Firm And Illuri Subbayya Chetty And Sons vs The State Of Andhra Pradesh

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 315 of 1962

Decision Date: 25 January 1963

Coram: P.B. Gajendragadkar, Bhuvneshwar P. Sinha, K.N. Wanchoo, M. Hidayatullah, J.C. Shah

In this case, the Supreme Court of India recorded that the petitioner, the firm named Illuri Subbayya Chetty and Sons, had instituted a suit against the State of Andhra Pradesh seeking a decree for the sum of eight thousand three hundred thirty‑nine rupees. The plaintiff alleged that the amount claimed by the State had been collected from the firm in violation of the Madras General Sales Tax Act of 1939 for the fiscal years 1952 to 1954. The State, relying upon section eighteen‑A of the same Act, contended that the suit was incompetent because that provision barred civil courts from entertaining actions that sought to set aside or modify any assessment made under the statute.

The matter proceeded before the trial court, which initially decreed in favour of the plaintiff. Upon appeal, the High Court reversed that decision, holding that section eighteen‑A expressly excluded the jurisdiction of civil courts to entertain the suit, and alternatively finding that the plaintiff’s claim was not justified on the merits. The plaintiff then obtained special leave to appeal to the Supreme Court. On the merits, the State argued that the transactions involving groundnuts, for which sales tax had been levied and collected, were purchases rather than sales and therefore fell outside the definition of taxable transactions under the Act. The State further asserted that the plaintiff had voluntarily filed returns and paid the tax, thereby acknowledging the taxable nature of the transactions, and that the plaintiff had not filed any appeal to either the Deputy Commissioner of Commercial Taxes or the Sales Tax Appellate Tribunal to contest the assessments. Consequently, the State maintained that the suit could not be entertained.

The Supreme Court examined the scope of section eighteen‑A and held that the provision unambiguously excluded the jurisdiction of civil courts to set aside or modify any assessment made under the Madras General Sales Tax Act. The Court observed that there was no separate provision within the Act that authorized the filing of a civil suit for that purpose, and therefore the suit fell squarely within the prohibition contained in section eighteen‑A. The Court emphasized that the prohibition was clear and absolute, and that a civil court could not entertain a suit when the plaintiff’s objective was to overturn or alter an assessment made under the statute. The Court further noted that any challenge to the correctness of an assessment, or any attempt to have it set aside or modified, had to be made before the appellate or revisional forum prescribed by the Act, and that a suit instituted for that purpose was barred by section eighteen‑A.

In its decision, the Court referenced the citations 1964 AIR 322, 1964 SCR (1) 752, and other reported authorities, and recorded the bench comprising Chief Justice P B Gajendragadkar, Justice Bhuvneshwar P Sinha, Justice K N Wanchoo, Justice M Hidayatullah, and Justice J C Shah. The judgment dated 25 January 1963 affirmed that the civil suit filed by Illuri Subbayya Chetty and Sons was incompetent under the explicit terms of section eighteen‑A of the Madras General Sales Tax Act, 1939, and consequently could not proceed in the civil court system.

In this case, the Court explained that once an appropriate authority issued an assessment under the provisions of the Act, any challenge to the correctness of that assessment and any attempt to have it set aside or modified had to be presented before the appellate or revisional forum that was prescribed by the relevant provisions of the Act. A suit filed for that purpose was therefore barred by section 18‑A. The appellant had made voluntary returns and had paid the tax in advance, intending that the amount would be adjusted at the end of the year. By doing so, the appellant treated the groundnut transactions as taxable and expressly conceded their taxable character. Because the appellant accepted that the transactions were taxable, the tax authorities never needed to decide whether the transactions could be taxed. Even after the assessment orders were issued, the appellant did not file an appeal nor did it argue before the appellate authority that the transactions were sales transactions and hence fell outside the scope of section 5A(2). The Court observed that when an order of assessment is made by a taxing authority in a situation where the taxable character of a transaction is contested, that order becomes final and cannot be attacked in a civil court by a separate suit. The same principle applied when the dealer himself accepted the assessment for the purposes of the Act and later instituted a suit to set aside or modify it. The phrase “any assessment made under this Act” was held to be sufficiently wide to include every assessment made by the appropriate authorities, irrespective of whether the assessment was correct. The activity of the assessing officer, acting within his jurisdiction under the Act, was what the provision sought to capture; consequently, once the officer issued an order of assessment, that order fell squarely within the ambit of section 18‑A. The Court further noted that the fact that an assessment might be erroneous did not change the legal character of the order as an assessment made under the Act, because the correctness of the order did not determine whether it was an assessment. A general presumption existed that a citizen could obtain a remedy in ordinary civil courts when an amount had been illegally recovered, and such a remedy would be excluded only when a statute gave a clear and unambiguous indication to the contrary. The Court stressed that the jurisdiction of civil courts could not be assumed to be barred unless the relevant statute contained an express provision to that effect or led inevitably to that implication. The mere existence of a special statute providing particular remedies did not, by itself, exclude the jurisdiction of civil courts.

In this case the Court observed that the existence of a special statute did not automatically preclude the ordinary civil courts from exercising jurisdiction over matters that were, in part, covered by that statute. The Court held that there was no justification for the assumption that a decision made by a taxing authority under the provisions of a taxing statute could be challenged in a civil suit merely on the ground that the decision was incorrect on its merits, thereby rendering the statutory provisions inapplicable. According to the Court, non‑compliance with a statute had to relate to those fundamental provisions whose breach would render the entire proceeding before the appropriate authority illegal and devoid of jurisdiction. Moreover, if an authority acted in violation of the essential principles of judicial procedure, such a violation could render the proceeding illegal and void, consequently affecting the validity of the order issued by that authority. The Court further noted that when a defect or infirmity in an order struck at the very root of the order, making it legally invalid and void, these observations could be invoked to support the proposition that a civil court retained the power to entertain the matter despite any contrary provision contained in the relevant statute. In arriving at this conclusion the Court relied upon Secretary of State v. Mask & Co. (1940) 67 I.A. 222 and Reliegh Investment Co. Ltd. v. Governor General in Council (1947) 74 I.A. 50, and expressly overruled the earlier decision of State of Andhra Pradesh v. Sri Krishna Coconut Co. (1960) 1 Andhra W.R. 279. The judgment was rendered in Civil Appeal No. 315 of 1962, which had been taken on special leave from the Andhra Pradesh High Court order dated 16 November 1960 in A.S. No. 397 of 1957. Counsel for the appellant, a firm of merchants, and counsel for the respondent, the State of Andhra Pradesh, appeared before the Court, which delivered its judgment on 25 January 1963 through Justice Gajendragadkar. The principal question before the Court was whether the suit instituted by the appellant, Firm of Illury Subbayya Chetty & Sons, in the Subordinate Judge’s Court at Kurnool, seeking recovery of Rs 8,349 from the State of Andhra Pradesh on the ground that the amount had been illegally collected under the Madras General Sales Tax Act, 1939 (the “Act”) for the years 1952‑54, was competent. This question required interpretation of the scope and effect of section 18‑A of the Act. The appellant, described as a firm engaged in commission agency and related business in Kurnool, purchased and sold ground‑nuts and other goods on behalf of principals for commission. For the financial year 1952‑53 the sales‑tax authorities had, according to the appellant’s plaint, included in its taxable turnover an amount of Rs 3,45,488/12/10 representing

In the year 1952‑53 the sales‑tax authorities had taken the amount of Rs. 3,45,488/12/10 to represent the appellant’s turnover from groundnut sales and had collected tax on the whole turnover in September 1953 when the tax liability was fixed and duly adjusted. The turnover of Rs. 3,45,488/12/10 actually represented sales of groundnuts and not purchases, and the tax that was recovered from the appellant on that amount was therefore illegal because the Act imposed tax only on the purchase of groundnuts. As a consequence of this illegal levy the appellant was compelled to pay Rs. 5,398/4/3 for that financial year. In the following year, 1953‑54, the appellant likewise incurred an illegal tax demand of Rs. 1,159/11/9. In its plaint the appellant sought recovery of the total of these amounts together with interest calculated at twelve per cent per annum, and the claim was therefore valued at Rs. 8,349/‑.

The respondent opposed the suit on two principal grounds. First, it contended that the suit was incompetent pursuant to the provisions of section 18‑A of the Act. Second, on the merits it asserted that the transactions involving groundnuts on which the sales tax had been levied and collected were transactions of purchase rather than of sale. To support this contention the respondent pointed out that the appellant itself had disclosed the disputed transaction in the return filed in Form A and that the appellant had been making tentative monthly payments which were to be adjusted after the final assessment at the end of the year. Accordingly, the final adjustment was made in September and the total amount due from the appellant had been recovered. The respondent argued that because the appellant had voluntarily filed the return and paid the taxes, it could not now claim that the groundnut transactions were not taxable under the Act. Further, the respondent observed that the appellant had not filed an appeal either to the Deputy Commissioner of Commercial Taxes or to the Sales Tax Appellate Tribunal, and therefore had not availed itself of the remedies provided by the Act.

The trial court identified three principal issues for determination. The first issue was whether the suit was barred by section 18‑A of the Act. The second issue concerned whether there had been excess collection of sales tax for the two years in question and, if so, the quantum of the excess. The third issue was whether the appellant was estopped from challenging the validity of the assessment. After hearing the parties, the trial court held that the respondent had failed to prove its defenses and consequently recorded findings in favour of the appellant on all three issues. The court then granted a decree in favour of the appellant for recovery of Rs. 6,558 together with interest at six per cent per annum from 12 November 1955 until the date of payment. The respondent appealed this decree before the High Court of Andhra Pradesh.

Shri Krishna Coconut Co. (1) supported the view taken by the trial court, but the respondent contended before the High Court that the trial‑court decision was legally erroneous and required reconsideration. Consequently, the respondent’s appeal was placed before a Full Bench of the High Court. The Full Bench upheld the respondent’s contentions and held that, in view of the provisions of section 18‑A of the Act, the suit was incompetent. Alternatively, the Bench found that, on the merits, the appellant’s claim was not justified. As a result of these findings, the High Court allowed the respondent’s appeal and dismissed the appellant’s suit, giving judgment in favor of the respondent and ordering costs, as reported in Shri Krishna Coconut Co. (1) (1960) 1 Andhra W.R. 279. The appellant then filed cross‑objections seeking additional interest on the decretal amount, but because the High Court had held the suit to be incompetent, those cross‑objections were rejected and dismissed with costs. The appellant has now approached this Court by way of special leave. Counsel for the appellant, Mr Ranganathan Chetty, argues that the High Court erred in concluding that the suit was incompetent, maintaining that the High Court misinterpreted the effect of section 18‑A. He stresses that when determining whether civil‑court jurisdiction to entertain a suit is barred, one must start from the general presumption that an ordinary civil remedy is available to a citizen who claims that an amount has been recovered illegally, and that such a remedy can be barred only by clear and unmistakable indication to the contrary. The exclusion of civil‑court jurisdiction will not be assumed unless the relevant statute contains an express provision to that effect, or leads to a necessary and inevitable implication of that nature. He further observes that the mere existence of a special statute providing certain remedies does not automatically exclude the jurisdiction of civil courts over matters that fall within the ambit of that statute. Accordingly, it is necessary to examine whether section 18‑A expressly, or by necessary implication, removes the civil court’s jurisdiction to entertain a suit such as the present one. Section 18‑A states that 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. It is common ground that the Act contains no express provision under which the present suit could be said to have been filed, and therefore the suit falls within the prohibition contained in this section. The prohibition is express and unambiguous, and, on a fair construction of the section, a civil court cannot entertain a suit if, by instituting the suit, the plaintiff seeks to set aside or modify an assessment made under the Act.

In this case the plaintiff sought to set aside or modify an assessment made under the Act, and the Court observed that there was no difficulty in holding that section 18‑A expressly excluded the jurisdiction of civil courts over suits falling within its scope. Nevertheless, counsel for the plaintiff argued that if an assessment order had been made illegally by the appropriate authority while purporting to exercise powers under the Act, such an order could not be characterised as an “assessment made under this Act”. He relied on the wording “any assessment made under this Act” and contended that the section did not apply to assessments that were only purported to have been made under the Act. To support this position, he referred to the provisions of section 17(1) and section 18, both of which speak of acts done or purporting to be done under the Act. The Court noted, however, that the subject‑matter of sections 17(1) and 18 clearly required reference to both acts actually done and acts merely purporting to be done. Section 17(1) was intended to bar certain proceedings, and section 18 to provide indemnity; consequently the legislature employed the usual phrasing of “acts done or purporting to be done”. It was therefore unnecessary to add a special reference to “assessments purporting to have been made” while drafting section 18‑A, because all assessments made under the Act, irrespective of their correctness, would fall within the ambit of section 18‑A. The Court held that the expression “any assessment made under this Act” is sufficiently wide to include every assessment issued by the appropriate authority, whether the assessment is correct or erroneous. The protection is directed at the activity of the assessing officer acting in his official capacity; once it is shown that the officer exercised his jurisdiction under the Act and issued an assessment order, that order is covered by section 18‑A even if it later proves to be wrong. The correctness or accuracy of the order does not affect its legal character as an assessment made under the Act. Accordingly, the sole question in applying section 18‑A is whether the assessment sought to be set aside or modified by the suit is an assessment made under the Act, and it would be anomalous to limit the provision only to accurate and correct assessments.

In the present case the Court observed that the assessments whose validity was challenged by the appellant were clearly covered by section 18‑A of the statute. Accordingly, the Court emphasised that although section 18‑A bars the filing of ordinary civil suits against assessments, the legislature deliberately incorporated a range of alternative remedies to protect the rights of citizens. The Act, in fact, provides a comprehensive scheme of recourse: Section 11 authorises appeals to any authority that may be prescribed; Section 12 vests revisional jurisdiction in the authorities specified therein; Section 12‑A permits an appeal to the appellate Tribunal; Section 12‑B allows a High Court to intervene in specific cases; Section 12‑C provides for a direct appeal to the High Court; and Section 12‑D mandates that any petition, application or appeal to the High Court be heard by a bench of at least two judges. Moreover, a dissatisfied party may approach this Court by way of a petition under Article 130 of the Constitution. The Court therefore held that any dealer who is aggrieved by an assessment order relating to his transactions may avail himself of the remedies enumerated in these provisions. In light of these alternative avenues, the scope and effect of section 18‑A must be interpreted to require that any challenge to the correctness of an assessment, or any attempt to have it set aside or modified, be made before the appellate or revisional forum expressly provided for in the Act. A suit filed in a civil court for that purpose would be barred by section 18‑A. The Court then turned to the facts advanced by the appellant, noting that they were unusual. The appellant had voluntarily filed returns under the Act and had expressly included its groundnut transactions as taxable. It had never alleged that those transactions were sales that should be exempt from tax. Under section 5A(2) groundnut becomes liable to tax under section 3(1) at the point of its first purchase in the State by a dealer who is not exempt under section 3(3), the tax being levied at a rate of two per cent on the dealer’s turnover. By making voluntary returns and paying the tax in advance, the appellant treated the groundnut dealings as taxable under section 5A(2). Consequently, the appellant had conceded the taxable nature of the transactions, leaving no occasion for the assessing authority to decide whether the transactions were taxable. Even after the assessment orders were issued, the appellant chose not to file an appeal or to raise any contention that the transactions should be excluded from tax under the Act.

In the earlier proceedings the appellant had not submitted to the appellate authority that the transactions in question were sales and therefore fell outside the scope of section 5A(2). The Court observed that, had the appellant raised the contention that those transactions were beyond the ambit of the Act and the taxing authority had initially rejected that argument, the authority’s decision would have become final, subject only to the statutory provisions for appeals and revisions contained in the Act. Because the appellant never advanced such a contention during the assessment proceedings, the Court held that the appellant could not now claim a better position. The Court further explained that when a taxing authority issues an order under the relevant provisions of the Act in a case where the taxable nature of a transaction is contested, that order is final and cannot be attacked by filing a separate civil suit. The same principle applies even when the dealer does not dispute the taxable character of the transaction, accepts the order for purposes of the Act, and later files a suit seeking to set aside or modify that order.

The Court turned to the broader question of whether special statutes expressly exclude the jurisdiction of civil courts to entertain civil actions. It noted that this issue had been examined repeatedly by the judiciary. The Court referred to two decisions of the Privy Council for guidance. In the case of Secretary of State v. Mask & Coy., the Privy Council considered the effect of section 188 of the Sea Customs Act (VIII of 1878). That section declares that every order passed on appeal under it shall be final, subject only to the power of revision under section 191. The Privy Council observed that the exclusion of civil‑court jurisdiction is not to be presumed lightly; such an exclusion must be either expressly stated or clearly implied in the statute.

Lord Thankerton, delivering the opinion of the Board, added that even when a statute excludes jurisdiction, civil courts retain the authority to examine cases where the statutory provisions have not been complied with or where the statutory tribunal has failed to act in accordance with the fundamental principles of judicial procedure. The Court stressed that these observations, although expressed in broad terms, do not support the assumption that a decision made by a taxing authority under the relevant taxing law can be challenged in a civil suit on the ground that the decision is wrong on its merits or that the statute has not been complied with. The Court concluded that any claim of non‑compliance with the statutory provisions, as mentioned by the Privy Council, must involve a breach of fundamental provisions that render the entire proceeding before the authority illegal and without jurisdiction.

The Court explained that a failure to comply with those essential provisions of a statute that render the entire proceeding before the appropriate authority illegal or beyond its jurisdiction would constitute a fundamental breach of the law. In the same way, when the authority acted contrary to the basic principles of judicial procedure, such misconduct could render the proceedings illegal and void, and that defect could affect the validity of the order issued by that authority. The Court noted that in situations where the defect or infirmity strikes at the very root of the order, making the order legally invalid and void, those observations could be invoked to support a plea that a civil court retains jurisdiction even though the relevant statute appears to exclude it. However, the Court said that it was unnecessary to decide in the present appeal exactly when such a plea might succeed, because it was already clear that the appellant’s claim that the assessing authority’s decision was wrong on the merits could not be the subject of a suit; section 18‑A expressly barred such a claim in civil courts.

The Court then turned to a decision of the Privy Council in Releigh Investment Coy. Ltd. v. Governor‑General in Council. That case required consideration of the effect of section 67 of the Indian Income‑tax Act. Section 67, inter alia, provided that no suit could be brought in any civil court to set aside or modify any assessment made under that Act. The Court observed that the wording of section 67 was identical to the wording of section 18‑A that was presently in issue. In interpreting section 67, the Privy Council examined the overall scheme of the Act, focusing particularly on the procedural machinery that the Act supplied to allow an assessee to raise in court the question of whether a specific provision of the Income‑tax Act, which formed the basis of the assessment, was ultra‑vires. The presence of that machinery, the judgment observed, albeit not conclusively, supported a construction of the section that denied an alternative jurisdiction to inquire into the same subject‑matter.

The Court further reported that the Privy Council held that even the constitutional validity of a taxing provision could be challenged by using the procedure laid down in the Income‑tax Act. That assumption seemed to rest on the premise that if an assessee wished to contest the vires of the taxing provision on which an assessment was made, the assessee could raise the issue before the taxing authority and, if necessary, seek a decision from the High Court under section 66 (1) of the Act. The present Court stated that it was not required to pass judgment on whether that assumption was well founded. Nevertheless, it emphasized that the existence of an alternative procedural avenue—namely, the appeal mechanisms provided by the statute—constituted a relevant consideration, and that consideration was satisfied by the Act that was the subject of the present appeal.

The Court observed that when a statute expressly equips a party who is dissatisfied with an assessment order with a right to challenge that order on its merits, that statutory provision becomes a material factor in the consideration of the case. The Court further held that the statute under review in the present appeal satisfies this requirement, thereby meeting the relevant consideration. The Court then turned to the expression “assessment made under this Act,” which appears in section 18‑A and is also found in section 67. The Court cited the earlier decisions reported in (1)(1947) 74 I.A. 50 and 68, which were examined by the Privy Council. In construing the said expression, the Privy Council had explained that the phrase “made under this Act” merely indicates the source or provenance of the assessment and does not speak to the correctness of the assessment in a point of law. The Privy Council further clarified that the appropriate test is whether the machinery provided by the statute has been employed, rather than the outcome produced by that machinery. Relying on these two Privy Council decisions, the Court concluded that, given the overall design and scheme of the Act, section 18‑A must be interpreted as excluding the jurisdiction of civil courts to entertain suits of the nature presented before this Court. Consequently, the Court affirmed that the view adopted by the High Court was correct, that the appeal therefore fails, and that the appeal is dismissed. No further order was made in relation to the dismissal of the appeal.