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Dhulabhai And Others vs. the State Of Madhya Pradesh (1968)

This article is written by Tisha Agrawal. The article deals with the case of Dhulabhai and Ors. vs. State of Madhya Pradesh (1968), with reference to its facts, issues raised, arguments made, the judgement, as well as the concerned legal provisions of the Code of Civil Procedure 1908, the Constitution of India, and the Madhya Pradesh Sales Tax (Act 30 of 1950). 

It has been published by Rachit Garg.

Introduction

The case of Dhulabhai and ors. vs. State of Madhya Pradesh (1969), deals with the jurisdictional issue of civil courts to try all suits unless it is barred and the illegal levy of tax on the tobacco dealers of Madhya Bharat. It is a constitutional bench judgement and is still relied on for its extensive reasoning and tests laid out for considering the jurisdiction of civil courts. Via the suit, the appellants had challenged the assessment provisions as being ultra vires and demanded the refund of tax collected from them under the said notification. 

It was held that the challenge to provisions of the concerned Act as ultra vires cannot be brought before the tribunals constituted under the Act. The High Court cannot go into deciding that question by revision or reference from the decision of Tribunals. Most importantly, the case throws light on Section 9 of the Code of Civil Procedure, 1908 which empowers the courts to try all civil suits unless barred. Recently, this case was reiterated by the Supreme Court in the case of M. Hariharasudhan vs. R. Karmegam (2019). 

Details of the Case 

  • Case name: Dhulabhai and ors. vs. State of Madhya Pradesh 
  • Equivalent Citation: 1969 AIR 78
  • Act involved: Madhya Bharat Sales Tax Act (30 of 1950), Bombay Sales Tax Act, 1946, The Code of Civil Procedure, 1908, The Constitution of India.
  • Important provisions: Section 3, 5 & 17 of the Madhya Bharat Sales Tax Act (30 of 1950); Section 9 & 80 of the Code of Civil Procedure, 1860; Article 301 & 304 A of the Indian Constitution. 
  • Bench: M. Hidayatullah, C.J., R.S. Bachawat, C.A. Vaidyialingam, K.S. Hegde, A.N. Grover, J. 
  • Petitioner/Appellant: Dhulabhai 
  • Respondents: State of Madhya Pradesh  
  • Judgement date: April 05, 1968

Facts of the case 

The appellants in the case are dealers of tobacco, conducting their business from Ujjain (Madhya Pradesh). The State of Madhya Pradesh was formed on 1st November, 1955. The primary work undertaken by the appellants was purchasing and selling tobacco used for the purposes of eating, smoking, and preparing bidis. They got tobacco for them locally and also imported it from other states. In 1950, an Act called the Madhya Bharat Sales Tax Act, 1950 came into force. The Act stated, under Section 3, that every dealer whose business in the previous year, in respect of sales or supplies of goods, exceeded Rs. 5000/- and in instances where the sale exceeded Rs. 12000/- of those who are not manufacturer or importer, will have to pay taxes in respect of such supply of goods. 

As per Section 5, the tax was a single point tax and the government might notify the point of sales at which the tax is payable. The Act also fixed the minimum and maximum rate of tax and left the actual rate to be notified by the Government. Subsequently, the government released several notifications and imposed different rates on tobacco. The authorities started collecting varying amounts from the dealers. Therefore, the appellants served a notice under Section 80 of the Code of Civil Procedure, 1908, and also filed suits for a refund of the tax on the grounds of illegal collection and violating the right guaranteed by Article 301 of the Constitution of India.  

The first challenge to this Act was made in the case of Bhailal vs. State of Madhya Pradesh (1960). In this case, the High Court of Madhya Pradesh declared the notifications released in furtherance to the Act as violative of Article 301 of the Constitution of India. The ground taken by the court was that there was an illegal levy of taxes on importers when an equal tax was not levied on similar goods produced in the State. 

A similar petition was filed to challenge the levy of tax on the same grounds in the present case. Relying on the judgement of Bhailal, the trial courts decreed the suits filed by the appellants. In an appeal before the High Court, it was contended by the state that the tax could not be imposed in view of Article 301. It was also argued that the suits were not maintainable in view of Section 17 of the Act which provides that no assessment made under the act shall be called into question in any court. The High Court thus held that the suits were incompetent for trial.  An appeal was then filed before the Hon’ble Supreme Court. 

Issues raised 

  • Whether the collection of different rates of taxes from the importer or manufacturer violates Article 301 and Article 304(a) of the Constitution of India? 
  • Whether the suit filed by the appellants is maintainable in view of Section 17 of the Madhya Bharat Sales Tax Act, 1950?
  • Whether the relief of repayment has to be sought by the taxpayer by an action in a civil court or whether such an order can be made by the High Court in the exercise of its jurisdiction conferred by Article 226 of the Constitution?
  • Whether the defence under the Limitation Act, 1963 could be raised in the given case? 

Arguments of the parties

Contentions on behalf of the Appellants

The Appellants referred to Section 9 of the Code of Civil Procedure, which states that the court can try all the civil suits unless expressly barred by the law. This implies that the jurisdiction of the civil courts subsumes all the cases, except to the extent it is excluded by an express provision of law or by clear intendment. 

Further, the appellants also contended that if it was a question of correctness of the imposition within the valid framework of the statute, rules, or notifications, then Section 17 of the Madhya Bharat Sales Act, 1950 might have operated. But it is not the same case when the imposition was under a void law. In case it was a void law, then the assessee was free to challenge the validity of the law in a civil suit along with a claim for a refund.

Further, the Appellant placed reliance on a  number of cases with similar factual matrix like Bhailal Gokal Bhai vs. State of M. P. (1950) and State of Tripura vs. The Province of East bengal (1951). In these cases, it was held that it was mandatory for the commissioner or the authority to refund the taxes that were wrongly collected from the taxpayers. 

A question on the competency of the High Court was also raised. It was argued that in the case of Secretary vs. Mask (1938) and Raleigh Investment and co. vs. Governor – General Council (1943),, the Court considered itself incompetent to resolve a similar suit, than how the High Court adjudicated the matter in the present case. 

Contention on behalf of the Respondents

The main ground of contentions by the state was that such a suit was barred by the provisions of Section 17 of the Madhya Bharat Sales Act, 1950 which bars certain proceedings. It was also argued that as the appeals against the assessment were pending before the sales tax appeal judge, the plaintiffs were not entitled to file the suits. 

It was further submitted that the taxes levied were in accordance with the provisions of Section 3 and Section 5 of the Madhya Bharat Sales Act, 1950. 

Involved legal provisions

This case resolves several questions related to the jurisdiction of Civil Courts and taxing authorities. The following legal provisions are discussed in this case in detail: – 

Provisions of Code of Civil Procedure, 1908 

Section 9 of the Code of Civil Procedure, 1908 

Section 9 of the code establishes the jurisdiction of Civil Courts in India. It states that the courts have jurisdiction to try all civil suits, except those that are expressly or impliedly barred. This jurisdiction is expansive, and the onus to prove the ouster of the jurisdiction is on the party that asserts it. 

Recently, in the case of Sau Rajani vs. Sau Samita & Anr. (2022), the Apex Court observed that “even in cases where the jurisdiction of the civil court is barred by a statute, the test is to determine if the authority or tribunal constituted under the statute has the power to grant reliefs that the civil courts would normally grant in suits file before them.” 

Section 80 of the Code of Civil Procedure, 1908

Section 80 of the Code states that no lawsuit can be filed against the government or a public official for any act that the public official is alleged to have done in their official capacity unless a notice for the same is not sent. This Section also states that a person can only sue after two months have passed since the notice was sent, making it mandatory to send a notice. It has been incorporated into the code to ensure speedy justice by saving valuable time and money for the plaintiff. 

In the case of Ram Kumar and Anr, vs. State of Rajasthan and ors. (2001), the Apex Court explained the language of Section 80 as that a notice is to be given against not only the Government but also against the Public Officials in respect of any act purporting to be done in his official capacity. 

Provisions of Madhya Bharat Sales Tax Act, 1950

Section 3 of the Madhya Bharat Sales Tax Act, 1950

Section 3 of the said Act is the charging Section. It provides for the levy of sales tax on sales and supplies of imported goods. The Act came into force on May 1, 1950. It consists of several sub-sections and speaks of the incidence of tax. This provision lay out tax on the dealer according to their taxable turnover and in the case of a dealer who imported goods into Madhya Bharat, the taxable turnover was Rs. 5000/-. This provision has been discussed in the case of Dhularam in detail. 

Section 5 of the Madhya Bharat Sales Tax Act, 1950 

Section 5 of the said Act lists articles on which sales tax is levied at a certain rate. The tax payable by a dealer under this Act shall be at a single point and shall not be less than Rs. 1-9-0 percent, or more than 6 ¼ percent of the taxable turnover as noticed from time to time by the government by publication in the official gazette. However, the government with respect to certain classes of goods charges tax up to 12 ½ percent on the taxable turnover.

The rate provision was made for rates with respect to importers, the point of time being the import. 

Section 17 of the Madhya Bharat Sales Tax Act, 1950

Section 17 states that no assessment made and no order passed under the Act or the Rules made thereunder shall be called into question in any court. 

Provisions of the Constitution of India

Article 301 of the Constitution of India

Article 301 of the Indian Constitution guarantees the freedom of trade, commerce, and intercourse throughout the country. It is given under Part XIII of the Constitution. Freedom under this Article does not mean absolute freedom but freedom from all those restrictions that are provided in other articles of Part XIII as well as regulatory and compensatory measures. Activities that are criminal or undesirable are not protected by this Article. However, this freedom is guaranteed in its widest amplitude to make sure that there is no unreasonable control, burden, or impediment in commercial intercourse. 

Article 304(a) of the Constitution of India

Article 304(a) allows Indian states to impose taxes on goods imported from other states or union territories. However, the taxes must be the same as those imported on similar goods produced in the state. 

Judgement of the case

While deciding these appeals, Justice Hidyatullah first discussed the jurisdictional issue of civil courts. It was observed that the jurisdiction of civil courts is all-embracing except to the extent it is excluded by an express provision of law or by clear intendment arising from such law. Several judicial precedents were discussed before coming to the conclusion of the case. In Secretary of State vs. Mask (1940), it was laid down by the judicial committee that the ouster of the jurisdiction of a civil court shall not be lightly inferred. It can only be established if there is an express provision of law or is implied in clear terms. 

In, Raleigh Investment Co. vs. Governor General in Council (1947), it was held that when a statute creates a liability of paying tax, along with special and particular remedies against illegal exaction of such tax, then, remedies contemplated therein must be followed. It is not open for the assessee to pursue the ordinary procedure of civil courts. 

Both these cases were decided on the basis of relevant provisions and the acts. The presence of a provision that barred the jurisdiction of the civil courts was the basis of these decisions. The existence of adequate machinery for granting relief was a supplementary reason. 

Further, the court also discussed the case of M/S Kamla Mills Ltd vs. State of Bombay (1965) which was heard by a bench of seven judges. However, due to the open-ended decision of Kamla Mills, the case was not relied upon.

As a result of an extensive discussion in this case, Justice Hidyatullah laid down certain tests: – 

  1. When the legislation gives finality to the orders of the special tribunals, then in such cases civil court’s jurisdiction must be held to be excluded. But it could only be done if there is an adequate remedy to do what civil courts would generally do in such a suit.

Such provision, however, would not exclude those cases where the provisions of the particular Act have not been complied with, or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure. 

  1. Where there is an express bar on the jurisdiction of the court, an examination of the scheme of the particular statute is necessary to find out the intendment. The result of such inquiry may be decisive. 

When there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary, the result of the examination may be decisive. 

It is also mandatory to see if the statute creates a special right or a liability and provides for the determination of the right or liability. Also, whether it further lays down that all questions about the said right and liability, shall be determined by the tribunals so constituted. Along with the issue of whether the remedies associated with such actions in civil courts are prescribed by the said statute or not. 

  1. When a challenge is to be made to the provisions of the concerned Act as being ultra vires, then it cannot be brought before the Tribunals constituted under that same Act. Even the High Court cannot go into that question on a revision or reference from the decision of the Tribunals. 
  2. When a provision is already declared unconstitutional or the constitutionality of any provision is to be challenged, a suit is open. A writ of certiorari may include a direction for a refund if the claim is clearly within the time prescribed by the Limitation Act. However, it is not a compulsory remedy to replace a suit. 
  3. Where the particular statute does not contain any system for a refund of tax collected in excess of constitutional limits or illegally collected, a suit lies.
  4. A civil suit shall not lie if the orders of the authorities are declared to be final or when there is an express prohibition in the particular legislation. This is because questions of the correctness of the assessment apart from its constitutionality are for the authorities to decide. 
  5. Civil Court shall not be excluded by inference until the conditions stated above apply. 

In light of the above-mentioned tests, the present facts were applied. Section 3 of the Act was the charging Section. It talks about the incidence of tax. It consisted of several subsections which laid the tax on the dealer according to their taxable turnover. In the case of a dealer who imported goods to Madhya Bharat, the taxable turnover was Rs. 5000/-. Section 4 further made certain exclusions and section 5 prescribed the rate of tax. 

Therefore, while notifying the rate, the provisions were made for rates in respect of importers. As the import itself talks about the movement of goods, the matter shall fall within the ambit of Article 301. As trade and commerce were declared to be free throughout the territory of India, it became unfree because of the tax that was levied. Thus, due to unequal taxes on products, such notifications were struck down as discriminating and rendering trade and commerce unfree.

It was held that the Madhya Bharat Sales Act contained provisions for appeal, revision, rectification, and reference to the High Court. The notification being void meant that the party could take advantage of the fact that tax was levied without a complete charging section. This affected the jurisdiction of the tax authorities because they could not even proceed to assess the party. Therefore, relying on the judgement of K.S. Venkatraman & co. vs. State of Madras (1965), the appeals were allowed and suits were decreed, setting aside the judgement of the High Court.

On the issue of Limitation, the Hon’ble Court referred to the decision in the case of State of M.P. vs. Bhailal (1964). It was held that when a defence of limitation is to be raised or other issues of fact are to be tried, then the court should send the aggrieved party to seek the remedy by the ordinary mode of a civil suit. Therefore, in cases where the writ was asked for within three years, the court has upheld the order of refund by the High Court. However, in cases where the parties have approached the High Court after a lapse of 3 years, the order of refund was questioned and not approved observing that such relief can be sought in a civil court if not barred by limitation. 

Jurisdiction of civil courts

Civil Courts are the bulwark of a democratic constitution. Section 9 of the Code of Civil Procedure grants the courts in India the jurisdiction to try all civil suits or civil matters unless their cognizance is either expressly or impliedly barred. The provision has an extremely wide ambit, and it does not explicitly mention the type of cases that fall within the jurisdiction of Civil Courts. Due to this, a lot of ambiguity and questions of jurisdiction arise from time to time. 

In, Hriday Nath Roy vs. Akhil Chandra Roy (1928), Calcutta High Court tried to explain the meaning of the term Jurisdiction. The Court held that Jurisdiction is the power of the court to hear and determine a cause, adjudicate, and exercise judicial powers in relation to it. 

In the case, of Shankar Narayan vs. K.. Sreedevi (1998), Apex Court had observed that the civil courts have primary jurisdiction in all types of civil matters as per the Code unless the action is expressly or impliedly barred. This judgement indicates that a civil court’s jurisdiction can be ousted by the legislature by adding a provision in the act itself. 

In, M. Hariharasudhan vs. R. Karmegam (2019), the Supreme Court reiterated the principles laid down in Dhularam’s case and observed that “Exclusion of Jurisdiction of the Civil Court is not readily to be inferred.”

Critical analysis

The decision in the case of Dhulabhai and Ors. vs. State of Madhya Pradesh stands as a significant milestone in the realm of Indian Jurisprudence. This judgement is particularly preferred for its stand on Civil Court jurisdictions, constitutional freedoms, and taxation laws till today. However, the case also involves some complex interpretations of the statutory provisions which makes it a bit difficult to understand. 

The judgement provided clarity on several ambiguities but also gave extensive reasoning and intricate legal analysis creating certain challenges in understanding the clear point of the court. One might say that the application of the precedent of this case in the future would take a lot of work due to its complexity. The court discussed a number of previous cases to decide this case, posing difficulty in understanding which case is relevant and which one is not. 

In regard to the civil court’s jurisdiction, it is important that courts formulate certain guidelines to mitigate potential ambiguities from the law. The existence of special tribunals sometimes might create procedural ambiguities. Besides this, the nullification of tax impositions and recognition of refund claims may have serious implications on taxing authorities and revenue collection. However, the judgement emphasised the importance of filing a case within time limitations but has also accepted cases which are time bound. It depends upon the facts of each case.  This recognition ensures procedural justice and fairness. The tests given by Justice Hidyatullah in this case has played pivotal role in shaping Indian legal jurisprudence. 

Conclusion

In the landmark case of Dhulabhai, the Hon’ble Supreme Court delved into the questions concerning the jurisdiction of civil courts, taxation laws, and constitutional freedoms. The case revolved around the imposition of non-uniform taxes, challenging their legality under Article 301 of the Constitution of India. The court emphasised the expansive jurisdiction of the civil courts unless expressly excluded by law or clear intendment. It elucidated that exclusions must be carefully inferred, especially when statutory remedies are available. The judgement also highlights that where a statute provides finality to tribunal orders, civil court jurisdiction is excluded unless fundamental procedural principles are violated. 

Further, the case also highlighted the challenges to some statutory provisions which are not within the tribunal’s purview but are open to civil courts. It also reaffirmed that suits for refund are maintainable where statutory remedies are absent or time limitations are not breached. This decision set a precedent for upholding civil court jurisdiction and safeguarding constitutional freedoms. 

Frequently Asked Questions (FAQs)

What is the meaning of Ultra Vires? 

Ultra Vires is a Latin phrase that means “beyond the powers”. It is used in law to denote that the concerned law is not within the powers of the concerned authority to make a law or that such law has exceeded what is allowed by law. 

What is the freedom of trade and commerce? 

Article 301 guarantees freedom of trade, commerce, and intercourse throughout the territory of India. However, this right does come with certain restrictions. If the trade is criminal or illegal, then government can impose restrictions and also punish those who go against the law. 

What is the meaning of jurisdiction?

Jurisdiction is the power of the court to hear and determine a cause, adjudicate, and exercise judicial powers in relation to it. 

References

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The post Dhulabhai And Others vs. the State Of Madhya Pradesh (1968) appeared first on iPleaders.