Case: The Provincial Government Of Madras Vs. J. S. Basappa

1. This judgment will dispose of Civil Appeals Nos. 494 to 496 of 1962. The State of Andhra Pradesh which now stands substituted for the Provincial Government of Madras is the appellant. The respondent is one J. S. Basappa, a groundnut-oil merchant of Kurnool who was selling oil within the province and also exported it to extra-Provincial points. These three appeals concern sales-tax for the year 1944-45, 1945-46, and 1946-47. They arise out of three suits filed by Basappa against the Provincial Government of Madras now represented by the Government of Andhra Pradesh, the details of which are given below.2. For the year 1944-45, Basappa was assessed to sales tax amounting to Rs. 12,983-2-2 of which according to him, a sum of Rs. 1,594-1-5 only represented sales within the Province. He claimed that the remaining sales took place outside the Province of Madras. He submitted that property in the goods remained with him till the export of the goods to an extra-Provincial point and till payment of price after export. He claimed that these sales could not be included in his turnover under the Madras General Sales Tax. Act 1939 (Act No. IX of 1939) and sales-tax was wrongly demanded from him. In respect of this assessment, he filed O. S. No. 14 of 1950 (original No. O. S. 40 of 1949) in the Court of the Subordinate Judge, Kurnool for refund of Rs. 11,389-0-9. The Madras State Government in a written statement traversed all the allegations and stated that delivery of the goods was made in Kurnool when the goods were booked and further that the goods were despatched at buyers risk and remained at buyers risk thoughout. It also contended that the notice under S. 80 was not proper and the suit was not in accordance with the notice and was not maintainable because the orders under the Sales Tax Act were made final by S. 11 (4) of the Sales Tax Act and because Basappa had not exhausted his other remedies under the Sales Tax Act. Lastly, it contended that the suit was barred by time not having been filed within six months from the date of the act complained of as required by S. 18 of the Sales-tax Act or within one year as required by Art. 16 of the Indian Limitation Act.3. In respect of the year 1945-46, Basappa filed O. S. No. 44 of 1949 claiming a refund of Rs. 8,356/- on similar grounds, and in respect of the year 1946-47 he filed O. S. No.23 of 1949 for a declaration that the levy of Rs. 9,233-6-7 was illegal and without jurisdiction and for a permanent injunction to restrain the taxing authority from collecting the tax. In this suit, in addition to the defences also taken in the other suits it was contended that the suit was incompetent as a revision application was pending with the Board of Revenue.4. These suits were disposed of by the Subordinate Judge, Kurnool by a common judgment dated February 22, 1951. The main points which were decided were :- (1) whether the suits were not maintainable as (a) the civil court had not jurisdiction and (b) the assessee had not exhausted his other remedies, (2) whether the suits, were barred by time, and (3) whether the sales took place outside the Province of Madras and the levy of the tax in respect of some of the transactions was illegal. The Subordinate Judge held that there was nothing in the Sales-tax Act to exclude the jurisdiction of the civil court and that the finality spoken of by S. 11 of the Sales-tax Act was a finality arising under the Sales-tax Act and had no reference to the jurisdiction of the civil court. He also held that Basappa was not required to exhaust his other remedies before moving the civil court by suit. On second point, the Subordinate Judge held that O. S. Nos. 14 of 1950 and 44 of 1949 were barred by time under S. 18 of the Sales-tax Act or Art. 16 of the Limitation Act whichever might be applied. The learned Subordinate Judge held that Art. 62 of the Limitation Act was not applicable because Basappa had not pleaded in these two suits that payment of the tax was made under a mistake. The Subordinate Judge, however, held that O. S. No. 23 of 1949 was in time. In O. S. No. 14 of 1950 and 44 of 1949, he recorded findings that taxes amounting to Rs. 7,202-12-9 in respect of O. S. No. 14 of 1950 and Rs. 5,370-7-0 in respect of O. S. No. 44 of 1949 were wrongly levied, because those amounts concerned sales which took place outside the Province of Madras. In O. S. No. 23 of 1949, he held that sales of the value of Rs. 79,465/- took place outside the Province and tax in respect of them at 1% (which was the uniform rate applicable to all the three years) was not demandable. A declaration to this effect was granted and an injunction was issued restraining the State Government from recovering Rs. 793-10-6 from Basappa. In the result O. S. No. 14 of 1950 and 44 of 1949 were dismissed with costs and O. S. No. 23 of 1949 was partially decreed with proportionate costs.5. Basappa appealed in all the three suits against the decision of the Subordinate Judge, Kurnool. The Government of Madras objected in the appeal of Basappa from the decision in O. S. No. 23 of 1949 in respect of the decree for Rs. 793-10-6. In the High Court, applications were made in the appeals for urging an additional ground that the whole assessment was invalid because it included an illegal levy which was not severable from the legal demand. This ground was based upon the decision of this Court in Ram Narain Sons Ltd. v. Asst. Commr. of Sales Tax, (1955) 2 SCR 483   : ((S) AIR 1955 SC 765  ). This request was not opposed and permission was granted to Basappa. The High Court differed from the Subordinate Judge on the question of limitation and held that neither S. 18 of the Sales-tax Act nor Art. 16 of the Limitation Act was applicable to the suits, which wee governed by Art. 62 of the Limitation Act. The High Court accordingly held that O. S. No. 14 of 1950 and O. S. No. 44 of 1949 which were dismissed as barred by time were not barred. On the main question, the High Court classified all the sales into four categories which wereWhere the plaintiff himself was the consignor as well as the consignee.2. Where the plaintiff himself was the consignor and the buyer the consignee.3. Where the buyer was the consignor as well as the consignee, and4. Where a third party was shown as the consignor, the consignee being theSubordinate Judge had held that sales-tax was properly demandable in respect of categories 2 and 3 but not in respect of categories 1 and 4. The second part of the decision was not assailed before the High Court. The High Court again considered categories 2 and 3 and held that sales coming under those categories were properly assessable to sales-tax as the sales took place within the Province of Madras. The High Court, however, acting upon the decision of the court in Ram Narains case, (1955) 2 SCR 483   : ((S) AIR 1955 SC 765  ) held that the legal and the illegal levies were so mixed up that the entire demand for tax was rendered illegal and void. In the result, the appeals filed by Basappa were allowed and the cross-objection filed by the Provincial Government of Madras was dismissed. The High Court certified these cases and the present appeals have been filed.

Reasoning:
10. Applying these tests, it is clear that without a provision like S. 18-A in the Act, the jurisdiction of the civil court would not be taken away at least where the action of the authorities is wholly outside the law and is not a mere error in the exercise of jurisdiction. Mr. Sastri says that we must interpret the Act in the same way as if S. 18-A was implicit in it and that S. 18-A was added to make explicit what was already implied. We cannot agree. The finality that statute conferred upon orders of assessment, subject, however, to appeal and revision, was a finality for the purposes of the Act. It did not make valid an action which was not warranted by the Act, as for example, the levy 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 werecontends that these cases are rather governed by the other rule that where the assessment is for separate sums, only that portion need be declared illegal which is void. It is necessary to explain the distinction between the two classes of cases and how they are to be distinguished. A difference in approach arises only in those cases where the assessment of many matters results in amounts of tax which though parts of the whole assessment, stand completely separate. There the court can declare the "separate dissected and earmarked" Item illegal and excise them from the levy. In doing so, the court does not arrogate to itself the functions of the taxing authorities; but where the tax is a composite one and to separate the good part from the bad, proceedings in the nature of assessment have to be undertaken, the civil court lacks the jurisdiction. Here, the amount of tax is a percentage of the turnover and the turnover is a mixed one and it is thus not merely a question of cutting off some items which are separate but of entering upon the function of assessment which only the authorities under the Sales-tax Act can undertake. Cases of assessment based upon gross valuation such as the case from Canda referred to by the Judicial Committee afford a parallel to a case of assessment of a composite turnover such as we have here, just as in the Canadian case it was not possible to separate the valuation of moveable properties from that of immovable properties, embraced in a gross valuation roll, so also here, it is not possible to separate from the composite turnover transactions which are validly taxed, from those which are not for that must pertain to the domain of tax officers and the courts have no power within that domain. In our opinion, the High Court was right in declaring the total assessment to be effected by the portion which was illegal and void.