Case: K. S. Venkataraman &amp; Co Vs. State Of Madras

2. The appellants are a private company incorporated under the Indian Companies Act. They carry on the business of building contractors. During the years 1948-49 to 1952-53 they were assessed to sales-tax by the State of Madras on the basis that the contracts executed by them were "works contracts". On April 5, 1954, the High Court of Judicature at Madras held in Gannon Dunkerely and Co. (Madras) Ltd. v. The State of Madras (1954) 5 STC 216: (AIR 1954 Mad 1130  ) that the relevant provision of the Madras General Sales Tax Act empowering the State of Madras to assess indivisible building contracts to sales-tax was ultra vires the powers of the State Legislature. On July 5, 1954, the appellants issued a notice to the State of Madras under S. 80 of theCode of Civil Procedure claiming the refund of the amounts collected from them. As the demand was not complied with, on March 23, 1955, they fled O. S. No. 2272 of 1955 in the City Civil Court, Madras, for the recovery of a sum of Rs 36320-1-11, being the total amount of taxes illegally levied and collected from them for the years 1948-49 to 1952-53 and for incidental reliefs. The main basis of the claim was that the relevant provisions of the Madras General Sales Tax Act empowering the sales-tax authorities to impose sales-tax on indivisible building contracts were unconstitutional and void, that the sales-tax authorities had no jurisdiction to assess the said tax in respect of the said transactions and that the appellants, having paid the amounts under a mistake of law, would be entitled to have a refund of the same. The State of Madras raised various defences. It pleaded, inter alia, that S. 18-A of the Sales Tax Act was a bar to the maintainability of the suit, that the suit was barred by limitation and that a suit to recover money on the ground of mistake of law was not maintainable. The learned City Civil Judge held, following the principle laid down by the Judicial Committee in Raleigh Investment Co. Ltd. v. The Governor General in Council 74 Ind App 50: AIR 1947 PC 78  ), that the suit was not maintainable under S. 18-A of the Madras General Sales Tax Act. The learned City Civil Judge further held that a suit for a refund of money paid under a mistake of law was not maintainable and that it was also barred by limitation. On appeal, a Division Bench of the High Court of Madras held that a suit for a refund on the basis of mistake of law would lie but dismissed the appeal on the ground that the said decision of the Judicial Committee directly covered the point raised; that is to say, it held that the remedy of the appellants was only to pursue the machinery provided under the Act and that the suit was not maintainable in view of S. 18-A of the said Act. It did not express any opinion on the question of limitation. Hence the appeal.

Reasoning:
Indeed, in view of the said machinery, the Judicial Committee even doubted whether the enactment of S. 67 was necessary to exclude jurisdiction. In its opinion it was superfluous. The entire reasoning of the Judicial Committee was, therefore, based upon the assumption, that the question of ultra vires can be canvassed and finally decided through the machinery provided under the concerned statute. The interpretation of S. 67 of the Income-tax Act was also based on the comprehensive scope given by the Judicial Committee to the said machinery provided under the said Act. Is this assumption correct? If not, as the Judicial Committee itself realised, the construction put upon S. 67 of the Income-tax Act would not also behave considered these decisions in some detail as it was contended that the present question was finally decided by some of the decisions of this Court. But a perusal of the judgments discloses that the said question, namely, whether a suit would lie when an assessment was made on the basis of a provision which was ultra vires the Constitution, was left open and indeed in one of the decisions clear observations were made questioning the correctness of the decision of the Privy Council in so far as it held that a suit would not be maintainable even in such a case. The question left open directly calls for a decision in this appeal.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 if 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 wold 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.On the said legal basis it follows that in the instant case the sales-tax authorities have acted outside the Act and not under it in making an assessment on the basis of the relevant part of the charging section which was declared to be ultra vires by thisthe State Legislature has no legislative power to impose a tax in respect of indivisible works contracts, the argument proceeds, it cannot indirectly confer on a sales-tax authority power to impose a tax on such a transaction and impose a bar against the maintainability of a suit to question its validity. This certainly raises an important question: but, in the view we have expressed on the construction of S. 18-A of the Act, this does not fall for our decision in the presentCity Civil Court Judge held that the suit was governed by Art. 62 of the Limitation Act and, on that basis, declared that the suit for the recovery of the amounts that were paid prior to three years from the date of the suit was barred by limitation. But the High Court, in the view it had taken on the question of the maintainability of the suit, did not express any opinion on the said question.Learned counsel for the appellants contends that the suit was for the recovery of the amounts paid to the respondent under a mistake of law and that such a suit is governed by Art. 96 of the Limitation Act. This court in State of Kerala v. Aluminium Industries Ltd., Kundara, Quilon, Civil Appeal No. 720 of 1963 dated 21-4-1965 (SC) accepted that contention and held that to such a suit Art. 96 of the Limitation Act would apply. Article 96 of the Limitation Act prescribes a period of limitation of 3 years for relief on the ground of mistake when the mistake became known to the plaintiff. When did the plaintiffs come to know of the mistake in the present case? In the plant it is alleged that the plaintiffs came to know of the mistake when the decision in Gannon Dunkerleys case, 1954-5 STC 216 : (AIR 1954 Mad 1130  ) was pronounced by the High Court of Madras on April 5, 1954.The respondent in the writtenstatement did not deny that fact. The suit was filed on March 23, 1955 which was within 3 years from the date of the said knowledge and, therefore, it was clearly within time under Art. 96 of the Limitation Act.In the result, the appeal is allowed. There will be a decree in favour of the plaintiffs as prayed for with costs throughout.The definition of "sale" in the Act cannot be read divorced from the scheme of the Act. and the restrictions upon the power of the Legislature which enacted it. There are diverse provisions in the Act which restrict the power of the taxing authorities to levy tax on sale or purchase of goods. For instance, S. 4 expressly enacts that the provisions of the Act shall not apply to the sale of electrical energy motor spirit and manufactured tabacco and of any other goods on which duty is or may be levied under the Madras Abkari Act, 1886, the Madras Prohibition Act, 1937, or the Opium Act 1878. Exemption is also granted in certain cases by S. 5 of the Act and authority is conferred by the Act upon the executive Government to make exemptions from or reductions in rates in respect of tax payable on the sale of any specified classes of goods or by any specified classes of persons in regard to the whole or any part of their turnover. These restrictions upon the power of the taxing authorities are imposed expressly by the statute itself, the other restrictions to which we have already referred, are restrictions which are implied by the constitutional limitations. But on that account there is no real difference between the quality of the restrictions. The definition clause and the charging section operate only on sales which may appropriately be called sales of goods under the general law of goods which are not exempted by the Act and are not taken out of the taxing power of the State by the constitutional or other provisions. Apparently wide words of the definition clause and the charging section will not on account of these restrictions be rendered ultra vires or invalid; the words will be construed so as to confer power upon the taxing authorities in assessing tax only within the limited field.