Firm Seth Radha Kishan (Deceased) vs The Administrator, Municipal Committee, Ludhiana

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

Court: supreme-court

Case Number: Civil Appeal No. 45 of 1961

Decision Date: 7 March 1963

Coram: Subba Rao J., Raghubar Dayal, J.R. Mudholkar

In this case the petition was filed by Firm Seth Radha Kishan (deceased), represented by Hari Kishan, against the Administrator of the Municipal Committee of Ludhiana. The judgment was delivered on 7 March 1963 by a bench consisting of Justices Subbarao K., Dayal, Raghubar Mudholkar and J.R. The reported citations for the decision are 1963 AIR 1547 and 1964 SCR (2) 273, with additional references including RF 1966 SC1089 (8), E 1968 SC 271 (12), R 1970 SC1002 (5), RF 1975 SC2238 (2), E&D 1977 SC 955 (23), and R 1979 SC1250 (11, 24A). The statutory framework central to the dispute comprises the Punjab Municipal Act, 1911 (Punj. III of 1911) sections 61, 78, 84, 86, the Punjab Government Notification No. 26443 dated 21 July 1932 which contains items 68 and 69 of its Schedule, and the Code of Civil Procedure, 1908, section 90.

The appellant, a firm engaged in business within the octroi limits of Ludhiana Municipality, imported Sambhar salt into the municipal limits and paid a terminal tax that was levied at the higher rate prescribed in item 69 of the Schedule, although item 68 permits a lower rate for common salt. The firm sued the municipality in the civil court at Ludhiana seeking restitution of the tax paid, asserting that Sambhar salt should be classified as common salt under item 68 and that the higher tax imposed under item 69 was therefore illegal. The civil court held that Sambhar salt fell within the definition of common salt, concluded that the tax imposed under item 69 was unlawful, and consequently found that it possessed jurisdiction to entertain the suit. On appeal, the High Court accepted the classification of Sambhar salt as common salt but ruled that the civil court lacked jurisdiction because the Punjab Municipal Act provided a specific remedy by way of appeal against erroneous tax orders. The present appeal originated from a certificate granted by the High Court. The appellant contended that the municipality had no authority to impose terminal tax on common salt under item 69 and that the civil court therefore retained jurisdiction to entertain the refund suit. The respondent argued that the municipality possessed the power to levy terminal tax on common salt pursuant to the Act, that any error in tax entry could be corrected only through the procedure prescribed by the Act, and that the civil court was devoid of jurisdiction to entertain a suit for the recovery of tax when a specific statutory remedy was available.

In this case the Court held that a statute may expressly or, by necessary implication, bar the jurisdiction of civil courts with respect to a particular matter. The Court explained that merely conferring special jurisdiction on a tribunal for that matter does not, by itself, exclude the jurisdiction of civil courts. It further stated that a statute may specifically vest jurisdiction in civil courts even when there is no explicit exclusion, particularly where the statute creates a liability that did not exist before and provides a special and particular remedy for the aggrieved party; in such circumstances the remedy prescribed by the statute must be pursued. The same principle applies where the statute designates a particular forum in which the remedy may be obtained. Even in those situations the jurisdiction of civil courts is not completely ousted. The Court observed that a suit in a civil court will always be available to question the order of a tribunal created by a statute, even if that order is, expressly or by necessary implication, final, provided the tribunal abuses its power or acts beyond the provisions of the enactment. The Court referred to a series of authorities to illustrate this principle, namely Wolverhamton New Watterworks Co. v. Hawkesford (1859) 6 C. B. (N. S.) 336; Secretary of State v. Mast & Co. (1940) L. R. 67 A. 222; Bhaishankar Nanabhai v. Municipal Corporation of Bombay (1907) 1 L. R. 31 Bom. 604; Zamindar of Ettayapuram v. Sankarappa (1904) 1 L. R. 27 Mad. 483; East Fremantle Corporation v. Annois [1902] A. C. 275; Gaekwar Sarkar of Baroda v. Gandhi Kachrabhai (1903) I.L.R. 27 Bom. 344; Municipal Board, Banares v. Krishna & Co. (1935) I. L. R. 57 All. 916; Municipal Committee, Montgomery v. Sant Singh A. I. R. 1940 Lah. (F. B.) 377; and Administrator, Lahore v. Abdul Majid A. I. R. 1945 Lah. 81. Applying these principles to the present dispute, the Court observed that the liability to pay terminal tax is created by the Punjab Municipal Act and that the Act also provides a specific remedy for any party aggrieved by the enforcement of that liability. Consequently, the aggrieved party may only pursue the remedy set out in the Act and cannot institute a suit in a civil court for the same purpose. The Court noted that sections 84 and 86 of the Act expressly exclude the jurisdiction of civil courts concerning the tax levied or the assessment made under the Act. Moreover, when the Municipal Committee possesses clear authority to levy tax under a particular entry but mistakenly levies tax under an incorrect entry that does not apply to the article, the Committee merely commits an error in fixing the rate of tax payable; this error concerns a question of detail rather than a question of jurisdiction. Such a mistake, the Court held, can be corrected only by the procedure prescribed in the Act. The judgment therefore affirmed that the civil court lacks jurisdiction in the matter and that the remedy must be sought in accordance with the statutory provisions.

The appeal arose before the Court at Chandigarh in Regular First Appeal number thirty of 1952. The appellant was represented by counsel and the respondent by another counsel. The judgment was delivered on 7 March 1963 by Justice Subba Rao. The central issue presented to the Court was whether a civil suit could be filed to obtain a refund of terminal tax that had been collected by a municipal authority under the Punjab Municipal Act of 1911, which the Court referred to as “the Act.” The appellant was described as a firm that had been registered under the Indian Partnership Act and that conducted its business within the territorial limits of the Ludhiana Municipality. The firm imported Sambhar salt into the octroi (customs) limits of the said municipality. The Municipal Committee of Ludhiana imposed a terminal tax on the imported salt, and the appellant paid a total amount of Rs. 5,893/7/0 in respect of that tax between 24 October 1947 and 8 December 1947. According to Punjab Government Notification number 26463 dated 21 July 1932, terminal tax was to be levied under item 68 of the Schedule attached to the notification at the rate of three pies per maund for “salt common,” while item 69 prescribed a rate of ten annas per maund for “salt of all kinds other than common salt.” The Municipal Committee, however, assessed the Sambhar salt at the higher rate prescribed in item 69, asserting that the salt did not fall within the definition of “common salt” under item 68. Consequently, the appellant instituted a suit in the Civil Court of Ludhiana seeking a refund of the tax paid together with interest. The respondent, among other arguments, argued that Sambhar salt was not “common salt” and that the civil court lacked jurisdiction to entertain the suit. The Senior Sub‑ordinate Judge of Ludhiana examined the character of the salt, held that Sambhar salt qualified as “common salt” within the meaning of item 68, found that the tax imposed under item 69 was illegal, and consequently concluded that the civil court possessed jurisdiction to hear the suit.

Upon appeal, the High Court of Punjab considered the matter on the premise that Sambhar salt was indeed “common salt.” Nevertheless, the High Court determined that even assuming this classification, the civil court was not the proper forum for the dispute because the Act expressly provided a specific remedy—an appeal against erroneous orders of the municipal authority. The High Court further opined that the suit was premature, insisting that the appellant should first exhaust the remedies available under the Act before approaching a civil court. Accordingly, the High Court set aside the decree of the Sub‑ordinate Judge and dismissed the suit. The appellant subsequently filed the present appeal by obtaining a certificate of appeal from the High Court. Counsel for the appellant argued that the respondent municipality had no authority to levy terminal tax on “common salt” under item 69 of the Schedule to Notification 26463, and therefore, because the tax had been imposed in contravention of the Act, the civil court should have jurisdiction to entertain the refund claim.

The appellant’s counsel asserted that the civil court lacked jurisdiction to entertain the suit because the respondent possessed authority to impose a terminal tax on common salt under the Act, and because any mistake in the entry imposing such tax could be corrected only in the manner prescribed by the Act. He further contended that a specific remedial procedure existed under the Act for obtaining a refund of tax, which meant that the civil suit was barred. On the other side, the respondent’s counsel argued that the respondent indeed had the power to impose a terminal tax on common salt under the provisions of the Act, that the correction of a tax imposed under an erroneous entry could be effected only according to the procedure laid down in the Act, and that the civil court therefore had no jurisdiction to entertain a suit for the refund of tax when a specific remedy was available under the Act. It is useful at the outset to set out the relevant provisions of the Act. Section 61(2) provides that the Municipal Committee may impose, with the prior sanction of the State Government, any tax that the State Legislature is empowered to impose in the State, subject to any general or special orders that the State Government may make for that purpose. The State Government issued Notification No. 26463 dated 24 July 1932, which was to come into force on 1 November 1932, and which empowered the Municipal Committee to levy a terminal tax at the rates shown in Column 3 of the Schedule annexed to the notification on the articles listed in Column 2 of that Schedule when such articles are imported into or exported out of the municipal limits by rail or by road. The items of interest are items 68 and 69. Item 63 is described as “salt common” and the rate fixed for it is three pies per maund; item 69 is described as “salt of all kinds other than common salt” and the rate fixed for it is rupees ten per maund. Section 78 creates a penalty for any person who brings an article liable to terminal tax into the prescribed limits without paying the tax. Section 84 confers a right of appeal against any levy or refusal to refund tax collected under the Act to the Deputy Commissioner or to any other officer duly empowered by the State Government. Under subsection (2) of Section 84, if, during the hearing of an appeal, a question arises concerning the liability to tax or the principle of assessment and the officer hearing the appeal entertains a reasonable doubt, the officer may, either of his own motion or on the application of any interested person, state the case and refer the matter for the opinion of the High Court; after the High Court renders its opinion on the referred question, the appellate authority must dispose of the appeal in accordance with the High Court’s decision. Section 86 provides that the liability of any person to be taxed may not be questioned in any manner or by any authority other than that provided in the Act, and subsection (2) of that section further provides that no refund of any tax shall be claimed by any person except in accordance with the provisions of the Act and the rules made thereunder. From these provisions it is clear that the power to impose a terminal tax and the corresponding liability to pay that tax are conferred respectively on the Municipal Committee and on the assessee by the Act.

In this case, the Court observed that the power to levy the tax and the corresponding liability on the assessee were both granted by the provisions of the Act. The Act also provided a specific remedy for any person who considered himself aggrieved, allowing that person to challenge the correctness of the levy or to seek a refund. The statute created not only a right of appeal against an order of the municipal committee that either imposed the tax or refused a refund, but also empowered the appellate authority to obtain an authoritative opinion from the High Court on any question relating to liability or to the principle of assessment. Once such an opinion was obtained, the appellate authority was required to decide the appeal in accordance with that opinion. The Court noted that some submissions argued that the decision to refer a question to the High Court was left to the discretion of the appellate authority and that the authority could refuse to make such a reference even when the appeal involved a difficult question. The Court clarified that the issue was not whether a particular officer misused his power, but whether the Act itself supplied a remedy. The Court further stated that it could not be presumed that an officer who entertained a reasonable doubt about liability or about the principle of assessment would deliberately and maliciously refuse to perform his duty; if such a refusal occurred, other statutory remedies remained available. The Act expressly prohibited any authority other than the one named in the statute from deciding questions of tax liability or the right to a refund, thereby making the statute a self‑contained code that conferred a right, imposed an obligation, and prescribed a remedy for the aggrieved party. In that context, the Court raised the question of whether a civil court could entertain a suit for refund of tax wrongfully collected from an assessee, and if so, what limits applied to the civil court’s jurisdiction. The Court then proceeded to examine the relevant principles. Referring to the decision of Willes, J., in Wolverhampton New Waterworks Co. v. Hawkesford, the Court recounted the three categories of statutory liability described therein. The first category involved a liability that existed at common law and was affirmed by a statute that offered a special remedy; unless the statute expressly excluded the common‑law remedy, the plaintiff could choose either the statutory or the common‑law remedy. The second category covered statutes that merely granted a right to sue without prescribing a specific remedy, meaning the plaintiff could only proceed at common law. The third category concerned a liability that did not exist at common law but was created by a statute which simultaneously provided a special and particular remedy.

The Court explained that when a statute creates a liability, the remedy prescribed by that statute must be the one pursued by the aggrieved party. The party could not resort to the procedural route applicable to cases where the liability existed at common law and the statute merely granted a right to sue. In other words, the statutory remedy was exclusive and a civil‑court remedy could not be invoked. This observation was drawn from the passage cited earlier, which stated that the remedy provided by the statute had to be followed and it was not competent for the party to pursue the course applicable to the second class of cases. The principle received approval from the Judicial Committee in the decision of Secretary of State v. Mask and Co. (1). Indian High Courts also adopted the principle and applied it to various facts, for example in Bhaishankar Nanabhai v. The Municipal Corporation of Bombay (2) and in Zamindar of Ettayapuram v. Sankarappa (3). The Court thereby affirmed that once a statute creates a liability, the aggrieved person must rely on the special remedy laid down by that statute and cannot seek relief through an ordinary civil suit.

The Court also referred to an equally settled principle that governs the extent of a civil court’s jurisdiction when a statute both creates a liability and provides a specific remedy. Lord Macnaghten, speaking in East Fremantle Corporation v. Annois (4), observed that the law had been settled for a century: when persons acting in the execution of a public trust performed an act that they were lawfully authorised to do and that act, though properly undertaken, caused a special injury to a particular individual, the injured individual could not maintain a civil action. The only question, according to that authority, was whether the statutory power had been exceeded, with abuse being one form of excess. The principle was illustrated in Gaekwar Sarkar of Baroda v. Gandhi Kachrabhai (5). In that case, the defendants, exercising powers under the Railways Act, constructed a railway whose operation flooded the plaintiff’s land during the rainy season, causing damage. The Railways Act expressly barred any suit for compensation arising from the exercise of those powers and directed that compensation, if any, be assessed under the Land Acquisition Act, 1870. Despite this prohibition, the plaintiff instituted a civil suit for damages, arguing that even if the statutory authority had been abused or exceeded, the appropriate recourse was only under the Land Acquisition Act, not a civil action. The Judicial Committee rejected this argument, describing it as a waste of time and reiterating that it had been repeatedly held that when a person or body possessing statutory authority exceeds or abuses the power conferred, the remedy available to the injured party is an action or suit, not a proceeding for compensation under the statute itself.

In the earlier discussion the Court explained that a statutory scheme may provide a specific remedy for compensation when a statute is breached, but that remedy does not prevent a person from seeking redress in a civil action when the statutory remedy is inadequate. Indian courts, when dealing with municipal legislation, have applied both the principle that a statutory remedy is exclusive for matters covered by the statute and the principle that a civil court may intervene when the municipal authority exceeds its powers. In the case of Municipal Board, Benaras v. Krishna & Co., the court held that a civil suit seeking a refund of an octroi charge cannot be maintained merely on the ground that the goods were not liable to octroi duty or that the assessment was excessive, because the assessment had been made in accordance with the Municipalities Act and the rules framed thereunder. Later, a full bench of the Lahore High Court in Municipal Committee, Montgomery v. Sant Singh considered whether a civil action for injunction could be brought to restrain a municipal committee from demanding a tax from a person who did not own the lorries that formed the taxable subject. The court examined the relevant authorities and pronounced that a special statute may create special remedies and may preclude other remedies only with respect to matters expressly covered by that legislation, not to extraneous matters. It observed that a corporation created by statute is bound to act within the law, and if it acts beyond its charter and attempts to impose the consequences of an unlawful act on an individual, that individual may always seek recourse in the general law of the land. Accordingly, the court concluded that the municipal committee had acted outside the statute because the vehicle tax was payable solely by the owners and not by non‑owners. Subsequently, another full bench of the Lahore High Court in Administrator, Lahore v. Abdul Majid addressed the question of whether a civil court could entertain an injunction to prevent a municipal committee from interfering with the plaintiff’s proposed building when the committee’s refusal to grant sanction under section 193(2) of the Punjab Municipal Act amounted to an abuse of power. Justice Mahajan, speaking for the bench, remarked that the provision of section 225, which makes the commissioner’s decision final, applies only to proceedings that fall within the ambit of the Act. Thus, when an order is issued that lies outside the Act, the clause on finality does not apply, leaving the civil court free to examine the order for ultra vires or arbitrary exercise of power.

The Court observed that when an order is issued that falls outside the scope of the Act, the provisions of section 225 cannot be applied to that order because the order itself is not governed by the Act. The Bench then clarified that there are two categories of situations in which section 225 does not prevent a civil court from scrutinising an order of the municipal committee made under section 193(2) of the Punjab Municipal Act. The first category arises where the committee acts ultra vires, that is, beyond the powers conferred on it by the statute. The second category arises where the committee acts arbitrarily or capriciously, effectively abusing its statutory authority. In this regard, the learned judge pronounced at page 85 that “the remedies given to the subject by a statute are for relief against the exercise of power conferred by a statute but those remedies are not contemplated for usurpation of power under cover of the provisions of the statute. The civil courts are the proper tribunals in those kinds of cases and their jurisdiction cannot be held barred by reason of statutory remedies provided for grievances arising in exercise of statutory powers.” He further noted that the rule that a statute creates a right and simultaneously provides a sole remedy, thereby excluding any other remedy, does not apply in such circumstances. The Court proceeded to summarise the applicable law, stating that under section 9 of the Code of Civil Procedure a court possesses jurisdiction to try all suits of a civil nature except those for which cognizance is expressly or impliedly barred. Consequently, a statute may, either expressly or by necessary implication, exclude the jurisdiction of civil courts with respect to a particular matter. However, merely granting a special tribunal jurisdiction over a matter does not by itself eliminate the jurisdiction of civil courts. A statute may specifically provide for the ouster of civil‑court jurisdiction; even in the absence of such a specific exclusion, if the statute creates a new liability and provides a distinct and particular remedy for the aggrieved party, that statutory remedy must be followed. The same principle would operate if the statute designated a particular forum for obtaining the remedy. Nevertheless, even in those scenarios, the jurisdiction of the civil court is not wholly ousted. A civil suit may always be instituted to challenge the order of a statutory tribunal, even if that order is declared final, whenever the tribunal has abused its power or acted in violation of the Act. Applying these principles to the facts before the Court, it was noted that the liability to pay terminal tax is created by the Act and that a specific remedy is available to a party aggrieved by the enforcement of that liability. As previously indicated, against the order of the municipal committee levying terminal tax an appeal lies to…

The Court observed that the appeal was directed to the Deputy Commissioner and also involved a reference to the High Court. Applying one of the principles earlier articulated, the Court held that a party who is aggrieved may pursue only the remedy that the statute itself provides and may not institute a suit in a civil court for that purpose. The Court pointed out that sections 84 and 86 of the Act expressly exclude the jurisdiction of civil courts with respect to any tax that has been levied or any assessment that has been made under the Act. Nevertheless, counsel for the appellants argued that the levy in question had not been made pursuant to the Act but was instead contrary to its provisions. The Court rejected that contention as lacking any merit. It noted that section 61(2) of the Act specifically authorises the Municipal Committee to levy any tax not enumerated in the Act, provided that such levy has obtained prior sanction from the State Government. The Court further stated that the levy of terminal tax on salt had been sanctioned by the Punjab Government through Notification No 26463 dated 21 July 1932, which set out the rates in column 3 of the schedule annexed to that notification. Reading that notification together with section 61 of the Act, the Court found that the Municipal Committee possessed clear authority to levy terminal tax on salt, irrespective of whether the salt was common or otherwise. Consequently, the Committee had ample power, both under the Act and the State‑issued notification, to impose the tax in question.

The Court explained that the sole dispute concerned the rate of tax payable on the salt brought by the appellant into the jurisdiction of the Municipal Committee. The applicable rate depended on the character of the salt, and determining that characteristic was a necessary step in fixing the correct rate. The Court held that there was no basis for saying that, in ascertaining the nature of the salt, the authorities acted outside the provisions of the Act. Counsel for the appellants further contended that if a municipal committee were to levy terminal tax on an article not liable to tax under the Act, a civil suit would be permissible, and therefore the same legal position should apply when the committee levies tax on an article that falls within an inapplicable entry. The Court rejected this analogy, observing that in the first illustration the municipal committee acted outside the Act, raising a jurisdictional question, whereas in the present case the committee merely erred, if at all, in fixing the rate—a matter of detail rather than jurisdiction. Accordingly, the Court held that any mistake in imposing the terminal tax could be corrected only by the procedure prescribed in the Act. The appellants had therefore misconceived their remedy by filing a suit in a civil court. The Court affirmed the High Court’s conclusion, dismissed the appeal with costs, and entered an order of dismissal.