Central Potteries Ltd vs State of Maharashtra and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 205 of 1961

Decision Date: 30 March 1962

Coram: Bhuvneshwar P. Sinha, P. B. Gajendragadkar, K. N. Wanchoo, N. Rajagopala Ayyangar, T. L. Venkatarama Aiyar

In the case titled Central Potteries Ltd versus State of Maharashtra and others, the Supreme Court of India delivered its judgment on the thirtieth day of March, 1962. The bench comprised Justice Bhuvneshwar P. Sinha serving as Chief Justice, Justice P. B. Gajendragadkar, Justice K. N. Wanchoo, Justice N. Rajagopala Ayyangar, and Justice T. L. Venkatarama Aiyar. The citation for the decision is recorded as 1966 AIR 932 and 1963 SCR (1) 166, and the matter concerned provisions of the Central Provinces and Berar Sales Tax Act, 1947, particularly sections three, four paragraph one, eight, ten and eleven. The petitioner, Central Potteries Ltd, was a company engaged in the manufacture and sale of pottery and chinaware at Nagpur. The Sales Tax Act for the Central Provinces and Berar had become operative on the first of June, 1947. Subsequently, on the twenty‑seventh of May, 1947, the government issued notifications numbered 597 and 599. Notification 597 stipulated that all dealers who were liable to pay tax under the Act must secure registration by the fifteenth of August, 1947, while notification 599 appointed the District Excise Officer as the Sales Tax Officer responsible for receiving registration applications and issuing the corresponding certificates. Central Potteries Ltd submitted an application for registration to the designated officer, and a certificate of registration was formally issued on the twenty‑first of July, 1947. However, the certificate was not physically delivered to the company until the thirteenth of September, 1947. After receiving the certificate, the company duly filed periodic returns and remitted the required taxes up to the thirtieth of June, 1951. In December of 1951, the company instituted a suit challenging the authority of the Sales Tax Officer who had issued the registration certificate, alleging that the officer lacked statutory authority under the Act and that the subsequent tax demands were therefore illegal and void. The trial court observed that the certificate had been delivered after the rules were finally published on the fifteenth of August, 1947, and held that any irregularity in the issuance of the certificate was cured by the delivery; further, the court found that the company’s liability to pay sales tax was not contingent upon the validity of the registration under section eight. On appeal, the High Court held that the question of whether the registration under section eight was valid did not require determination, because even if the registration were invalid, the company’s liability to be assessed for sales tax remained unaffected; consequently, the High Court dismissed the appeal. The appellant then filed a certificate of appeal before the Supreme Court, raising the issue of whether the company was exempt from liability under the Central Provinces and Berar Sales Tax Act of 1917 on the ground that it had not been validly registered as a dealer pursuant to section eight. Held, that the

The Court affirmed that the High Court was correct in holding that the appellant remained liable to pay the tax imposed by the Central Provinces and Berar Sales Tax Act regardless of the validity of its registration under section 8. The statutory liability arose under section 4, which is the charging provision of the Act, and that liability was not conditioned upon the dealer’s having a valid registration certificate. Accordingly, a dealer who obtains a registration certificate that later proves invalid cannot be placed on a different footing from a dealer who never obtained any certificate at all. The provisions of sections 8 and 11, which deal with the procedure for registration, do not in any manner affect the substantive tax liability that is created by section 4. The Court further explained that a clear distinction must be drawn between a complete lack of jurisdiction and an irregular assumption of jurisdiction. An order issued by an authority that wholly lacks jurisdiction over the subject matter is a nullity and may be attacked collaterally. By contrast, an order issued by an authority that does possess jurisdiction but has assumed it in a manner not prescribed by law is not a nullity; such an order may be questioned within the very proceedings in which it was made, but it remains valid and is not open to collateral attack.

Consequently, even if assessment proceedings were initiated against a dealer who was not registered and the assessors failed to serve a notice required by section 10(1), that failure would amount only to an irregularity in the way jurisdiction was assumed. The assessment order issued in those proceedings would still be deemed to have been made within jurisdiction and therefore could not be set aside on the ground that section 10(1) had been omitted. No suit lies to impeach the assessment on that basis. The judgment further recorded the appellate context: the appeal was filed under civil appellate jurisdiction as Civil Appeal No. 205 of 1961, challenging the judgment and decree dated 16 June 1959 of the Bombay High Court (Circuit Bench) at Nagpur in FA No. 32 of 1955. Counsel for the appellant and for the respondents were identified, and the appeal was decided on 30 March 1962 by Justice Venkatarama Aiyar. The sole question for determination was whether the appellant could be exempted from liability under the Central Provinces and Berar Sales Tax Act, 1947 (Act 21 of 1947), on the ground that it had not been validly registered as a dealer under section 8. The factual backdrop noted that the Act received the Governor‑General’s assent on 23 May 1947 and came into force on 1 June 1947, and that a notification dated 27 May 1947 had been issued pursuant to the provisions of the Act.

The Provincial Government issued Notification No. 601, publishing draft rules that it proposed to make under the authority of section 28 of the Act, and the final rules were subsequently published on August 15 1947. Earlier, on May 27 1947, the Government had also issued Notifications No. 597 and No. 599. Notification 597, issued under section 8 of the Act, fixed August 15 1947 as the date by which every dealer liable to pay tax under the Act must register. Notification 599, issued under section 3 of the Act, designated the District Excise Officers as Sales Tax Officers responsible for receiving registration applications and issuing certificates under section 8. The appellant was a company engaged in manufacturing and selling pottery chinaware in Nagpur. Pursuant to the aforementioned notifications, the company submitted an application for registration as a dealer to the Sales‑Tax Officer on July 2 1947. The Sales‑Tax Officer issued a registration certificate on July 21 1947, and the certificate was actually delivered to the company on September 13 1947. After receiving the certificate, the company regularly filed tax returns as required by the Act, assessments were made, and it paid the assessed taxes for each month from June 1 1947 through June 30 1951. Some time later the company concluded that the proceedings initiated by the respondents under the Act were unauthorised. It further held that the assessments were illegal and that it was therefore entitled to a refund of the taxes it had already paid. Consequently, on December 18 1951, the company instituted the suit before this Court, seeking a refund of Rs 6,650‑11‑9 representing the sales tax paid for the period June 1 1947 to June 30 1951. It also claimed Rs 2,000 as damages, bringing the total relief claimed to Rs 8,650‑11‑9.

Although the suit raised several grounds, the Court needed to consider only one ground, namely that the Sales‑Tax Officer who issued the registration certificate on July 21 1947 lacked legal authority under the Act. Consequently, the company argued that all subsequent assessments and tax recoveries were illegal and void. The company based this contention on section 3(1) of the Act, which empowers the State Government to appoint a Commissioner of Sales Tax. The provision also allows the Government to appoint “such other persons under any prescribed designations” to assist the Commissioner as it deems appropriate. By Notification No. 595 dated May 27 1947, the Government exercised the power conferred by section 3(1). It appointed the Excise Commissioner of the Central Provinces and Berar as the Commissioner of Sales Tax for the Central Provinces and Berar. The validity of Notification No. 595 is not in dispute before this Court. The company’s attack is directed at Notification No. 599, also dated May 27 1947. In that notification the Government, acting under section 3 of the Act, directed that the District Excise Officers shall serve as Sales Tax Officers. Their role was to handle the registration of dealers under section 8. The company argues that the term “prescribed” is defined in section 2(e) as meaning “prescribed by rules made under this Act”. Since the final rules only came into force on August 15 1947, the appointment of District Excise Officers as Sales Tax Officers on May 27 1947 contravened section 3(i). Therefore, the company contends that the registration certificate issued on July 21 1947 was void.

The notification issued on May 27 1947 stated that the officers who were in charge of the districts would act as Sales Tax Officers for the purpose of issuing registration certificates under section 8 of the Act. It was argued that section 3(1) gave the Government the power to appoint “other persons under any prescribed designations” and that the term “prescribed” was defined in section 2(e) to mean “prescribed by rules made under this Act”. Because the tariff rates were only brought into effect on August 15 1947, the argument continued, the appointment of District Excise Officers as Sales Tax Officers for the purpose of section 8 on May 27 1947 contravened section 3(1). Consequently, the registration certificate that was issued on July 21 1947 by an officer appointed under that notification was claimed to be void.

The Civil Judge of Nagpur who tried the suit observed that the registration certificate had actually been delivered to the appellant on September 13 1947, which was after the rules had been finally published on August 15 1947. The judge held that any irregularity in the original issuance of the certificate on July 21 1947, if it existed, was cured by the later delivery of the certificate after the rules came into force. The judge further held that the appellant’s liability to pay sales tax was not affected by the alleged invalidity of the registration under section 8. Accordingly, the judge dismissed the suit and awarded costs.

The appellant appealed this decision to the High Court of Nagpur. The appeal was heard by a Bench of the Bombay High Court after being transferred under the States Reorganisation Act. The learned judges held that it was unnecessary to decide whether the appellant’s registration as a dealer under section 8 of the Act was valid, because even if the registration were invalid, it would not affect the appellant’s liability to be assessed for sales tax. On that basis, the bench dismissed the appeal with costs, but it granted a certificate under section 109 of the Code of Civil Procedure and Article 132(2) of the Constitution.

In this judgment, it was agreed that the High Court was correct in concluding that the appellant was liable to pay tax under the Act irrespective of the validity of the registration under section 8. The liability arose under section 4, which is the charging provision. Section 4 reads as follows: “In Madhya Pradesh, excluding the merged territories, every dealer whose turnover during the year preceding the commencement of this Act exceeds the taxable quantum shall be liable to pay tax in accordance with the provisions of this Act on all sales effected after the commencement of this Act.” This liability is not dependent on the dealer’s registration under section 8. Section 8(1) provides that no dealer shall, while being liable to pay tax under this Act, carry on business as a dealer unless he has been registered as such and possesses a registration certificate. Section 11(i) further provides that “If the Commissioner is satisfied that the returns furnished by a registered dealer in respect of any period are correct and complete, he shall assess the dealer on them.”

These statutory provisions do not, in any manner, alter the substantive liability that is imposed by section 4 on a dealer. A dealer who fails to obtain registration is nonetheless subject to section 8(1) and may forfeit the advantage granted by section II(1), but the Act does not place such a dealer in a more favorable position than a dealer who has complied with section 8(1), nor does it relieve him of the obligation to pay tax under section 4. The situation of a dealer who possesses a registration certificate that later proves to be invalid cannot, on principle, be distinguished from that of a dealer who never obtained a certificate at all. The appellant argued that the procedural steps for assessment should differ depending on whether the dealer is registered. It was pointed out that, under section 10(1), every registered dealer is required to file returns for assessment, whereas a dealer who is not registered becomes liable to file a return only if the Commissioner, by a notice issued in the prescribed manner, requires him to do so. Rule 22, made under section 14(1), provides that if the Commissioner believes that a non‑registered dealer is liable to pay tax, he may issue a notice in the prescribed form requiring the dealer to furnish returns. The appellant contended that the Sales Tax Officer’s jurisdiction to initiate assessment against non‑registered dealers depends on the issuance of such a notice; because no notice was served to the appellant, the assessment proceedings should be considered incompetent if the registration certificate is invalid. The Court found no merit in this contention. The authority to make assessments flows from sections 3 and II of the Act, not from section 10, which is purely procedural. Moreover, the appellant himself had voluntarily filed returns under section 10(1), and the assessments were made on the basis of those returns; consequently, it is untenable for the appellant to argue that the proceedings based on his own returns lack jurisdiction. The Court further observed a fundamental distinction between a complete lack of jurisdiction and an irregular assumption of jurisdiction. An order passed by an authority that has no jurisdiction at all is a nullity and can be attacked collateral. In contrast, an order issued by an authority that possesses jurisdiction but has exercised it in a manner not prescribed by law is not a nullity; it may be challenged within the appropriate proceedings but is not open to collateral attack. Accordingly, even if assessment proceedings were initiated against a non‑registered dealer without a notice under section 10(1), such omission represents only an irregularity in the assumption of jurisdiction, and the assessment order remains valid and cannot be set aside on the ground that section 10(1) was not complied with. This conclusion is reinforced by the fact that the appellant himself submitted to the jurisdiction by filing a return.

The Court observed that when an assessment is made against a dealer without a notice under section 10(1) of the Act, the defect is only an irregularity in assuming jurisdiction. Such an irregularity does not render the assessment order void, and consequently no suit can be maintained on the ground that section 10(1) was not complied with. The Court held that this principle applies a fortiori when the appellant itself has voluntarily submitted to the authority’s jurisdiction by filing a return. Accordingly, the Court agreed with the learned judges that even if the appellant’s registration as a dealer under section 8 were defective, that defect does not affect the validity of the assessment proceedings. The defect in registration likewise does not affect the tax liability that was imposed as a result of the assessment. The Court also noted that section 21 of the Act expressly bars civil courts from entertaining suits that question any orders issued under the Act. In view of that statutory bar, the Court found it unnecessary to examine whether the present suit was maintainable under section 21. Having considered all submissions, the Court concluded that the appeal possessed no merit and therefore ordered its dismissal, directing the appellant to bear the costs of the proceedings.