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The State of Andhra (Now Andhra Pradesh) Vs. Sri Krishna Cocoanut Company - Court Judgment

LegalCrystal Citation
Subject Sales Tax
CourtAndhra Pradesh High Court
Decided On
Case Number Appeal No. 464 of 1955
Judge
Reported in[1961]12STC294(AP)
AppellantThe State of Andhra (Now Andhra Pradesh)
RespondentSri Krishna Cocoanut Company
Appellant Advocate The Second Government Pleader and ; D. Venkatappaiah Sastry, Adv.
Respondent Advocate G. Chandrasekhara Sastry and M. Suryanarayana Murty, Advs.
Excerpt:
.....being the plaintiff. 9. the above observations, it is true, related as well to suits in which refunds were claimed as to the suit in which the declaration and injunction were asked for. , said at page 773 that 'the assessment moreover, is a composite one covering the pre-constitution period as well. the plaintiff has sought here no declaration as regards the illegality of the order of assessment dated 16th october, 1950. indeed the plaintiff could not well say that the whole of the sum of rs. in that view, it is exceedingly doubtful if the claim for any amount paid before 16th october, 1950, would not be barred by time-as, it would seem, such a claim would fall under article 62 of the limitation act and the suit has been filed on 18th october, 1953. it is quite possible, of course,..........1950, and it is common ground between the parties that all of them are what may be called inter-state sales. on the basis of the periodical returns submitted by the plaintiff, the deputy commercial tax officer, amala-puram, determined the net actual turnover of the plaintiff's business for the aforesaid period at rs. 8,92,699-2-3 by his order dated 16th october, 1950. in that order, he has stated:-'sales are almost (sic) to dealers outside the province but no exemptions are claimed as the (sic) considered perhaps, inadmissible.' 3. his order discloses that the plaintiff was making periodical payments pursuant to provisional assessments made during the year and that out of the total sum of rs. 13,948-6-9 held payable by it for the year in question only a sum of rs. 4,264-6-9 remained.....
Judgment:

Bhimasankaram, J.

1. This appeal is by the State of Andhra and is directed against the decree granted by the Subordinate Judge, Amalapuram, in favour of the plaintiff-respondent which is a firm carrying on business at Ambajipet in the East Godavary District. In the suit, the plaintiff sought to recover from the appellant a sum of Rs. 14,101-13-9 made up of a sum of Rs. 13,948-6-9 stated to have been illegally collected from the plaintiff-firm by way of sales tax under the Madras General Sales Tax Act and a sum claimed by way of interest thereon. The learned Subordinate Judge decreed the first but not the second of these sums. In this appeal, although the State questioned in its memorandum of grounds the entirety of the decree thus made, it is stated at the hearing before us by counsel on its behalf that, in the light of binding authority, it concedes that a part of the amount was rightly decreed. The controversy before us has thus been confined to the question as to whether the decree of the court below should be set aside to the extent to which it is objected to by the appellant.

2. In order to understand the scope of that controversy it is necessary to bear the following facts in mind. At the material point of time, the plaintiff-firm carried on the business of exporting cocoanuts and copra outside the territory of the Madras State within which the East Godavary district was then comprised. The transactions now in question relate to the period from 1st April, 1949, to 31st March, 1950, and it is common ground between the parties that all of them are what may be called inter-State sales. On the basis of the periodical returns submitted by the plaintiff, the Deputy Commercial Tax Officer, Amala-puram, determined the net actual turnover of the plaintiff's business for the aforesaid period at Rs. 8,92,699-2-3 by his order dated 16th October, 1950. In that order, he has stated:-

'Sales are almost (sic) to dealers outside the province but no exemptions are claimed as the (sic) considered perhaps, Inadmissible.'

3. His order discloses that the plaintiff was making periodical payments pursuant to provisional assessments made during the year and that out of the total sum of Rs. 13,948-6-9 held payable by it for the year in question only a sum of Rs. 4,264-6-9 remained to be realised. At the end of his order, the officer directed the issue to the plaintiff of what is known as 'B' Notice for the recovery of the sum. That notice was received by the latter on 8th November, 1950, and payment in compliance with it was made on 28th November, 1950. On 10th August, 1953, however, acting presumably on legal advice based on certain decisions of the High Court of Madras, the plaintiff-firm issued a notice to the Collector of East Godavary district in which it stated that the whole of the sum imposed as tax upon it by the Deputy Commercial Tax Officer by his order dated 16th October, 1950, was illegally levied and collected and was liable to be refunded. In default of such refund, the State was threatened with a suit. As the demand made in the notice was not complied with, the plaintiff instituted the present suit on 19th October, 1953, the three days preceding that date being public holidays. The plaint averred that Explanation (2) to Section 2(h) of the Madras General Sales Tax Act which was inserted by the amending Madras Act XXV of 1947 whereby even outside sales were made liable to tax was ultra vires of the Madras Provincial Legislature (as it then was) and that after 26th January, 1950, when the Constitution of India came into force the levy of the tax offended Article 286(1)(a) and the Explanation there under. On these grounds, the plaintiff asked for a decree against the defendant directing it to refund the sum unlawfully collected by it. The State Government disputed both these propositions in their written statement. But its contentions were overruled by the trial Judge.

4. It is not now disputed for the respondent that the validity of Explanation (2) to Section 2(h) of the Madras General Sales Tax Act cannot be impeached in view of the decision of the Supreme Court in Tata Inn & Steel Co. Ltd. v. State of Bihar A.I.R. 1958 S.C. 452 while it is conceded on behalf of the appellant that the Explanation could not be effective for the period from 26th January, 1950, to 31st,March, 1950. The result of these concessions on both sides is that the levy of the tax upon that part of the plaintiff's turnover which comprises transactions up to 26th January, 1950, would be valid while its levy upon the rest of the turnover would be illegal. One would have thought therefore that the plaintiff would be entitled to a decree for a refund of the sum which was levied upon the latter item. But it has been strenuously maintained by the counsel for the respondent that he is nevertheless entitled to have the decree of the trial Court maintained in its integrity. He has argued that the order of assessment dated 16th October, 1950, is a composite order; that it cannot be split up into two parts consisting of what is good and what is bad; and that the Court is bound to set it aside in its entirety. He adds, however, that this course would not affect the right of the taxing authorities to make a proper and valid assessment afresh. The proposition so submitted seemed to us even at the outset altogether unacceptable and despite the able and elaborate arguments of the learned counsel we remain unconvinced that it is right.

5. Now in this case, we must remember that the plaintiff as well as the defendant proceeded upon the footing that the tax was properly leviable and the plaintiff paid the tax without demur. Naturally therefore it did not take any proceedings to attack the validity of the order of assessment. Nearly three years went by after that order was passed before the plaintiff came to Court complaining that there was an illegal levy. Now, upon the position taken up by the counsel, a substantial portion of the tax was properly levied and collected. But in spite of this fact, says counsel, as a portion of the tax collected-although it is a portion which can easily be determined by the simplest of calculations -cannot be justified by law, his client is entitled to a refund of the whole of the sum received by the State. If this submission be right, then where a tax levied and collected amounts to a lakh of rupees and an objection could be sustained to the levy of a sum of Rs. 1,000 therein, the assessee need not take up the matter in appeal to the authorities to whom appeals lie under the Act, but can wait for nearly a period of three years and then ask the civil Court for a refund of the whole sum of one lakh leaving it to the authorities to take their chance of finding the assessee solvent to realise from him the sum of Rs. 99,000, which by a re-assessment they could rightfully demand. Such a view-would expose the taxing authorities to the liability of having to refund the whole of the tax collected by them in any case in which the assessee comes to the Court and shows that a part of the sum collected could not be legally levied.

6. Mr. Chandrasekhara Sastry for the respondent is prepared however to say that if the amount of the improperly levied tax could be described as de minimis the Court may not direct the refund ; but if it is a substantial sum, although when considered with reference to the amount lawfully leviable it is a small sum, then refund of the whole should be directed by the Court and this should be done in spite of the fact that the two sums are easily separable. This results, he argues, from the order of assessment whereby it is imposed being a composite one. As we have already indicated, we find it difficult to uphold a proposition which leads to consequences which in my opinion are altogether undesirable. We see no logical necessity to reach such a conclusion and cannot bring ourselves to it save by the constraint of compelling authority.

7. It is, therefore, necessary to consider whether the two decisions of this Court upon which reliance has been placed by Mr. Sastry compel us to accept his proposition. The most recent of these decisions is in Basappa v. Provincial Government of Madras (Now Andhra Pradesh) represented by the District Collector, Kurnool [1958] 2 An. W.R. 393. In this case the learned Judges applied to the facts before them what they considered to be the rule laid down by the Supreme Court in Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax A.I.R. 1955 S.C. 765. They were dealing with three suits instituted against the Government, two of which were for refund of sums of money collected by way of sales tax and the other was for a declaration that an assessment was illegal and for an injunction restraining the defendant from collecting the tax levied. The plaints averred that all the transactions with respect to which the tax was imposed were transactions of sale beyond the Province of Madras as it then was. The learned Judges found that the transactions which comprised the turnover fell into the following four categories :

Cases (1) where the plaintiff himself was the consignor as well as the consignee;

(2) where the plaintiff himself was the consignor and the buyer the consignee;

(3) where the buyer was the consignor as well as the consignee ;

(4) where third party was shown as the consignor, the consignee being the plaintiff.

8. The trial Court had held that the transactions which fell in categories (1) and (4) represented sales which took place outside the Province and thus not assessable to sales tax; this conclusion was accepted by the learned Judges. As regards sales which came under the other two categories, the learned Judges held that they took place within the Province and were properly assessed. They then dealt with the contention raised for the appellants that the whole assessment was invalid by reason of its having included an illegal levy, a contention which the learned Judges allowed to be raised for the first time on the appeals before them on the basis of the decision of the Supreme Court we have referred to above. Upon this contention they expressed their view thus:-

'The rule stated in the Supreme Court judgment cited above was that if the 'assessment was one composite whole relating to the pre-Constitirtion and post-Constitution periods it was invalid in toto. We feel that the instant cases fall within the operation of the judgment of the Supreme Court. Some of the dealings which form the basis of the assessments impeached are taxable while others are not assessable. The assessments could not be split up as it was a composite order. On the face of the order, it is difficult to separate the legal from the illegal levies. The sales which are not legally assessable have been blended with those that could be properly taxed and the assessment being a single and indivisible one it should be regarded as invalid in toto. In these circumstances, we have to give effect to the submission of the appellants and hold that the assessments in all the three cases should be rendered void.

9. The above observations, it is true, related as well to suits in which refunds were claimed as to the suit in which the declaration and injunction were asked for.

10. The other case upon which reliance is placed for the respondent is Santhanna v. State of Madras (now Andhra Pradesh) (1957) 2 An. W.R. 269. There, the learned Judges were dealing with appeals from three suits which were brought against the State of Madras. In two of them, the plaintiffs sought refund of amounts collected from them by way of sales tax the levy of which they alleged was illegal and ultra vires while in the other suit the plaintiffs sought a declaration that an assessment was illegal and an injunction restraining the defendant from collecting the tax. In each of the cases the levy was impugned on the ground that the transactions to which they related were 'outside sales'. After discussing the evidence in the cases, their Lordships observed as follows :

Having regard to what has been stated above, we hold that where the consignor and consignee is the seller and the consignor is miller and consignee (the) plaintiff, the sales took place outside and no sales tax is leviable on those transactions and in the other two cases where the consignor is seller and consignee (the) buyer and where the consignee and consignor is buyer the sales took place inside the Province and are liable to sales tax under the Act.

11. Then they dealt with the contention, to quote their own words, 'that the assessment being a composite one dealing with transactions which are taxable and those that are not taxable, in each of A. S . Nos. 295 and 296 of 1952, it cannot be split up and the whole thing is said to be infected and must be held to be invalid', and discussed what they considered to be the rule laid down in Ram Narain Sons Ltd. v. The Assistant Commissioner of Sales Tax A.I.R. 1955 S.C. 765. In doing so they cited the observations of the Privy Council in Bennett & White (Calgary) Ltd. v. Municipal District of Sugar City [1951] A.C. 786 which their Lordships of the Supreme Court had adopted and applied in the above decision, and those of Anglin, C.J., in Montreal Light, Heat and Power Consolidated v. City of Westmount (1926) S.C.R. (Can.) 515 upon which they were based and wound up their discussion with these remarks :

The above principle of law was held to apply not only to the appeals arising out of the writ petitions under Article 226, but also in the assessment the subject-matter of the petition under Article 32 where the sales outside the States, namely, Kanpur, Bombay, Lucknow and Faizabad separately shown as item (d), was held to have been completed in Uttar Pradesh and the turnover could not be taxed by the State of Madhya Pradesh. With respect to the said item also which could easily be separated even where the remedy was sought by way of a writ, Bhagwati, J., said at page 773 that 'the assessment moreover, is a composite one covering the pre-Constitution period as well. The case therefore falls within our judgment in Civil Appeals Nos. 132 , 133 and 137 of 1955 just delivered'.

12. Upon this reasoning, the learned Judges decreed the claim for refund in one of the suits in toto and although their reasoning required that the other claim for refund also should be decreed in its entirety they decreed it only in part apparently on account of in advertance ; they further allowed the appeal which arose out of the suit for a declaration and injunction and gave the plaintiff the relief asked for.

13. These decisions no doubt lend support to the proposition urged by the respondent because in each of them the plaintiffs claiming repayment obtained; decrees for the total sums paid by way of tax, in spite of the fact that the levy was illegal only in part. They seem to have proceeded upon the footing that there was no distinction between a case where a litigant seeks a declaration that an order of assessment is illegal and a case where he seeks repayment of money alleged to have been illegally collected from him. It seems to us, however, that there is in principle a vital distinction which is indicated by the recent decision of the Supreme Court in Sales Tax Officer, Banaras v. Kanhaiya Lal Mukund Lal Saraf [1958] 9 S.T.C. 747 . The cause of action in the former case is the improper order of assessment while the cause' of action in the latter case is the payment or collection. No attempt was made in either case to ascertain what is the foundation upon which a claim for refund rests. The learned Judges would seem to have thought that the cause of action which the plaintiff has in seeking the repayment is not the collection of the amount from him but the invalidity of the order of assessment which preceded the collection. They had not the advantage which we now have, of the guidance afforded by the above decision of the Supreme Court on this aspect of the law. In this decision, it seems to us, their Lordships have indicated the true basis upon which a claim for repayment of tax illegally levied could be founded. Such a claim they held falls within the scope of Section 72 of the Indian Contract Act. They observed that under that section, a mistake of law just as much as a mistake of fact, could sustain a claim for repayment and that if neither mistake of law nor of fact is established, 'the party may rely upon the fact that moneys have been paid under coercion'. It seems to us that this decision necessarily implies that in a suit for repayment of tax the gist of action is the mistaken payment or the coercive collection. Section 72 of the Contract Act contemplates no declaration; and, in a case for refund of money voluntarily paid or forcibly collected by way of tax no declaration as to the invalidity of the assessment order would be called for. It may be that an examination of that order would be necessary in order to pronounce upon the merits of the plaintiff's claim. But no question of setting it aside would arise and the reasoning of the Supreme Court in the case of Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax A.I.R. 1955 S.C. 765, would not, we venture to think, apply to such a case. There, it must be emphasised, an order of assessment was directly attacked and the observations of the Privy Council upon which their Lordships of the Supreme Court relied were also made in a case where the legality of an assessment order as such was called in question. In Montreal Light, Heat and Power Consolidated v. City of Westmount [1926] S.C.R. (Can.) 515 the case in which appear the observations of Anglin, C.J., cited with approval by their Lordships of the Privy Council, the Supreme Court of Canada was dealing with an action brought by a Corporation to recover municipal taxes upon the basis of an assessment order the legality of which was challenged by the appellant before it. In none of these cases did the question of repayment arise. Further, the following observations of the Supreme Court in Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax A.I.R. 1955 S.C. 765, at 770 show that even on the basis of the rule of law enunciated by them the transactions could not be easily separated into what are taxable and what are not:

The validity of the assessment in regard to the same (the pre-Constitution period) would have to be canvassed having regard to the various contentions of law and fact which could be urged against the same by the appellants.... They would, however, appropriately arise and be urged by the appellants when the liability to assessment for the pre-Constitution period is to be determined and if we were to determine that liability we would have to deal with the same.

14. The court, it must be remembered, is not a taxing authority. All taxes should be levied and collected in accordance with law by the appropriate authorities. Where an order of assessment includes items which are not taxable and which are further inseparable from other items which are taxable then the order is liable to be set aside in toto. Where they are separable, the order may be partly set aside. In a claim for refund by an assessee where tax has already been collected, the court is concerned to determine the exact amount which has been paid under mistake or collected by force and the plaintiff suing for repayment must allege and prove with precision the sum so paid or exacted at any rate in all cases where it is possible for him to do so. We are inclined to hold that, where the plaintiff can easily establish and the court will have no difficulty in finding what is the exact amount paid in excess, then the court should insist upon his doing so.

15. Apart from these considerations which are based upon the subsequent decision of the Supreme Court in Sales Tax Officer, Banaras v. Kanhaiya Lal Mukund Lal Saraf [1958] 9 S.T.C. 747 and the distinction in principle between a claim for refund of tax and a direct challenge of the correctness of an assessment order, it seems to us that in the present case there are certain features which would take it out from the ratio of the two decisions of this Court relied on by the respondent. The plaintiff has sought here no declaration as regards the illegality of the order of assessment dated 16th October, 1950. Indeed the plaintiff could not well say that the whole of the sum of Rs. 13,948-6-9 which was paid by it with respect to its tax liability for the year 1949-50 was paid pursuant to that order, exhibit B-8. The assessment order shows that the plaintiff had already paid a sum of Rs. 9,684 and what remained to be collected by the department from the plaintiff by virtue of that order was only Rs. 4,264-6-9; it shows that the 'B' notice was to be issued to the plaintiff for recovery only of this sum. The plaintiff therefore cannot say that the sum of Rs. .9,684 was paid because of that order. It is not disputed that this sum was paid before 16th October, 1950, and on the basis of what are known as . provisional orders of assessment. Thus even if the order dated 16th October, 1950, should be set aside the only relief which the plaintiff could consequentially obtain is refund at the most of Rs. 4,264-6-9, and-not the entire sum for the recovery of which the suit is laid. The plaint makes no mention of this prior payment. Nor does it allege any specific legal basis for the refund except to say that the levy is illegal. Mistake is not pleaded as it was in the case before the Supreme Court, and presumably the basis is thus forcible collection. In that view, it is exceedingly doubtful if the claim for any amount paid before 16th October, 1950, would not be barred by time-as, it would seem, such a claim would fall under Article 62 of the Limitation Act and the suit has been filed on 18th October, 1953. It is quite possible, of course, that the State Government might not raise the plea of limitation but the court might well be compelled to dismiss the claim under Section 3 of the limitation Act. Be that as it may, it is clear that in so far as the plaintiff made payment under the provisional assessment orders, it must be held that he was making a payment in anticipation of the order dated 16th October, 1950, and not because of it. We may incidentally note that it has been held by the Madras High Court in M.P. Kumaraswami Raja, In re, [1955] 6 S.T.C. 113 that such provisional orders could not be legally made under the Act as it stood. (There has been an Amendment Act validating such orders retrospectively since 1939 but that would only prevent claims for refund). So, the payment of Rs. 9,684 was a payment de hors a proper assessment order towards the tax. Thus it is clear that it would not help the plaintiff to have the order dated 16th October, 1950, set aside. Morever, as we have already stated in the present case, the facts are all available and it would be mere matter of elementary arithmetic to determine which part of the sum collected by the appellant could be attributed to illegal assessment. Even a most superficial examination of the relevant record would show what turnover of the plaintiff relates to the period before 26th January, 1950, and to the subsequent period. It would not be beyond the capacity of the court to determine that amount: and we cannot see how it is beyond its jurisdiction.

16. We would, therefore, hold that the plaintiff is not entitled to claim a refund of the amount of tax relating to transactions before 26th January, 1950. On this basis it is agreed that the plaintiff would be entitled to a decree for a sum of Rs. 2,079-14-0. This figure will be substituted in the trial court's decree for the figure of Rs. 13,948-6-9. The parties will bear their own costs both here and in the court below.


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