PETITIONER: STATE OF BIHAR Vs. RESPONDENT: ORIENTAL COAL CO. LTD. DATE OF JUDGMENT06/10/1971 BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. GROVER, A.N. CITATION: 1972 AIR 378 1972 SCR (1) 982 ACT: Civil Court-Jurisdiction-Assessment of sales tax-Assessee's place of business outside State-Payment of sales tax outside State-Assessment set aside by appellate authority-Suit, for refund-Filed outside State-if cause of action or part of cause of action arose outside State. HEADNOTE: The registered office of the respondent company was at Calcutta. The respondent company was a registered dealer under the Bihar Sales Tax Act, 1947. it issued cheques to the appellant-State for the amounts due towards sales tax for the years 1950-51, 1951-52 and 1952-53 on a Calcutta Bank and the cheques were encashed there. After paying the tax it appealed and the appellate authority heard the appeals at Calcutta and set aside the orders of assessment. Thereafter, the respondent filed an application the Superintendent of Sales Tax, Dhanbad, in Bihar, for refund of the tax paid by it. Since the request was not complied with, a suit was failed on the original side of the High Court of Calcutta. The respondent urged that a part of the cause of action arose at Calcutta, because, (1) the payments were made at Calcutta under a bona fide mistake of law that it was liable to pay sales tax; (2) its appeals were heard in Calcutta and the orders of the appellate authority were also received ,it Calcutta; and (3) its registered office was situate in Calcutta and it was ?tic duty of the debtor to find the creditor. The trial Judge held that the High Court at Calcutta had jurisdiction but on merits came to the conclusion that the respondent was not entitled to any relief. The Division Bench, on appeal, held that the respondent was entitled to the refund. Allowing the, appeal to this Court, HELD : (1) In view of Sales-tax Continuance Order, 1950 made by the President in exercise of his powers under the proviso to Art. 286(2) of the Constitution as the article then stood and s. 2 of the Sales Tax Laws Validation Act, 1956, the assessments for the periods from April 1, 1950 to March 31, 1951 and from April 1, 1951 to March 31, 1953 respectively were valid. Therefore the payments were not made under a bona fide mistake of law. 1987 C-H, 988 A-DI Sundaramier v. State of A.P. [1958] 1 S.C.R, 422, followed. (2) But the appellate authority had held that the assessments were not valid. 'This order of the appellate authority is not affected by s. 2 of the Sales Tax Laws Validation Act, because that section only validates assessments already made,, 'notwithstanding any judgment, decree or order a court, but not, 'notwithstanding an order made by an authority under the Sales Tax Act'. The validity of the order made by the appellate authority could not also be questioned by the appellant in a civil court in view of s. 23 of the Bihar Sales Tax Act. Therefore, as that assessment,,, made were set aside by the appellate authority, the respondent was entitled to the refund. [988 D-H] 983 (3) But the High Court at Calcutta had no jurisdiction. The fact that the plaintiff based his claim on three alternative grounds, for one of which alone (which however was not a tenable plea) a part of the cause of action can at best be said to have arisen in Calcutta, but not for others, cannot confer jurisdiction on the Calcutta High Court to try the suit on basis of grounds in respect of which no part of the cause of action arose in Calcutta. The cause of action within the contemplation of law is that which relates to a tenable plea. [990 D] (a) Since it could not be said that the payments were made under any mistaken impression of the, law, the fact that the cheques issued by the respondent were encashed at Calcutta did not afford any cause of action for filing the suit in Calcutta. [989 C] (b) (i) Assuming that the encashment of the cheques in Calcutta gave rise to a cause of action at Calcutta for a claim based on the ground that the payments were made on mistaken impression of law, that circumstance could not be said to give rise to a cause of action for the suit on the ground that the respondent was entitled to the refund of the amounts paid because of the order of the appellate authority. [989 D] (ii) In view of the Bihar Sales Tax Rules, 1949, an application for refund could have been made only to the Commissioner whose office was situate in Bihar. The refund could have been made only in accordance with those rules, and as per the rules, the amount could be refunded to a dealer only through one of the State-Government treasuries. Hence, the entire cause of action in respect of the claim for refund on the basis of the appellate authority's order arose only within the State of Bihar, and no part of that cause of action arose outside Bihar. [990 A-C] (c) For the same reasons no part of the, cause of action for claiming the amount on the basis of the doctrine that the debtor must seek his creditor could be said to have arisen outside Bihar.. [990 C] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 307 of 1970.
Appeal from the judgment and decree dated March 10, 1964 of
the Calcutta High Court in Appeal from Original Decree No.
136 of 1960.
D. P. Singh, V. J. Francis, S. C. Agrawal and Naravana
Nettar, for the appellant.
S. T. Desai, Bhuvanesh Kumari, J. B. Dadachanji, 0. C.
Mathur and Ravinder Narain, for the respondent.
The Judgment of the Court was delivered by
Hegde, J. The , respondent original plaintiff (which will
hereinafter be referred to as the plaintiff) is a company
having its registered office at Calcutta. It was a
registered dealer under the Bihar Sales Tax Act, 1947 (in
brief the Act). On or about December 14, 1953, the
plaintiff issued a cheque to the defendant-appellant for a
sum of Rs. 10,000/- drawn on the Oriental Bank of Commerce
Ltd., Calcutta towards the sales
984
tax due from it for the years 1950-51, 1951-52 and 1952-53.
That cheque was sent to Calcutta for encashment and encashed
at that place. On September 25, 1954, the Assistant
Superintendent of Sales-tax passed assessment orders in
respect of the years mentioned earlier. According to those
orders, the plaintiff was liable to pay sales tax amounting
to Rs. 2803/2/- in respect of the year 1950-51; Rs. 3670/5/-
for the year 1951-52; Rs. 4623/6/- for the year 1952-53,
thus a total of Rs. 11,096/13/-. As seen earlier, it had
already paid a sum of Rs. 10,000/- earlier. On July 23,
1955, it paid the balance of Rs. 1096/13/-; this again by a
cheque on the bank mentioned earlier. This was also
encashed at Calcutta.
Aggrieved by the assessment orders made by the assessing
authority, the plaintiff went up in appeal to the Assistant
Commissioner of Sales Tax, Chhotanagpur Division, Bihar.
Those appeals were heard by the appellate authority at
Calcutta. The appellate authority by its order of September
24, 1955 allowed the appeals and set aside the orders of
assessment. Before that order was made, this Court had
ruled in The Bengal Immunity Co. Ltd. v. The State of Bihar
and ors. (1) that until Parliament by law made in exercise
of the powers vested in it by clause (2) of Art. 286
provides otherwise, no State can impose or authorise the
imposition of any tax on sales or purchases of goods when
such sales or purchases take place in the course of inter-
State trade or commerce. on the basis of that conclusion
this Court held that the charging section of the Act read
with the relevant definitions cannot operate to tax inter-
State sales or purchases and as the Parliament has not
otherwise provided, the Act, in so far as it purports to tax
sales or purchases that take place in the course of inter-
State trade or commerce, is unconstitutional, illegal and
void. Evidently that decision was brought to the notice of
the appellate authority at the hearing of the appeals and
that authority purported to act on the basis of that
decision. The appeals in question were allowed with these
observations :
“These three appeals are directed against
assessment orders for the years 1950-51, 1951-
52 and 1952-53.
The only point pressed before me is that since
this is a case of non-resident dealers, there
should have been no assessment. The lower
Court records show that the, workshop of the
plaintiff is situate in Barakar which is
outside Bihar. From here he supplies goods to
collieries in Bihar. In other words, he is a
non-resident
(1) [1955] 2 S.C.R. 603.
985
.lm15
dealer and so, according to the latest decision of Supreme-
Court, he cannot be assessed to pay any tax in Bihar.
These appeals are accordingly allowed in full.”
Sd/- M. Ahmad,
24-9-1955
Assistant Commissioner of Sales Tax.”
It is rather difficult to understand, this order. But
before the High Court Counsel for both the parties agreed
that the decision referred to in the order is the decision
in the Bengal Immunity’s case(1).
On October 12, 1955, the plaintiff filed an application
before the Superintendent of Sales Tax, Dhanbad for refund
of the tax paid by him. This claim was made on the basis of
the appellate order. On January 30, 1956, Sales Tax Laws
Validation Ordinance (No. 3 of 1956) was issued which was
followed up by Sales Tax Laws Validation Act, 1956. The
scope of this Act was considered by this Court in M. P. V.
Sundararamier & Co. v. The State of Andhra Pradesh and Anr.
(2). , Therein this Court by majority held that the Sales
Tax Laws Validation Act, 1956 is in-substance one lifting
the ban on taxation of inter-State sales and is within the
authority conferred on Parliament under Art. 286(2) and
further that under that provision it was competent to
Parliament to enact a law with retrospective operation..
Therein this Court further held that S. 2 of the Sales Tax
Laws Validation Act validates not only levies already
collected but also authorised the imposition of tax on sales
falling within the explanation which had taken place, within
the period specified in s. 2. It was also. held that the Act
was not a temporary one though its operation is limited to
sales taking place within a specified period. Evidently
because of the Sales-tax Laws Validation Ordinance and the
Sales Tax Laws Validation Act, the Superintendent of Sales
Tax, Dhanbad did not comply with the demands made by the
plaintiff Thereafter the plaintiff issued to the defendant a
notice on June 7, 1958 calling upon the defendant to refund
the amount paid by it With interest. The defendant ignored
that demand. Then the plaintiff filed a suit on the
original side of the Calcutta High Court claiming a sum of
Rs. 13,176/69 P. with interest and costs. In the plaint the
plaintiff put forward three different grounds as affording
him a cause of action to institute the suit on the original
side of the High Court. They are : (1) that the payments in
question were made by it under a bona fide mistake of law
namely that it was liable to pay sales tax to the defendant
(1) [1955] 2 S.C.R. 603 (2) [1958] S.C.R. 1422.
L119SuPCI/72
986
during the periods in question; hence it his a right to get
back that amount and as the cheques in question were
encashed at Calcutta, a part of the cause of action arose in
Calcutta. (2) its appeals to the Assistant Commissioner of
Sales Tax were heard in Calcutta and the order of the
appellate authority was received at Calcutta, therefore, a
part of the cause of action on that basis also arose in
Calcutta and (3) its Registered Office is situate in
Calcutta. It is the duty of the debtor to find out the
creditor and pay the debt. Hence it was. open to the
plaintiff to sue, the defendant in Calcutta.
The defendant resisted the plaintiffs claim. It contended
(1) that in view of s. 2 of the Sales Tax Laws Validation
Act, the impugned levy and collection must be considered as
valid, therefore no question of reimbursement arose and (2)
the Calcutta High Court had no jurisdiction to entertain the
suit as no part of the cause of action arose in Calcutta.
The suit was heard by Ray J. (at present a judge of this
Court) on the original side-of the High Court. The learned
judge came to the, conclusion that a part of the cause of
action for the suit did arise in Calcutta for two reasons
viz. (1) the cheques issued by the plaintiff were encashed
at Calcutta and (2) under the, circumstances of the case the
State of Bihar must be held to be the debtor and the
plaintiff its creditor; hence it was the duty of the debtor
to find out its creditor and pay the debt to the creditor at
Calcutta. But on merits, the learned single judge held
against the plaintiff., He came to the conclusion that in
view of s. 21 of the. Sales Tax Laws Validation Act, the
levy and collection must be held to be valid despite the’
order of the appellate authority.
Aggrieved, by that decision the plaintiff took up the matter
in appeal to a Division Bench of the Calcutta High Court and
the appeal was heard by a Division Bench consisting of
Bachawat J. (who later became a judge of this Court) and
Arun K. Mukherjee J. The learned judges of the Division
Bench allowed the appeal in full. On the question whether
an part of cause of action arose in Calcutta, differing from
the view taken by Ray J. they held that the doctrine that
the debtor must find out his creditor and pay the debt did
not apply to the facts of this case because of ‘the rules
trained under the Act under which the refund claimed CA only
be made inside Bihar. But all the same the learned judges
came to the conclusion that as the cheques I issued by the
PI ‘*’were encashed at Calcutta, part of cause of action
must be held to have arisen in Calcutta; therefore,, the
Calcutta ‘High Court had jurisdiction to entertain the suit.
On merits the learned judges came to the conclusion that
whatever might ‘be the
987
effect of the provisions of the Sales Tax Laws Validation
Act, in, view of the appellate authority’s order allowing
the appeals of the plaintiff, whether that order was right
or wrong, the defendant was bound to refund that amount.
According to the Division Bench the order of the appellate
authority became final as it had not been appealed against
nor altered in any manner. It held that the provisions, of
the Sales Tax Laws Validation Act did not override the
decision of the appellate authority.
Let us first take up the question of the validity of the
assessments as original made. This question has to be
examined under two different heads namely the validity of
the assessment .for the period from April 1, 1950 to March
31, 1951 and the validity of the assessments for the
remaining two years. So far .as the assessment for the
first period is concerned, the same was not touched by the
Sales Tax Laws Validation Act. Section of that Act which
validates the assessment already made reads
“Notwithstanding any judgment,. decree or
order of any Court,’ no law of a State
imposing, or authorising the imposition of a
tax on the sale or purchase of any goods where
such sale or purchase took place in the course
of. inter-State trade or commerce during the
period between the 1st day of April 1
951 and
the 6th day of September 1955 shall be-deemed
to be invalid or ever to have been invalid
merely by reason of the fact that such sale or
purchase took place in the course of inter-
State trade or commerce; and all such taxes
levied or collected or purporting to have been
levied or collected during the aforesaid
period shall be deemed always to. have be
validly levied or collected in accordance with
law”
it is clear that this provision only deals with taxes levied
or collected or purporting to have been, levied or collected
during the period commencing April 1, 1951 till September 6,
19 Hence this sect-ion does not take in the assessment for
the year 1950-51. The question of the validity of that
assessment-has, to be separately considered without
reference to the Sales Tax, Laws Validation Act. ‘It is
seen that the levy and collection of tax relating to that
period is governed by the Sales Tax Continuance Order 1950
made by the President in exercise of his powers under the
provision to cl…(2) of Art…286 of the Constitution of
India as that Article stood,then. In view of that order, it
cannot be said that the assessment made for-the year,1950-
51’ is. violative of Art. 286 ‘ The validity of ‘the above
referred order has not been challenged before us. Hence our
conclusion is that the assessment in respect of the year
1950-51 was validly made.
988
Now coming to the validity of the assessments made for the
second period, the same is fully covered by the Validating
provisions contained in S. 2 of the Sales Tax Laws
Validation Act. This section has been given retorspective
effect as from April 1, 1951. Therefore we have to proceed
on the basis of the fiction that the provisions of the Act
relating to levy of tax on inter-State sales have all along
been valid provisions. This position is made clear ‘by the
decision of this Court in Sundararamier’s(1) case.
From the above discussion it follows that if the assessments
made by the assessing authority are examined solely on the
basis of law, there is no ground for coming to the
conclusion that those assessments are invalid assessments.
If they are not invalid assessments then the plaintiffs case
that he made the payments in question under a bona fide
mistake of law is clearly unsustainable. In law, as
interpreted by us, he was bound to make those payments.
But the complicating factor is the order of the ‘appellate
authority. The appellate authority had come to the
conclusion that the impugned assessments were not validly
made. It is that order that gave the plaintiff right to
claim back the amounts paid by it though that order was
partly erroneous even when it was made and it became wholly
erroneous when the Parliament validated the law with
retrospective effect. But, that did not take away the
effect of the order. It was an order made by a competent
authority, which authority, to repeat the often quoted
saying had the right to decide the case before it rightly or
wrongly.
Section 2 of the Sales Tax Laws Validation Act, does not
take in any order made by any of the authorities under the
Sales Tax Act. It merely refers to judgments, decrees or
orders of any court. The orders of the appellate authority
cannot be considered either as judgments or decrees or
orders of the Court. In this view, it is not necessary ‘to
examine the scope of the remaining part of that section.
From what has been stated above, it follows that as the
assessments made were set aside by the appellate authority,
the plaintiff was entitled to the refund of the amounts paid
by him. The validity of the order made by the appellate
authority cannot be called into question in a civil court in
view of S. 23 of the Act. It:says
“Save as is provided in section 25, no
assessment made, and no order passed under
this Act or the rules made thereunder by the
Commissioner or any person. appointed under
section 3 to assist him shall be called
(1) (1958) S.C.R. 1422.
989
into question in any Court, and save as is
provided in section 24, no appeal or
application for revision or review shall lie
against any such assessment or order.”
In- view of that section, the State could not have
challenged the validity of the order made by the appellate
authority before the High Court.
This takes us to the question whether the High Court of
Calcutta had territorial jurisdiction to entertain the
plaintiff’s suit. We have earlier come to the conclusion
that under law, the assessments made by the assessing
authority are valid assessments and therefore it cannot be
said that the payments made by the plaintiff were made under
any mistaken impression of the law. Hence in our opinion
the fact that the cheques issued by the plaintiff were
encashed in Calcutta could not have afforded any cause of
action for filing the suit in the Calcutta High Court.
Assuming but not deciding that the fact of encashment of
cheques in Calcutta gave rise to a cause of action at
Calcutta for a claim based on the ground that the payments
were made on a mistaken impression of law but that
circumstance cannot be said to give rise to a cause of
action for the suit on the ground that the plaintiff is
entitled to the refund of the amounts paid because of the
appellate authority order. In our judgment the High Court
failed to keep apart the two questions namely the claim for
the return of the amount paid on the basis that it was paid
under a mistaken impression of the law and the claim made in
pursuance of the order of the appellate authority. The
payments made by the plaintiff by cheques have nothing to do
with the appellate authority’s order. They have not been
made on the basis of that order. They were made on the,
basis of the original assessments. The only ground on which
the High Court has come to the conclusion that the plaintiff
is entitled to claim refund of the amount paid is because of
the fact that the appellate authority had decided the
appeals in its favour.
Now, let us take up the question whether any part of the
cause of action for the suit arose outside Bihar in
consequence of the order of the appellate authority. As per
rule 40 of the Bihar Sales Tax Rules, 1949 made in pursuance
of the rule making power conferred under the Act, all
applications from a dealer for refund of the excess tax paid
have to be made to the Commissioner in form XIII. Rule 41
provides that when the Commissioner is satisfied that refund
is due, he shall record an order sanctioning the refund.
Rule 42 provides that when an order for refund has been
passed under rule 41, the Commissioner shall, if the dealer
desires payment in cash issue the refund payment order in
form XIV and shall make it over to the dealer for encashment
at the government treasury, a copy of the refund order shall
also be forwarded to the Treasury Officer concerned. Rule
43 says that if the dealer desires
990
payment by adjustment against any amount payable to him, the
Commissioner shall issue a refund adjustment order in form
XV accompanied by a challan for adjustment. In view of
these rules an application for refund could have been made
only before the Commissioner whose office is situate in
Bihar and the refund could have been made only in accordance
with the rules. As per the rules the amount to be refunded
can be paid to a dealer only through one of the government
treasuries. Hence the entire cause of action in respect of
the claim for refund on the basis of the appellate
authority’s order arose only within the State of Bihar and
no part of that cause of action arose outside Bihar. For
the same reasons no part of the cause of action for claiming
the amount in question on the basis of the doctrine that the
debtor must seek his creditor and pay the debt due could
have arisen outside Bihar, in view of the rules referred to
earlier. The fact that the plaintiff based his claim on
three alternative grounds, for one of which alone a part of
the cause of action can at best be said to have arisen in
Calcutta but not for others, cannot confer jurisdiction on
the Calcutta High Court to try the suit on the basis of
grounds in respect of which no part of the cause of action
arose in Calcutta. The cause of action, within the
contemplation of law is that which relates to a tenable
plea.
For the reasons mentioned above we are unable to agree with
the High Court that any part of the cause of action for the
suit arose in Calcutta. Hence we set aside the judgment of
the Division Bench of the Calcutta High Court and restore
that of the single judge but not on the ground that found
favour with the learned judge.
In the result the plaintiff’s suit stands dismissed but in
the circumstances of the case we direct the parties to bear
their own costs both in this Court as well as before the
first appellate court. The order of the trial court as
regards costs stands.
V.P.S. Appeal allowed.
991