Case: Dhulabhai And Others Vs. The State Of Madhya Pradesh And Another

2. The appellants are dealers in tobacco and have their places of business at Ujjain. They purchase and sell tobacco used for eating, smoking and for preparing bidis. They get their tobacco locally or import it from extra-State places. The former Madhya Bharat State enacted in 1950 the Madhya Bharat Sales Tax Act (Act 30 of 1950) which came into force on May 1, 1950. Under S. 3 of the Act every dealer whose business in the previous year in respect of sales or supplies of goods exceeded in the case of an importer and manufacturer Rupees 5,000 and in other cases Rs. 12,000, had to pay tax in respect of sales or supplies of goods effected in Madhya Bharat from 1st May 1950. Under Section 5, the tax was a single point tax and it was provided that the Government might by a notification specify the point of the sales at which the tax was payable. The section also fixed the minimum and maximum rates of tax leaving it to Government to notify the actual rate.t in pursuance of this power issued a number of notifications on April 30, 1950, May 22, 1950, October 24, 1953 and January 21, 1954. All these notifications imposed tax at different rates on tobacco above described on the importer, that is to say at the point of import. The tax was not levied on sale or purchase of tobacco of similar kind in Madhya Bharat. The tax was collected by the authorities in varying amounts from the appellants for different quarters. We are not concerned with the amounts. The appellants served notices under Section 80 of theCode of Civil Procedure and filed the present suits for refund of the tax on the ground that it was illegally collected from them being against the constitutional prohibition in Article 301 and not saved under Article 304 (a) of the Constitution.The State of Madhya Pradesh was formed on November 1, 1956. In Bhailal v. State of M. P., 1960 MPLJ 601     the High Court of Madhya Pradesh declared the notifications to be offensive to Article 301 of the Constitution on the ground that it was illegal to levy a tax on the importer when an equal tax was not levied on similar goods produced in the State. The decision was later confirmed on this point in State of M. P. v. Bhailal Bhai, 1964-6 SCR 261   = (AIR 1964 SC 1006  ). The appellants did not take recourse to the provisions of Article 226 of the Constitution but filed their suits on December 21, 1957.The suits were opposed by the State on the main ground that such a suit was barred by the provisions of Section 17 of the Act whichBar to certain proceedings.Save as is provided in Section 17, no assessment made and no order passed under this Act or the rules made thereunder by the assessing authority, appellate authority or the Commissioner shall he called into question in any Court, and save as is provided in Sections 11 and 12 no appeal or application for revision shall lie against any such assessment orState also pleaded that as appeals against the assessment were pending before the Sales Tax Appeal Judge the plaintiffs were not entited to file the suits. By his judgment the District Judge following State of Tripura v. Province of East Bengal, AIR 1951 SC 23   and 1960 MPLJ 601     held that such a suit lay when a declaration was sought that the provisions of law relating to an assessment were ultra vires and demand was made for refund of amounts illegally collected under it. On the second point the District Judge held that Section 21 of the Act, which allows the Commissioner or the appellate authority to order refund of tax wrongly paid did not apply since no such appeal was proved to have been filed and the tax was not wrongfully paid but wrongfully realised.On appeal by the State the High Court reversed the decision. Before the High Court it was conceded (as it is conceded even now) that the tax could not be imposed in view of the bar of Article 301. The short question thus was whether the suit was barred expressly by Section 17 of the Act or any implication arising from the Act. The contention on behalf of the appellants was that if it was a question of the correctness of the imposition within the valid framework of the statute, rules or notifications Section 17 might have operated but not when the imposition was under a void law. In the latter event the assessee was free to challenge the validity of the law in a civil suit and also to claim a refund.The High Court considered the matter in the light of the decisions of the Judicial Committee in Raleigh Investment Co. v. G. G. in Council, AIR 1947 PC 78  , Secretary of State v. Mask and Co., AIR 1940 PC 105  , Firm I. S. Chetty and Sons v. State of Andhra Pradesh, AIR 1964 SC 322  , State of Andhra Pradesh v. Firm Subbayya and Sons, AIR 1961 Andh Pra 512, and others, and came to the conclusion that the suit was incompetent. The High Court conceded that both aspects of the case were well supported by authority. It is not necessary to enter into the reasons which weighed with the High Court because our discussion of the authorities in this judgment will clearly expose the rival views and the one preferred in the High Court.The question that arises in these appeals has been before this Court in relation to other statutes and has been answered in different ways. The appeals went before a Divisional Bench of this Court in view of the difficulty presented by the earlier rulings of this Court, they were referred to the Constitution Bench and that is how they are before us.

Court's reasoning:
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 Art. 304 (a), That required that similar goods manufactured or produced in Madhya Bharat had to bear an equal tax. Such equal tax was not imposed hence the notifications were struck down as making discrimination and rendering trade and commerce unfree. This was the effect of Bhailals case, 1960 MPLJ 601.  No doubt the Madhya Bharat Sales Tax Act contained provisions for appeal, revision, rectification and reference to the High Court, the notifications being declared void the party could take advantage of the fact that tax was levied without a complete charging section. This affected the jurisdiction of the tax authorities because they could not even proceed to assess the party. The question was one falling in category No.3 and 4 rather than in category No.2 above. It was directly covered by the decision of this Court in Venkatuamans case, 1966-2 SCR 229   = (AIR 1966 1089) read with Circos Coffee Co., 1967-19 STC 66   (Sc) and Senthilanthan Chettiriars case, C. A. No. 1045 of 1066, D/-20-7-1967 (SC) already referred to. We would have consider this matter again if Venkataramans case, 1966-2 SCR 229  = (AIR 1966 SC 1089  ) had been doubted before but it seems to have been followed in the last mentioned case and Pabbojan Tea Companys case, AIR 1968 SC 271  . If Kamla Mills Ltd. Case, 1966-1 SCR 64   = (AIR 1966 SC 249  ) had not expressly left the question open we would have applied the earlier case of the Special Bench but as it is we are bound not by the Special bench decision but by Venkataramans case 1966-2 SCR 229  = (AIR 1966 SC 1089  ). We must therefore allow these appeals with cost. The judgment of the High Court is set aside and suits are decreed. The order for costs shall be as in the suit. The costs in the High Court shall be borne as incurred.