# K. S. VENKATARAMAN & CO v. STATE OF MADRAS

- **Citation:** [1966] 2 S.C.R. 229
- **Court:** Supreme Court of India
- **Decided:** 1965-10-18
- **Bench:** K. SUBBA R.Ao, K. N. Wanchoo, J. C. Shah, S. M. Sikri, V. R.Amaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/k-s-venkataraman-co-v-state-of-madras-3531
- **Pages:** 50

## Headnote

Madra;· General Sales Tax Act (9 of 19'39), s. !SA-Tax levied under
ultra vires part of sectlon~Sui1t for refund-Maintainability-Litnitation.
The appellant-company was carrying on the business of building contractors. During the years 1948-49 to 1952-53, the appellant was assessed
to sales-t1x on the basis that the contracts executed by them were '\vorks
contracts".
On 5th April 1954, the High Court held that the relevant
provision of the Madras General Sales Tax Act, 1939, empowering the
State to assess jndivisible building contracts was ultra vires the powers
of the State Legislature.
On 23rd March 1955, the appellant filed a
suit for the recovery of the amount of taxes illegally levied and collected
from it.
The trial court and the High Court following the decision in
Raleigh Investment Co. Ltd. v. The Governor General in Council, [1947]
L.R. 74 I.A. 50, held that the suit was not maintainable because of
s. 1 SA of the Act, and that the remedy of the appellant was only to
pursue the machinery provided under the Act.
In appeal to this Court, it was contended by the appellants that: (i)
The provisions of the Act and Rules relevant to indivisib1e \\'Orks contracts
were held by this Court also to be without legislative competence an<l void,
and therefore, s. 1 SA did not bar a suit for the recovery of tax assessed
under ultra vires ]_;'lrovisions; and (ii) the suit was within time.
HELD: (i) (per Subba Rao, Wanchoo and Sikri, JJ.) Tne aS!essments
in the present case \.Vere made in respect of indivisible works contracts.
This Court in the appeal from the judgment of the High Court agreed
with the High Court and held that the provisions which enabled the levy
of sales·tax in respect of such contracts were ultra vires the po\vers of
the Provincial Legislature, in the
State of Madras v. Gannon Dunkerley,
[1959] S.C.R. 379.
Therefore.
the sales-tax authorities have acted
outside the Act and not under it in making an assessment on the bnsis
of the relevant part of the charging section which \Vas declared to be ultra
vires by this Court, and hence s. 18A was not a bar to the n1aintainahility
of tho suit. [237 F-G; 252 D-E; 253A]
If a statute imposes a liability and creates an effective n1achinery for
·deciding questions o.f lav.; or fact arising in regard to that liability, it may,
by nC"cessary 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 vircs of that statute: or any of the provisions thereof, \vhereunder it functions. It must act under the Act and not outside it.
If it
a.cts on the basis of a provision of that statute which is ultra vires, to
that extent it would be, acting outside the Act. In that event, a sui~ to
question the validity of such an ord~r ma~e outside the ".'-<;t would c~rtam~y
fo in a civil court.
The foundallon laid by the Jud1crnl Committee 1n
230
SUPREME COURT REPORTS
[1966) 2 S.C.R.
Raleigh Investment Co. case for. construi~g the express~o!1 "under. the
Act" has no legal basis.
The enllre reasonmg of the Jud1c1al Committee
was based upon the assumption that the question of ultra vires can be
canvassed and finally decided through the machinery provided under the
Income-tax Act. But the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal are all creatures of that Act and
whether the provisions of the Act are good or bad is not their concern.
As the Tribunal is a creature of the statute it can only decide the dispute
between the asseS&ee and the Commissioner in terms of the provisions of
the Act and the question of ultra vires is foreign to the scope of its jurisdiction.
If an assessee raises such a question, the Tribunal can only
reject it on the ground

## Text

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K. S. VENKATARAMAN & CO.
v.
STATE OF MADRAS
October 18, 1965
[K. SUBBA R.Ao, K. N. WANCHOO, J. C. SHAH, S. M. SIKRI AND
V. R.AMASWAMI, JJ.]
Madra;· General Sales Tax Act (9 of 19'39), s. !SA-Tax levied under
ultra vires part of sectlon~Sui1t for refund-Maintainability-Litnitation.
The appellant-company was carrying on the business of building contractors. During the years 1948-49 to 1952-53, the appellant was assessed
to sales-t1x on the basis that the contracts executed by them were '\vorks
contracts".
On 5th April 1954, the High Court held that the relevant
provision of the Madras General Sales Tax Act, 1939, empowering the
State to assess jndivisible building contracts was ultra vires the powers
of the State Legislature.
On 23rd March 1955, the appellant filed a
suit for the recovery of the amount of taxes illegally levied and collected
from it.
The trial court and the High Court following the decision in
Raleigh Investment Co. Ltd. v. The Governor General in Council, [1947]
L.R. 74 I.A. 50, held that the suit was not maintainable because of
s. 1 SA of the Act, and that the remedy of the appellant was only to
pursue the machinery provided under the Act.
In appeal to this Court, it was contended by the appellants that: (i)
The provisions of the Act and Rules relevant to indivisib1e \\'Orks contracts
were held by this Court also to be without legislative competence an<l void,
and therefore, s. 1 SA did not bar a suit for the recovery of tax assessed
under ultra vires ]_;'lrovisions; and (ii) the suit was within time.
HELD: (i) (per Subba Rao, Wanchoo and Sikri, JJ.) Tne aS!essments
in the present case \.Vere made in respect of indivisible works contracts.
This Court in the appeal from the judgment of the High Court agreed
with the High Court and held that the provisions which enabled the levy
of sales·tax in respect of such contracts were ultra vires the po\vers of
the Provincial Legislature, in the
State of Madras v. Gannon Dunkerley,
[1959] S.C.R. 379.
Therefore.
the sales-tax authorities have acted
outside the Act and not under it in making an assessment on the bnsis
of the relevant part of the charging section which \Vas declared to be ultra
vires by this Court, and hence s. 18A was not a bar to the n1aintainahility
of tho suit. [237 F-G; 252 D-E; 253A]
If a statute imposes a liability and creates an effective n1achinery for
·deciding questions o.f lav.; or fact arising in regard to that liability, it may,
by nC"cessary 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 vircs of that statute: or any of the provisions thereof, \vhereunder it functions. It must act under the Act and not outside it.
If it
a.cts on the basis of a provision of that statute which is ultra vires, to
that extent it would be, acting outside the Act. In that event, a sui~ to
question the validity of such an ord~r ma~e outside the ".'-<;t would c~rtam~y
fo in a civil court.
The foundallon laid by the Jud1crnl Committee 1n
230
SUPREME COURT REPORTS
[1966) 2 S.C.R.
Raleigh Investment Co. case for. construi~g the express~o!1 "under. the
Act" has no legal basis.
The enllre reasonmg of the Jud1c1al Committee
was based upon the assumption that the question of ultra vires can be
canvassed and finally decided through the machinery provided under the
Income-tax Act. But the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal are all creatures of that Act and
whether the provisions of the Act are good or bad is not their concern.
As the Tribunal is a creature of the statute it can only decide the dispute
between the asseS&ee and the Commissioner in terms of the provisions of
the Act and the question of ultra vires is foreign to the scope of its jurisdiction.
If an assessee raises such a question, the Tribunal can only
reject it on the ground that it has no jurisdiction to entertain the objection
or decide on it.
As no such question can be raised or can arise on the
Tribunal's order, the High Court cannot possibly give any decision on
. the question of ultra vires,
because its jurisdiction under s. 66 is a
special advisory jurisdiction and its scope is strictly limited. It can
only decide questions of law that arise out of the order of the Tribunal
and those that are referred to it. The appeal to this Court under s. 66A (2)
does not enlarge the scope of the jurisdiction, for this Court can only do
what the High Court can.
Any assessment made on the basis of a
provision which is ultra vires cannot be a decision under the provisions
of the Act. If the charging section is ultra vires, the assessment made
!hereunder is really one outside the Act. [240H; 247H; 248 B, D-H; 252
B-D, G-Hl
There is no justification for confining the expression "under the Act"
in s. 18A, only to the power of the Officer to make an assessment and
the procedure to be adopted by him and not to the content of the assessment.
The expression refers both to the procedural and substantive
provisions of the Act, and the procedural machinery under the Act can
be utilized only to decide disputes that arise under !he substantiv~ provisions
of the Act, which are not ultra vires. [252 F, H]
Case law reviewed.
Per Shah, and Ramaswami, JJ (dissenting) : The suit was barred by
the scheme of the Act and by s. 18A which was later incorporated by
Act 6 of 1951. [278 DJ
In substance this Court held in the Gannon Dunkerley case that the
definition of "sale" in s. 2(h) must be read in the light of and restricted
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by the legislative power of the Provinces as contained in Entry 48 in List
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II, Schedule VII of the Government of India Act, 1935; and on
that view, if a 'vorks contract is one, entire and
indivisible~ there
will
be no sale of goods and no part of the consideration received. for executing
such a contract could be included in the turnover. This Court declared
that the taxing authority may not, in computing the turnover of a dealer,
include any part of the receipts under a works contract which is one,
entire and indivisible, because the State Legislature had no power to levy
tax on transactions which are not transactions of sale of goods.
But
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this .Court did not declare the clause ultra vires: the Court merely directed
that the power to levy tax in re.pect of a works contract is not wholly
denied to the Provinces or States; in
each case it hJ.s to be considered
whether the transaction involves sale of goods strictly so called, or if it is a
transaction which is a works contract "one, entire and indivisible."
If
it is the latter, it would not be 'taxable, because there is no element of
sale of goods within that transaction: if it is the former, the element
of sale of goods would be taxable. The approach conforms to a recogH
nised rnle of interpretation that it is always presumed that the legislature
did not intend to transgress restrictions upon its legislative powers, and
it would be legitimate to mad words used in a statute as subject to the
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VENKATARAMAN V. STATE
231
restrictions imposed by the Constitution upon legislath:e povvcr, s.o that
the statute may ~armonise with the constitutional restrictions .. ~1s ~lle
applies unless the restricted n1eaning of words makes . the leg1slat1on 1ncomplete, unintelligible or unmeaning .. App~rently wide words of
the
definition clause and the chargmg sect10n will not, on account of such
restrictions be rendered ultra vires or invalid ; the \Vords will be construed
i:O as to cdnfer po\\'er upon the taxing authorities to assess tax only within
the limited field. [259 F-G; 260 E-G-H; 261 A-C 263 G]
Re: the Hindu Warn.en's Rights to Property Act, 1937, [l941] F.C.R.
12, applied.
Ordinarily a taxing authority has po\1/er to ascertain whether the tr~n
sanction before him is taxable, and for that purpose he n1ay determine
facts which have a bearing on the taxability of the transaction.
He has
also po\ver to interpret the provisions of the taxing Stntute as well as. of
any other statute ¥lhich
has a
bearing on the question.
Within
his
jurisdiction is included po\\'er to decide finally whether the transaction
submitted to his scrutiny is taxable.
Hjs decision is open to challenge
by apprvpriate proceedings in the1 hierarchy of tribunals set up for that
purpose, but not outside the Act. [263 H; 264 BJ
Kamala Mills Ltd. v. State of Bombay, [1966] 1 S.C.R. 64 foilowod.
The Madras General Sales Tax Act is a complete code setting up machinery for the levy, assessment, collection and refund of tax : by the clearest
implication it excludes the jurisdiction of the civil courts to modify or set
aside assessments under the Act by authorities investeu with power in that
behalf.
By enacting s. I SA the legislature did no more than enact what
was clearly implicit in the scheme of the Act.
Absence of the section
fro1n the :;tatute book for the first t\VO years of assessment is therefore
of no materiality. [268 G-H; 269 Al
Even on the assumption that the portion added by Act 25 of 194 7
into the definition of 'sale' was. subsequently declared ultra vlrcs by this
Court in the Gannon Dunkerley case, the suit to set aside or modify
an assessment on the assumption that th6 definition was who11y invalid,
was not maintainable. The. taxing officer in exercising his power n1ay err;
but he has authority to err in exercise of his jurisdiction.
It n1attcrs
little that the error he commits is in the interpretation of a Constitutional
prohibition, and not a statutory prohibition applying to the transaction
submitted to his scrutiny,
There is nothing in the Act which prohibits
the taxing authority from entertaining the plea that a transaction is not
taxable because it is in respect of an exenipted commodity or is an exempted
sale, or because it is not a transaction of sale, and there are a1npJe indi~
cations of an implication to the contrary. lf by an erroneous decision, he
can clothe himself \Vith jurisdiction, which on a true view of the facts or
la\V he does not possess, it is. difficult to appreciate the ground on \vhich
it c~n be asserted that he must Jec1inc to adjudicate when the vires of a
part of the statute which he has to administer fall to be determined.
Jn
a Jarge number of cases in \V'hich proceedings relating to taxation have
reached the High Court by way of reference, appeal or revision and
this Court in appeal from the High Court, the question of the vires
of the s~atute under which the authority functioned " 1as raised, entertained
and decided. (269 B-C, G-H; 270 B, D-E; 271 C-D]
Raleigh Inrestment Co. Ltd. case, applied.
{jndcr the Act, therefore, the Deputy Commercial Tax Oillcer had
jurisdiction to determine whether the appellant's transactions were assessable under the Act.
He n1ay have comn1itted a mistake, even a grevious.
232
SUPRBMB COURT REPORTS
[l 966) 2 S.C.R.
mistake, but he had jurisdiction to decide the question.
Exercise of
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that jurisdiction was not conditioned by the correctness of his conclusion. [265 B-CJ
(ii)
(By Full Court) : The suit was governed by art. 96 of the Limita1ion Act\ 1908, and that article prescribes a period of Jimiiation of three
years for relief, on the ground of mistake, from the date when the
mistake becomes known to the plaintiff. Since the appellants came to know
of thelr mistake when the High Court gave its decision on 5th April 1954,
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the suit filed on 23rd March 1955 was well within time. [253 F-H; 255D]
State of Kera/a v. Aluminium Industries Ltd. C.A. No. 720 of 1963.
Decided on April 21, 1965 (unreported) followed.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No. 618 of
1963.
Appeal from the judgment and order dated October 10, 1960
of the Madras High Court in C.C.C.A. No. 90 of 1957.
S. T. Desai, K. R. Venkatram and S. Venkatakrishnan, for the
appellant.
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A. Ranganadham Chetty and A. V. Ramgam, for the responD
·dent.
The Judgment of SuBBA RAo, WANCHoo and SIKRI, JJ. was
delivered by SuBBA RAO J,
The dissenting opinion of SHAH and
RAMASWAMI, JJ. was delivered by SHAH, J.
Subba Rao, J.
This appeal by certificate raises lhe question
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whether a suit for the refund of sales-tax assessed under a provision of the Madras General Sales Tax Act, 1939 (Act IX of
1939) declared to be ultra vires the powers of the State Legislature
would lie.
The appellants are a private company incorporated under the
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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
Dunkerley & Co. v. The State of Madras(') that the relevant
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provision of the Madras General Sales Tax Act empowering the
State of Madras to assess indivisible building contracts to salestax 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 the Code of Civil Procedure claiming the refund of
the amounts collected from them.
As the demand was not comH
plied with, on March 23, 1955, they filed 0.S. No. 2272 of 1955
(I) 5 S.T.C. 216.
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VENKATARAMAN v. STATE (Subba Rao, J.)
233
A in the City Civil Court, Madras, for the recovery of a sum of
Rs. 36,320-1-11, being the total amount of taxes illegally levied
and collected from them for the years 1948-49 to 1952-53 and for
incidental relief. 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 conB
tracts 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
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a/ia, 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 Jaw 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('), that the
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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
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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
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the question of limitation.
Hence the appeal.
Mr. Desai, learned counsel for the appellants, raises before
us the following points: (1) The provisions of s. 2(h) and 2(i)
Explanation (l)(i) of the Madras General Sales Tax Act, 1939,
hereinafter called the Act, read with r. 4 ( 3) of the Turnover and
Assessment Rules, so far relevant to indivisible works contracts,
G were held by this Court to be without legislative
competence
and, therefore, wholly void; that s. 18-A of the Act does not bar
a suit for the recovery of tax assessed under the said ultra vires
provisions.
(2) Section 18-A of the Act was introduced by the
Amending Act of 1951 (Mad. Act 6 of 1951) which came into
force on April ·20, 1951 and, therefore, in any event the suit would
l:I be maintainable in respect of refund of amounts paid towards
sales-tax for a period before the said date. And ( 3) the suit is not
(I) (1947) L.R. ;4 I.A. SO.
234
SUPREME COURT
REPORTS
(1966] 2 S.C.R.
barred by limitation, as art. 96 of the Limitation Act governs the
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said suit and in tenns of the said article the appellants had filed
the suit within three years from the date they had knowledge of
the mistake whereunder they paid the amounts.
The arguments of Mr. A. Ranganadham Chetty,
learned
counsel for the respondent, may be briefly put thus: On a fair B
reading of the provisions of s. 18-A of the Act it should be held
that a suit to set a.side or modify an assessment made under the
machinery of the Act is not maintainable. The expression "assessment" has three elements, namely, (i) power to make the assessment; (ii) the process of assessment; and (iii) its content. The
section emphasizes the making of assessment i.e., its two comC
ponent parts, power and process, under the Act and not its content. If it be held that it refers to the content, it will lead to
anomalif'...s, for in making an assessment the assessing authority
has to consider the principles of different Jaws and it cannot
obviously be held that his decision based upon laws other than
Sales-tax law is a decision made under the provisions of the Act.
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Any provision of the Act relating to the ~ontent of assessment
cannot have a higher sanctity than a provision of Jaw other than
the Sales-tax Jaw relating to the content of assessment. So, the
argument proceeds, the expression "under the Act" can be correlated only to the expression "make", with the result the bar against
the maintainability of the suit is attached to the making of an
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assesment under the machinery of the Act.
In short, his argument is that the principle laid down in the Raleigh Investment
Co.'s case(') directly applies to a similar case arising under the
Act.
His further contention is that this Court bad not declared
the relevant provisions of the Act ultra vires and even if it had,
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there is no evidence that the contracts in question were indivisible works contracts.
At the outset it will be convenient to consider the question
whether the contracts in respect whereof the sales-tax was assessed were indivisible works contracts not involving any element of
sale of material, for if they were not such contracts, the entire
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argument of the learned counsel for the appellants would fall to
the ground.
The appellants in paragraph 3 of the plaint averred thus:
"As such building contractors the plaintiffs had
executed construction of bui!dings, bridges,
drains
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roads, on lump-sum basis or on the basis of tender
(1) L.R. 74 I.A. 50.
VENKATARAMAN v. STATE (Subba Rao, J.)
235
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accepted by the other contracting parties. Dur.ing the
years 1948-49 to 1953-54 the plaintiffs were assessed
to sales-tax on various stuns mentioned in the particulars herein on the basis that the contracts were works
contracts and therefore liable to be taxed under section 3 ( 1) read with Rule 4 ( 3) of the Madras General
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Sales-tax (Turnover and Assessment) Rules, 1939."
In paragraph 4 of the plaint th.?-y stated that the said assessments
were illegal, unconstitutional and were without any jurisdiction,
as the plaintiffs were not dealers as defined in the Act. In paragraph 9 thereof they referred to the decision of the Madras High
C Court in Gannon Dunkerley & Co. v. The State of Madras(') and
stated that they came to know of their mistake on April 5, 1954,
when the Madras High Court deliv.~red the judgment in that case.
It is, therefore, clear from the plaint that the appellants stated that
they entered into building contracts with the State on a lump-sum
basis and that the assessments made in respect of those contracts
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were unconstitutional and without jurisdiction, in view of the decision of the Madras High Court in Gannon Dunkerley & Co.'s
case('). There w;;:re clear averments in the plaint that the contracts were indivisible building contracts. In the written-statement,
the State did not deny that they were indivisible building contracts;
indeed, it assumed that the said contracts were covered by the.
E decision of the Madras High Court in Gannon Dunkerley & Co.'s
case('), but stated that the said decision required reconsideration
and that the matter was p.ending in appeal before this Court. Issue
(1) framed by the City Civil Judge reads :
"Has sales-tax for the years 1948-53 been validly
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levied and as such the suit claim is untenable?"
On that issue the learned City Civil Court Judge, on a consideration of the entire material placed before him, held that the plaintiffs
enter.ed into works contracts only and there was no element of sale
of the materials used in the buildings separately in the said conG tracts.
He observed :
"lt is clear from the assessment files produced by the
defendants that the plaintiffs were assessed only on the
basis that they entered into "works contracts" and not
on .the basis that they sold building materials."
H In the High Court no attempt was made to canvass the correctness
of that finding. Indeed, the High Court proceeded on the basis
(I) 5 S.T.C. 216.
236
SUPRBMB COURT REPORTS
(1966) 2 S.C.R.
that the appellants' turnover from the works contracts was comA
puted in accordance with the rules framed under the Act and that
the decision in the Gannon Dunkerley & Co.'s case(') directly
applied to the said assessments. In the statement of case filed by
the respondent in this Court, there is no allegation that the assessments did not relate to indivisible works contracts.
The entire
statement of case was based on the assumption that they were such S
contracts. In the circumstances we must hold that the assessments
in question were made in respect of indivisible works contracts.
We shall now read the relevant provisions of the Act and the
eliect of the decision of this Court in ·Gannon Dunkerley and Co.'s
case( 2 ) on the said section.
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Section 2(i-i) "Works contract" means any agreement for carrying out for cash or for deferred payment
or other valuable consideration, the construction, fitting out, improvement or repair of any building, road,
bridge or other immovable property or the fitting out,
improvement or repair of any movable property.
Section 2. (h) "Sale" with all its grammatical variations and cognate. expressions means every transfer of
the property in goods by one person to another in the
course of trade or business for cash or for deferred payment or other valuable consideration and includes also
a transfer of property in goods involved in the execution
of a works contract but does not include a mortgage,
hypothecation, charge or pledge.
Section 2. ( i) "Turnover" means
the
aggregate
amount for which goods are either bought by or sold by
a dealer, whether for cash or for deferred payment or
other valuable consideration provided that the proceeds
of the sale by a person of agricultural or horticultural
produce grown by himself or grown on any land in which
he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his
turnover.
Explanation (I) : Subject to such conditions and
restrictions, if any, as may be prescribed in this behalf :
( i) the amount for which goods are sold shall, in
relation to a works contract, be deemed to be
the amount payable to the dealer for carrying out
such contract, less such portion as may be pres-
~~~~~~~~~
(I) 5 S.T.C. 216.
(2) [1959] S.C.R. 379.
])
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VENKATARAMAN v. STATE (Subba Rao, J.)
237
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cribed of such amount, representing the usual
proportion of the cost of labour to the cost of
materials used in carrying out such contract.
Rule 4(3) of the Madras General Sales Tax
(Turnover and
Assessment) Rules, 1939, reads:
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"For the purpose of sub-rule (1), the amount for
which goods are sold by a dealer shaU, in relation to
a works contract, be deemed to be !he amount payable
f
to the dealer for carrying out such contract less a sum
not exceeding such percentage of the amount payable
as may be fixed by the Board of Revenue, from time
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i_., •
I 1
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to time for different areas, representing the usual proportion in such areas of the cost of labour to the cost of
materials used in carrying out such contract, subject to
the following maximum percentages :
D.
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It will be seen from the said provisions that an indivisible works
contract is deemed to be a sale and the person entering into such
a contract, a dealer. The turnover of the dealer in ·respect of such
contracts is arrived at by deducting from the amount payable to
the dealer the cost of labour arrived at in the manner prescribed'
thereunder.
The provisions are wide enough to take indivisible
works contracts where, under the terms of the contracts,
the
value of the materials supplied by a contractor and the charges
he made for the labour are separately specified.
As we
have
pointed out earlier, the assessments in the present case
were·
made under the said provisions on the basis that the appellants
entered into indivisible works contracts.
This Court in Gannon
F Dunkerley and Co.'s case(') had to consider the validity of the·
said provisions.
The Court, speaking through Venkatarama·
Aiyar, J., held, agreeing with the High Court, that the
said
provisions introduced by the Madras General Sales Tax (Amendment) Act, 1947, were ultra vires the powers of the Provincial
Legislature.
Mr. Ranganadham Chetty, learned counsel for the
G State, contended that this Court did not hold the said provisionsto be ultra vires, but in effect and substance construed them S(} as
to limit their operation only to works contracts involving an ele'
m~nt of sale of materials.
We have gone through the judgment
1tnd it discloses an elaborate consideration of the only question
raised before it, namely, whether the definition of "sale", which
included building contracts, was within the constitutional competence_~ the State Legislature.
After considering the relevant"
H
(1) [t959l S.C.R. 379.
238
SUPREME
COURT REPORTS
[1966] 2 S.C.R.
constitutional provisions and the relevant authorities, this Court
A
came to the definite conclusion that the State Legislature had no
competence to impose a tax on indivisi~le building contr~cts.. It is
true that in the last paragraph of the Judgment, to avoid misconception, this Court explained that its conclusion was applicable
only to works contracts which are entire and indivisible. We have
no doubt that this Court held in clear terms that the said provisions
B
would be unconstitutional in so far as they dealt with indivisible
building contracts. If there was any ambignity, that was made
clear by this Court in Pandit Banarsi Das Bhanot v. The State of
Madhya Pradesh('), which was decided on April 3, 1958, wherein in the context of similar provisions in the Central Provinces and c
Berar Sales Tax Act, 194 7, it held that in a building contract there
was no sale of materials as such and that, therefore, it was ultra
vires the powers of the Provincial Legislature to impose tax on the
supply of materials. We, therefore, hold that this Court in Gannon Dunkerley & Co.'s case( 2 ) held that the said provisions of the
Madras General Sales Tax Act, 1939, in so far as they enabled the
D
imposition of tax on the turnover of indivisible building contracts,
were ultra vires the powers of the State Legislature and, therefore,
void.
If the said provisions to the extent indicated are ultra vires the
State Legislature, the next question is whether a suit for the refund
E
of the amounts paid in respect of assessments made under the said
ultra vires provisions is maintainable. The sheet-anchor of the
arguments of the learned counsel for the respondent is the decision
of the Judicial Committee in Raleigh Investment Co.'s case(').
Before we consider the scope of the said decision, it will be convenient to notice some of the propositions of law settled in the F
context of the ouster of jurisdiction of a civil court. Under s. 9
of the Cod.e of Civil Procedure, "The Courts shall subject to the
provisions herein contained, have jurisdiction to try all suits of a
civil nature excepting suits of which their cognizance is either
expressly or impliedly barred." A suit is expressly barred if a
legislation in express terms says so.
It is impliedly barred if a G
stah1te creates a new offence or a new right and prescribes a
particular penalty or special remedy.
In that event, no other
remedy can, in th.e absence of evidence of contrary intention, be
resorted to: see Wolverhamptin New Water-works v.
Hawkesford ( 4). The general rule is that statutes affecting jurisdiction
of courts are to be construed, so far as possible, to avoid the
H
(I) [1!159] S.C.R. 427
(2) [1959] S.C.R. 379
(3) L.R. 74 I.A. 50
(4) 1859 6 C.B. (N. S.) 336
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VENKATARAMAN v. STATE (Subba Rao, 1.)
239
effect
of
transferring
the
determination
of
rights
and
liabilities from the ordinary courts to executive officers :
see
Winter v. Attorney-General('). It has been held that a suit in a
civil court will always lie to question the order of a tribunal created
by a statute, even if its order is, expressly or by necessary implication, made final, if the said tribunal abuses its power or does not
act under the Act but in violation of its provisions : see Firm
Radha Kishan v. Ludhiana Municipality( 2 ). It is also equally
well established that civil courts have power to entertain a suit in
which the question is whether the ex.ecutive authority has acted
ultra vires its powers : see King-Emperor v. Sibnath Banerji(3 )
and Mohammad Din v. Imam Din('). So far there is, or can be,
-C
no doubt. But the further question that falls to be decided in this
case is whether an assessment made under an ultra vires provision
of a statute can only be questioned through the machinery provided by that Act or whether a suit in a civil court is maintainable in
respect thereof.
D
This brings us to the consideration of the decision of the Judicial Committee in Raleigh Investment Co.'s case('). As the arguments at the Bar mainly turned upon the correctness of this decision it is nece:;sary to scrutinize it in some detail. The facts of
that case were as follows : The appellant, a joint stock company
incorporated in the Isle of Man, with its registered office there and
E its main office in England, held shares in nine companies carrying
on business in British India. Some of those companies were incorporated in England and the others in the Isle of Man, and while
their businesses in India were managed by local bodies, the ultimate control lay with the London Boards. All the dividends
F
G
H
received by the appe1\ant ·company from the nine companies were
declared, paid and received in England : no part of them was
ever remitted to British Inma. The appellant was assessed in respect of income-tax and super-tax for the relevant years as a nonresident on an income which included the dividends received from
the nine companies. The appellant paid the tax under protest and
instituted a suit in the High Court at Calcutta in its ormnary
original civil jurisdiction claiming a declaration that in so far as
explanation 3 and the other provisions of s. 4 of the Indfan Tncometax Act, 1922, as amended to 1939, purported to authorize the
a~s~ssment and charging to tax of a non-resident in respect of
?1v1den?~ decla~d or paid o~~side British India, but not brought
lllto Bntish Indrn. those prov1S1ons were ultra vires the legislature
·--·----------·-
....
~
(1) 11875) L.R. P.C. 380.
(2) A.l.R. 1963 S.C. 1547.
(3) (1945) L.R. 721.A.. 241. ·
(4) (194TJ LR. 741.A. 322.
L2Sup. C.I./66-2
(5) (1947) L.R. 74 T.A. 50.
240
SUPREME. COURT REPORTS
[1966] 2 S.C.R.
and that the assessment was illegal and wrongful. The Judicial
Conunittee held that s. 67 of the Act was a bar to the maintainability of the suit. The argument on behalf of the assessee in that
case was that an assessment was not an assessment "made under
the Act'' if the assessment gave effect to a provision which was
ultra vires the lndian Legislature; that in law such a provision,
being a nullity, was non-existent; and that an assessment justifiable in whole or in part by reference to, or by such a provision was
more aptly described as an assessment not made under the Act
than as an assessment made under the Act. This was an argument
similar to that now advanced by Mr. Desai on behalf of the assesse.e.
The argument was negatived by the Judicial Committee for
the following reason, at pp. 63-64:
"Effective and appropriate machinery is
therefore
provided by the Act itself for the review -on grounds of
law of any assessment ............. The obvious meaning, and in their Lordships' opinion, the correct meaning, of the phrase "assessment made under this Act" is
an assessment finding its origin in an activity of the
assessing officer acting as such. The circumstance that
the assessing officer has taken into account an ultra vires
provision of the act is in this view immaterial in determining whether the assessment is "made under this Act"."
The main reason that persuaded the Judicial Committee to accept
the construction they placed on s. 67 of the Income-tax Act may
be stated in their own words thus :
"The absence of such machinery would greatly assist
the appellant on the question of construction and, indeed, it may be added that, if there were no such
machinery, and if the section affected to preclude the
High Court in its ordinary civil jurisdiction from considering a point of ultra vires, there would be a serious
question whether the opening part of the section, so far
as it debarred tl1e question of ultra vires being debated
fell within the competence of the legislature."
Indeed, in view of the said machinery, the Judicial Committee
even doubted whether the enactm~nt 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 conB
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t
F
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VENKATARAMAN v. STATE (Subba Rao, J.)
241
A cerned 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
B
c
.D
would not also be correct.
Before we scrutinize the correctness of the reasons given by
the Judicial Committee, we shall briefly notice the decisions of the
Privy Council and of this Court wherein the said decision was
considered, as Mr. Ranganadham Chetty contended that the entire
reasoning of the Privy Council was either expressly or impliedly
accepted by the said decisions.
The Judicial Committee in
Commissioner of I.T .. Punjab,
North-West Frontier and Delhi Provinces, Lahore
v.
Tribune,
Trust, Lahore(') had to deal with a case where an assessment was
made by the income-tax authority in regard to an income which
was exempt on the ground that it was derived from property held
under trust wholly for charitable purposes. It held that the assessments of the income-tax officer, who had jurisdiction to decide
whether the said income was exempt from the relevant provision
and who had held that the said income was not exempt and on that
basis made the assessments, were not a nullity. In coming to that
E
conclusion the Judicial Committee found strong support in the
decision in Raleigh Investment Company's case('). This is not
a case where the income-tax officer made an assessment under a
provision which was ultra vires.
Jn Raja Bahadur Kamakshya Narain Singh of Ramgarh v.
Commissioner of Income-tax, Bihar( 3 ), the Federal Court was
F concerned with a case where the appellate tribunal relying upon
the Bihar Regulations 1 of 1941 and IV of 1942 held that the
assessment made by the Income-tax Officer before the said Regulations were passed was good. Before the tribunal it was contended that the said Regulations were ultra vires, but that contention
was rejected.
After giving long extracts from the judgment in
G Raleigh's case('), Kania, J., as he then was, observed :
H
'These observations clearly show that the right of
appeal and the machinery provided in the Income-tax
Act to take a question of Jaw for the opinion of the High
Court are important provisions which have a bearing on
the question whether a certain piece of legislation is ultra
vires or not."
(\) (1947) LR. 74 T.A. 306.
(2) (1947) LR. 74 I.A. SO.
(3) (1947) F.C.R. !JO, 138-139.
242
SUPREME COURT REPORTS
[1966] 2 S.C.R.
These observations ex facie do not support the contention that the A
question of ultra vires of a statutory provision could be canvass~
through the machinery provided under the statute. That apart, m
that case the tribunal acted under the provisions of the Act, and the
Federal Court was also bound by the decision of the Privy
Council.
The first occasion when a serious inroad was made on the
correctness of the decision in Raleigh's case(') is in The State of
Tripura v. The Province of East Bengal( 2 ). The facts there were :
the Income-tax Officer, Dacca, acting under the Bengal Agricultural Income-tax Act, 1944, sent by registered post a notice to C
the Manager of an Estate belonging to the Tripura State but
situated in Bengal, calling upon the latter to furnish a return of the
agricultural income derived from the Estate during the previous
year. The State, by its then Ruler, instituted a suitin June 1946
against the Province of Bengal and the Income-tax Officer, in the
court of the Subordinate Judge of Dacca for a declaration that the
D·
said Act in so far as it purported to impose a liability to pay agritural income-tax on the plaintiff was ultra vires and void, and for
a perpetual injunction to restrain the defendants from taking any
steps to assess the plaintiff. It was contended that s. 65 of the
Bengal Agricultural Income-tax Act, 1944, was a bar to the maintainability of the suit. That section read :
F
"No suit shall be brought in any Civil Court to set
aside or modify any assessment made under this Act,
and no prosecution, suit or other proceeding shall lie
against any officer of the Crown for anything in good
faith done or intended to be done under this Act."
~elying upon the decision in Raleigh Investment Company's
case(') it was contended that the said section was a bar against
the maintainability of the suit. The authority of the said decision,
as Faz! Ali, J., pointed out, was not questioned before this Court.
E
But the Court by majority held that the suit was maintainable and G
distinguished Raleigh's case on the ground that the suit was not
to set aside or modify the assessm.~nt. The proposition laid down
by the Judicial Committee in Ralei!!h's case, namely, that the
machinery provided by the Act should be followed even when the
contention of the assessee was that the impugned Act or any provision ther.'.!of was ultra vires, would equally apply whether the H
suit was instituted before the assessment was made or thereafter.
'(l) (1947) L.R. 74 I.A. 50.
(2) [l951J s.c.R. 1.
•
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VENKATARAMAN v. STATE (Subba Rao, J.)
243
A To the extent this Court held that such a suit would lie before the
assessment was made for an injunction restraining the .cuthority
from proceeding with the assessment on tlw ground of ultra vires,
it detracts from the correctness of the decision in Raleigh's case(').
This Court in Firm and I/luri Subbayya Chetty & Sons v. The
B State of Andhra Pradesh( 2 ) had to consider the scope of the bar
of a suit under s. 18-A of the Madras General Sales Tax Act, 1939.
There.