That is sufficient to dispose of the appeal. We will now proceed to adjudicate on the merits of the appeal, as it was argued at length.

39. The judgment of the trial Court is equally unsubstantial on the merits. The Subordinate Judge remarked that the Sales Tax Authorities must be deemed to have collected the tax on the sales of groundnut illegally. We do not know what scope there is for introducing a fiction into this matter. At the outset, it must be remembered that the plaintiff included the transactions in question in the return submitted by it in Form ‘A’ and that it was miking payments tentatively every month to be adjusted after the final assessment and the plaintiff made the final payment in September, 1953, for the accounting year 1952-1953 and in June, 1954, for the accounting year 1953-1954. Thus, the firm voluntarily made the return and paid the taxes and had not preferred an appeal either to the Deputy Commissioner of Commercial Taxes or to the Sales Tax Appellate Tibunal. In other words, the firm had not availed itself of any of the remedies provided under the Sales Tax Act and no action was taken by it till February, 1956, when the suit was filed. In fact, the plaint proceeds on the assumption that the Sales Tax Authorities collected the taxes unauthorisedly, and makes no reference to the plaintiff-firm itself having submitted returns and the tax having been computed on the basis of such returns. The plaint does not advert to any mistake alleged to be responsible for making the payments. The averments therein are that the transactions in dispute represent sales of groundnuts for two years and that the plaintiff-firm merely acted as a commission agent for their principals and the transactions were not entered into on their own behalf.

40. Thus it is seen that the plaint is silent as to any mistake committed by the firm either in including the transactions in the returns submitted by it or in the payments of taxes between 1952 and 1954.

41. We shall now go into the question as to whether the transactions in question constitute sales or purchases subject to tax under the relevant rules. In the witness-box the plaintiff described the business relating to these transactions thus:

“The person who brings the goods to our shop for sale will be sitting in the shop. The intending purchaser will be sent for. The transaction is settled as soon as the seller agrees to the price offered by the purchaser. Afterwards, the goods will be weighed. Hence the sales will be effected in the presence of the sellers.”

42. The import of this evidence is that the growers brought the groundnut to the plaintiff's shop and the plaintiff merely acted as a commission agent in effecting the transactions. It may be incidentally mentioned that it was not the plaintiff's case that it acted as a broker. The definite case sought to be made out in the plaint was that it was a commission agent. On this evidence, there can be little doubt that it was the purchases made by the firm either on its own behalf or on behalf of someone else that was included in his return.

43. Having regard to the proviso to the definition of ‘turnover’ contained in section 2(i) of the Madras General Sales Tax Act, 1939, sales of agricultural or horticultural produce grown by the seller himself are exempt from tax and that is the reason why the purchasers of such commodity from the growers are made exigible to tax. Therefore, whoever has purchased the groundnut, which is the agricultural produce, whether it be the plaintiff-firm or its principal is liable to pay the tax as buyer thereof in view of the relevant turnover and assessment rules. It is significant that the evidence of P.W 1 as extracted in the judgment also establishes that the firm treated it as purchase-tax.

“P.W 1 denies having collected any sales-tax from his vendors in respect of those transactions.”

44. We have next to consider whether the plaintiff-firm can escape liability by alleging that it acted only as a commission agent. In the decision of this question, we will have to take into account the definition of ‘dealer’ in section 2(b) of the Madras General Sales Tax Act (IX of 1939) which is as under:

“‘Dealer’ means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for other valuable consideration, and includes

(iii) any commission agent, a broker, a del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of disclosed or undisclosed principal.”

45. It is manifest that this definition comprehends a commission agent and he is, therefore, subject to tax. It is true that this definition embracing a commission agent was amended only in the year 1956. But that does not materially alter the situation because even independently of the amendment that definition was contrued to have included a commission agent.

46. In Radhakrishna Rao v. Province of Madras, a Full Bench of the Madras High Court held that a commission agent entrusted with the goods by his principal to transfer property in the goods to the buyer who obtains delivery from such agent himself even without, being aware of the identity of the principal, will come within the word of ‘dealer’ under the Madras General Sales Tax Act liable to sales-tax under section 3 but for the exemptions mentioned in section 8. Presumably, the amendment was intruduced to give legislative recognition to the Full Bench ruling.

47. Thus, the assessee will be regarded as a ‘dealer’ for purposes of the Act unless otherwise exempted. That exemption is available to the assessee by reason of section 8 which enacts:

“The State Government may, on application and on payment of such fee as may be prescribed in that behalf, license any person under this section who for an agreed commission or brokerage buys or sells on behalf of known principal specified in his accounts in respect of each transaction and may exempt from the tax or taxes payable under section 3, such of his transactions as are carried out in accordance with the terms and conditions of his licence.

48. Advantage could be taken of this section by a commission agent by obtaining a licence. Further, the benefit of this section will be available only to agents who act on behalf of known principals specified in their accounts. It is also essential that he should fulfil the terms and conditions of such a licence. In this case, admittedly, the respondent-firm had not taken a licence for doing commission business. Nor do their accounts disclose that they had acted only as commission agents. Therefore, section 8 is inapplicable and the plaintiff-firm cannot claim any exemption. That being so, its turnover is liable to be taxed.

49. Curiously enough, the Subordinate Judge gets over this difficulty by remarking:

“One of the contentions of the defendant is that the plaintiff has not taken out a licence under section 8 of the Act for doing business as commission agent. But that cannot be taken into account in this suit. If the plaintiff has not taken any licence and has done commission business without taking a licence from the Government, the Government can proceed against the plaintiff by taking suitable action.”

50. The Subordinate Judge had overlooked the fact that but for the exemption under section 8 every commission agent will be considered to be a ‘dealer’ within the words of Sec. 2(b) of the Act and his turnover is exigible to tax. In this case, all those requirements are absent. That being so, the plaintiff-firm cannot escape liability to pay tax on its turnover. It is surprising that the Subordinate Judge should have thought that even if license is not obtained by a commission agent he would be exempt from payment of tax in the teeth of Sec. 2(b) and Sec. 8 of the Madras General Sales Tax Act. Again he did not have any regard to the fact that the plaintiff had included the disputed turnover in the returns submitted by the firm and paid taxes voluntarily and that there was no cogent evidence in support of the theory that these were done under any mistake. The Subordinate Judge disposed of the whole matter by remarking that the authorities must be deemed to have collected the tax on sales of groundnut illegally. To say the least, the judgment under appeal is very unsatisfactory and discloses a straining of every circumstance in favour of the plaintiff. We have, therefore, no option but to reverse it and allow the appeal.

51. In the result, the appeal is allowed with costs and the suit dismissed with costs. The memorandum of cross-objections claiming at 12 per cent per annum is also dismissed with costs.

Appeal allowed.

State Of Andhra Pradesh v. Firm Of Illur Subbay...