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PETITIONER: K.   S. VENKATARAMAN & CO.

       Vs.

RESPONDENT: STATE OF MADRAS

DATE OF JUDGMENT: 18/10/1965

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. WANCHOO, K.N. SHAH, J.C. SIKRI, S.M. RAMASWAMI, V.

CITATION:  1966 AIR 1089            1966 SCR  (2) 229  CITATOR INFO :  RF         1966 SC1113  (13)  R          1966 SC1412  (8)  R          1966 SC1738  (4)  F          1968 SC 271  (12)  RF         1968 SC 579  (8)  RF         1968 SC1286  (6,7)  RF         1969 SC  78  (18)  RF         1969 SC 453  (2)  R          1973 SC2117  (5)  RF         1975 SC2238  (16,22)  D          1983 SC 603  (7)  RF         1986 SC1556  (25)  RF         1988 SC 752  (9)

ACT: Madras General Sales Tax Act (9 of 1939), s. 18A-Tax  levied under   ultra  vires  part  of  section-Suit   for   refund- Maintainability-Limitation.

HEADNOTE: 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-tax on the  basis  that the  contracts executed by them were "works 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   indivisible   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. 18A 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, indivisible works contracts were held by this Court also  to

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be  without legislative competence and void, and  therefore, s.  18A did not bar a suit for the recovery of tax  assessed under  ultra vires provisions; and (ii) the suit was  within time. HELD:  (i)  (per  Subba Rao, Wanchoo  and  Sikri,  JJ.)  The assessments  in  the present case were 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 powers 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 Actand not under  it in making an assessment on the basis of the relevant part of the  charging section which was declared to, be ultra  vires by  this  Court,  and  hence s. 18A was not  a  bar  to  the maintainability of the suit. [237 F-G; 252 D-E; 253A] If  a statute imposes a liability and creates  an  effective machinery  for deciding questions of law or fact arising  in regard to that liability, it may, by necessary  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 vires of that statute: or any of the  provisions thereof, where under it functions.  It  must act  under  the Act and not outside it.  If it acts  on  the basis  of a provision of that statute which is ultra  vires, to  that extent it would beating outside the Act.   In  that event, a suit to question the validity of such an order made outside  the Act would certainly lie in a civil  court,  The foundation laid by the Judicial Committee in 230 Raleigh  Investment Co. case for construing  the  expression "under the Act" has no legal basis.  The entire reasoning of the  Judicial 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 assessee  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.  ’Me 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 thereunder is really one outside  the  Act. [240H; 247H; 248 B, D-H; 252 B-D, G-H] There  is  no  justification for  confining  the  expression

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"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  the substantive  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 D] In  substance this Court held in the Gannon  Dankerley  case that the definition of "sale" in s. 2(h) must be read in the light  of  and restricted by the legislative  power  of  the Provinces as contained in Entry 48 in List 11, Schedule  VII of the Government of India Act, 1935; and on that view, if a works  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 this Court did not declare the clause ultra  vires:  the Court merely directed that the  power  to levy  tax  in  respect of a works, contract  is  not  wholly denied to the Provinces or States; in each case it has 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 clement of sale of goods would be taxable.   The approach  conforms to a recognised rule.  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 read words used in  a statute as- subject to the 231 restrictions  imposed by the Constitution  upon  legislative power,   so  that  the  statute  may  harmonise   with   the constitutional  restrictions.  This rule applies unless  the restricted  meaning  of  words makes  the,  legislation  in- complete,  unintelligible  or  unmeaning.   Apparently  wide words of the definition clause and the charging section will not,  on  account of such restrictions,  be  rendered  ultra vires  or  invalid ; the words will be construed  so  as  to confer power upon the taxing authorities to assess tax  only within limited field. [259 F-G; 260 E-G-H; 261 A-C 263 G] Re : the Hindu Women’s Rights to Property Act, 1937,  [1941] F.C.R. 12, applied. Ordinarily a taxing authority has power to ascertain whether the transaction before him is taxable, and for that  purpose he  may  determine  facts  which  have  a  bearing  on   the taxability  of  the  transaction.   He  has  also  power  to interpret the provisions of the taxing Statute as well as of any  other  statute  which has a bearing  on  the  question. Within his jurisdiction is included power to decide  finally whether  the  transaction  submitted  to  his  scrutiny   is taxable.   His decision is open to challenge by  appropriate proceedings  in the hierarchy of tribunals set up  for  that purpose, but not outside the Act. [263 H; 264 B] Kamala  Mills  Ltd. v. State of Bombay, [1966] 1  S.C.R.  64

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followed. 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 invested with power in  that behalf.  By enacting s. 18A the legislature did  no more  than enact what was clearly implicit in the scheme  of the  Act.  Absence of the section from the statute book  for the  first  two  years  of assessment  is  therefore  of  no materiality. [268 G-H; 269 A] Even  on the assumption that the portion added by Act 25  of 1947 into the definition of ’sale’ was subsequently declared ultra vires by this Court in the Gannon Dunkerley case,  the suit to set aside or modify an assessment on the  assumption that   the   definition   was  wholly   invalid,   was   not maintainable.   The. taxing officer in exercising his  power may  err;  but he has authority to err in exercise  of.  his jurisdiction.   It matters 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 exempted commodity or is an exempted sale,  or because it is not a transaction of ale, and there are  ample indications  of an implication to, the contrary.  If  by  an erroneous   decision,   he,   can   clothe   himself    with jurisdiction,  which on a true view of the facts or  law  he does  not possess, it is difficult to appreciate the  ground on  which  it  can  be asserted  that  he  must  decline  to adjudicate when the vires of a part of the statute which  he has to administer fall to be determined.  In a large  number of  cases  in which 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  statute  under  which  the authority  functioned was raised, entertained  and  decided. [269 B-C, G-H; 270 B, D-E; 271 C-D] Raleigh Investment Co. Ltd. case, applied. Under the Act, therefore, the Deputy Commercial Tax  Officer had  jurisdiction  to  determine  whether  the   appellant’s transactions  were assessable under the.  Act.  He may  have committed a mistake, even a grevious 232 mistak.  but  he had jurisdiction to  decide  the  question. Exercise  of  that jurisdiction was not conditioned  by  the correctness of his conclusion. [265 B-C] (ii) (By  Full Court) : The suit was governed by art. 96  of the  Limitation  Act, 1908, and that  article  prescribes  a period  of  limitation  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  their mistake when the High Court gave its  decision  on 5th  April 1954, the suit filed on 23rd March 1955 was  well within time. [253 F-H; 255D] State  of Kerala v. Aluminium Industries Ltd.  C.A. No.  720 of 1963.  Decided on April 21, 1965 (unreported) followed.

JUDGMENT: 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.

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S.   T.  Desai, K. R. Venkatram and S. Venkatakrishnan,  for the appellant. A.   Ranganadham  Chetty and A. V. Ramgam, for  the  respon- 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  ’the question  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 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(1) that the relevant provision of the Madras  General Sales  Tax  Act empowering the State of  Madras  to.  assess indivisible building contracts to sales tax 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 complied with, on March 23, 1955, they filed O.S. No. 2272 of 1955 (1)  5 S.T.C. 216.                             233 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 contracts  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 defenses.   It  pleaded,  inter alia, 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  law  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(1), that  the  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  r, 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 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  (1) (i) of the Madras General  Sales  Tax

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Act, 1939, hereinafter called the Act,,read with r. 4(3)  of the  Turnover  and  Assessment Rules,  so  far  relevant  to indivisible  works contracts, 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 He  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 (1)  (1947) L.R. 74 I.A. 50. 234 barred  by  limitation,  as art. 96 of  the  Limitation  Act governs  the said suit and in terms 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 reading of the provisions of s. 18-A of the Act it should be held  that a suit to set aside 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  component  parts, power  and process, under the Act and not its con-tent.   If it  be held that it refers to the content, it will  lead  to anomalies,  for  in  making  an  assessment  the   assessing authority  has to consider the principles of different  laws 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.  Any provision of the Act relating to the content of assessment cannot have a higher sanctity than a provision of law other than the Sales-tax law 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 assessment  under the machinery of the Act.  In  short,  his argument  is  that the principle laid down  in  the  Raleigh Investment Co.’s case(1) directly applies to a similar  case arising under the Act.  His further contention is that  this Court  had not declared the relevant provisions of  the  Act ultra  vires and even if it had, 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 G 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   buildings,               bridges, drains H roads, on lump-sum basis  or               on the basis of tender               (1)   L.R. 74 I.A. 50.               23 5               accepted  by  the other  contracting  parties.               During  the  years  1948-49  to  1953-54   the               plaintiffs  were  assessed  to  sales-tax   on               various  sums  mentioned  in  the  particulars

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             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 Sales-tax (Turnover  and               Assessment) Rules, 1939." In  paragraph  4  of the plaint they 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 Court in Gannon Dunkerley  & Co.  v. The State of Madras(1) and stated that they came  to know of their mistake on April 5, 1954, when the Madras High Court   delivered  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   were   unconstitutional   and    without jurisdiction,  in  view of the decision of the  Madras  High Court in Gannon Dunkerley & Co.’s case(1).  There were 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 decision of the Madras High Court in Gannon Dunkerley  & Co.’s  case(1), but stated that the said  decision  required reconsideration  and that the matter was pending  in  appeal before this Court.  Issue (1) framed   by  the  City   Civil -Judge reads : "Has sales-tax for the years 1948-53 been validly 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 entered into works contracts only  and there  was no element of sale of the materials used  in  the buildings separately in the said contracts.  He observed               "It   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." In  the  High  Court  no attempt was  made  to  canvass  the correctness  of  that  finding.   Indeed,  the  High   Court proceeded on the basis (1)  5 S.T.C. 216. 236 that  the appellants’ turnover from the works contracts  was computed  in accordance with the rules framed under the  Act and  that  the  decision in the  Gannon  Dunkerley  &  Co.’s case(1)  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 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 effect of the decision of this Court in Gannon Dunkerley and Co.’s case(1) on the said section.               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

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             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 (1) : 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-               (1)           5          S.T.C.           216.               (2) [1959] S.C.R. 379.               237               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:               "For  the purpose of sub-rule (1), the  amount               for which goods are sold by a dealer shall, in               relation to a works contract, be deemed to  be               the amount payable 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 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 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 arc 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

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Court in Gannon Dunkerley and Co.’s case(1) 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 State, contended that  this Court  did not hold the said provisions; to be ultra  vires, but  in effect and substance construed them so as  to  limit their operation only to works contracts involving an element of sale of materials.  We have gone through the judgment and 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 of the State Legislature.   After considering the relevant (1)  [1959] S.C.R. 379. 238 constitutional provisions and the relevant authorities, this Court  ,came  to  the definite  conclusion  that  the  State Legislature had no competence to impose a tax on indivisible building  contracts.  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 would be unconstitutional in so far as they dealt with  indivisible  building  contracts.  If  there  was  any ambiguity,  that  was made ,clear by this  Court  in  Pandit Banarsi Das Bhanot v. The State of Madhya Pradesh(1),  which was  decided  on April 3, 1958, wherein in  the  context  of similar provisions in the Central Provinces and Berar  Sales Tax Act, 1947, 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(1)  held that  the said provisions of the, Madras General  Sales  Tax Act,  1939, in so far as they enabled the 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 ,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(3). Before  we consider the scope of the said derision, it  will be  convenient  to notice some of the  propositions  of  law settled  in the context of the ouster of jurisdiction  of  a civil court, Under s. 9 of the Code of Civil Procedure, "The Courts  shah  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 statute creates a new offence or a new right and prescribes a particular penalty or special remedy.  In  that event,  no other remedy can, in the absence, of evidence  of contrary  intention, be resorted to : see Wolverines in  New Water-works  v.  Hawkesford(1).  The general  rule  is  that statutes  affecting  jurisdiction  ,of  courts  are  to   be construed, so far as possible, to avoid the

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(1)  [1959]  S.C.R.  427                        (2)   (1959] S.C.R. 379 (3) L.R. 74 I.A. 50                         (4) 1859 6  C.B. (N.  S.) 336 239 effect  of  transferring the de-termination  of  rights  and liabilities from the ordinary courts to executive officers : see Winter v. Attorney-General(1).  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 executive authority has acted  ultra vires its powers : see King-Emperor v.  Sibnath Banerji (3 ) and Mohammad Din v. Imam Din (4 ). So far there is,  or  can be, 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 This  brings us to the consideration of the decision of  the Judicial Committee in Raleigh Investment Co.’s case(5).   As the arguments at the Bar mainly turned upon the  correctness of  this decision it is necessary 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,  its  main office in England, held shares in nine companies carrying on business in British India.  Some of those companies were in- corporated 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  received by the appellant company  from  the nine companies were declared, paid and received in England : no  part  of them was ever remitted to British  India.   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 ordinary original civil jurisdiction claiming a  declaration that in so far as explanation 3 and the other provisions  of s. 4 of the Indian Income-tax Act, 1922, as amended to 1939, purported to authorize the assessment and charging to tax of a  non-resident  in  respect of dividends  declare  or  paid outside  British India, but not brought into British  India. those provisions were ultra vires the legislature, (1) (1875) L.R. P.C. 380.     (2) A.I.R. 1963 S.C. 1547. (3) (1945) L.R. 72 I. A. 241.(4) (1947) L.R. 74 1. A. 322. (5)  (1947) L.R. 74 I. A. 50.      Sup. C.I.166-2 240 and  that  the  assessment was illegal  and  wrongful.   The Judicial  Committee 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  Indian 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

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than  as  an  assessment made under the Act.   This  was  an argument similar to that now advanced by Mr. Desai on behalf of the assessee.  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  the  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 enactment 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 con- 241 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 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(1) 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 conclusion  the Judicial Committee found strong  support  in

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the decision in Raleigh Investment Company’s case (2).  This is  not  a  case  where  the  income-tax  officer  made   an assessment under a provision which was ultra vires. In  Raja  Bahadur  Kamakshya  Narain  Singh  of  Ramgarh  v. Commissioner of Income-tax, Bihar(3), the Federal Court  was 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 Raleigh’s case(1), Kania, J., as he then was, observed :               "These  observations  clearly  show  that  the               right of appeal and the machinery provided  in               the  Income-tax Act to take a question of  law               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."               (1)   (1947) L.R. 74 I.A. 306.               (2) (1947) L.R. 74 I.A. 50.               (3) (1947) F.C.R. 130,138-139.               242 These  observations ex facie do not support  the  contention that  the question of ultra vires of a  statutory  provision could be canvassed through the machinery provided under  the statute.  That apart, in 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(1) is in  The State  of  Tripura v. The Province of East  Bengal(1).   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 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 suit  in  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 said Act in so far as it purported to impose a liability to pay agricultural  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               "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." Relying  upon the decision in Raleigh  Investment  Company’s case(1)  it  was contended that the said section was  a  bar against  the maintainability of the suit.  The authority  of the  said  decision, as Fazl Ali, J., pointed out,  was  not questioned  before  this Court.  But the Court  by  majority held  that  the  suit  was  maintainable  and  distinguished Raleigh’s  case on the ground that the suit was not  to  set aside  or modify the assessment.  The proposition laid  down by  the Judicial Committee in Raleigh’s case,  namely,  that the  machinery provided by the Act should be  followed  even

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when  the contention of the assessee was that  the  impugned Act or any provision thereof was ultra vires, would  equally apply whether the suit was instituted before tile assessment was made or thereafter. (1) (1947) L.R. 74 I.A. 50. (2) [1951] S.C.R. 1. 243 To  the  extent this Court held that such a suit  would  lie before the assessment was made for an injunction restraining the  authority  from proceeding with the assessment  on  the ground  of ultra vires, it detracts from the correctness  of the decision in Raleigh’s case(1). This Court in Firm and Illuri Subbayya Chetty & Sons v.  The 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, the, appellants  were  carrying  on commission  agency  and other businesses at Kurnool  and  as such  they  were  purchasing and  selling  groundnuts.   The sales-tax  authorities  during the relevant period,  on  the basis  of  the returns made by the assessees,  assessed  the total turnover of the dealers and collected the tax thereon. Having  paid the tax, the assessees claimed to recover  part of  the tax collected from them on the ground that the  said tax  was wrongly collected on the turnover representing  the groundnut  sales.  This Court held that the expression  "any assessment made under this Act" was wide enough to cover all assessments  made by the appropriate authorities  under  the Act, whether the said assessments were correct or not.   The following principle was accepted:               "It  is the activity of the assessing  officer               acting as such officer which is intended to be               protected  and  as soon as it  is  shown  that               exercising  his  jurisdiction  and   authority               under this Act, an assessing officer has  made               an  order  of assessment  that  clearly  falls               within  the scope of s. 18-A.  The  fact  that               the  order passed by the  assessing  authority               may  in  fact be incorrect or wrong  does  not               affect  the  position that in  law,  the  said               order  has  been  passed  by  an   appropriate               authority  and the assessment made by it  must               be treated as made under this Act." But this Court, after considering the decision in  Raleigh’s case(1) expressly left open the question whether s. 18-A  of the  Act would apply to a case where a particular  provision of  the  Sales-tax Act bearing on the  assessment  made  was ultra vires.  Adverting to that question, it observed thus :               "It  is true that the judgment shows that  the               Privy  Council  took the view  that  even  the               constitutional   validity   of   the    taxing               provision  can be challenged by  adopting  the               -procedure  prescribed by the Income-tax  Act;               and  this assumption presumably  proceeded  on               the basis that               (1)  (1947) L.R. 74 I.A.  50.               (2) [1963] 1 S.C.R. 752, 760, 764.               244               if an assessee wants to challenge the vires of               the taxing provision on which an assessment is               purported to be made against him, it would  be               open  to  him to raise that point  before  the               taxing  authority and take it for  a  decision               before  the High Court under S. 66(1)  of  the               Act.   It is not necessary for us to  consider               whether  this  assumption is well  founded  or

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             not." The   correctness  of  the  said  assumption  falls  to   be considered  in  the present case.  In this case  this  Court applied  the  decision  in  Raleigh’s  case(1)  only  to   a situation  where  the sales-tax authority was said  to  have included  in  the  turn-over certain  transaction  which  he should not have included therein. In  Kalwa  Devadattam v. The Union of India(2) sons  of  one Nagappa, whose joint family had been assessed to income-tax, filed  a suit for a declaration that the  assessment  orders were  unenforceable against the property attached  and  that the  sale  of the property by the  revenue  authorities  was without  jurisdiction for the reason that the said item  did not  belong  to  the joint family  but  was  their  separate property.  This Court held that s. 67 of the Income-tax  Act barred  a  suit  in so far as it sought  to  set  aside  the assessment.   This  was  also a case  where  the  plaintiffs sought  to set aside the order of assessment on  the  ground that it was vitiated by an error. This  Court  again considered the scope of the  decision  in Raleigh’s  case(1) in Bharat Kala Bhander Ltd. v.  Municipal Committee,  Dhamangaon (3 ) . There the question raised  was whether  the  suit  filed  by  the  appellant  against   the Municipal  Committee, Dhwnangaon, for refund of  the  excels tax  paid  on ginned cotton was barred under s.  48  of  the Central  Provinces Municipalities Act, 1922.  The  cause  of action  alleged was that the said excess tax collected  from the  appellant  was  in  derogation  of  the  constitutional prohibition  under  Art. 276 of the Constitution  of  India. Under  S.  48 of the said Act, no suit shall  be  instituted against any committee for anything done or purporting to  be done  under  the Act until the prescribed notice  was  given within  the prescribed time and manner and every  such  suit should  be  dismissed if it was not  instituted  within  six months from the date of the accrual of the alleged cause  of action.   For the Municipal Committee reliance  was  placed, inter alia, on Raleigh’s case(1) and it was contended  that, as  the said Act prescribed a machinery for  canvassing  the correctness of the assessment and enacted a bar (1)  (1947) L.R. 74 I.A. 50.                  (2)  [1964]  3 S.C.R. 191. (3)  [1965] 3 S.C.R. 499.                             245 against the maintainability of a suit, the appellant  should have raised the plea of constitutional invalidity before the tribunals  ,constituted under the Act and that the suit  was not  maintainable.   This  Court, on  a  comparison  of  the provisions  of  the  said  Act  :and  the  Income-tax   Act, distinguished  Raleigh’s  case(1) on the  ,ground  that  the machinery provided under the said Act was neither exhaustive nor  effective.   That apart, the  majority  considered  the decision  in  Raleigh’s  case(1)  and  made  the   following observations :               "But,  with respect, we find it  difficult  to               appreciate  how taking into account  an  ultra               vires provision which in law must be  regarded               as  not being a part of the Act at  all,  will               make  the assessment as one "under  the  Act".               No  doubt the power to make an assessment  was               conferred by the Act and, therefore, making an               assessment would be within the jurisdiction of               the assessing authority.  But the jurisdiction               can  be exercised only according, as  well  as               with  reference, to, the valid  provisions               of  the  Act.  When,  however,  the  authority

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             travels beyond the valid provisions it must be               regarded   as   acting  in   excess   of   its               jurisdiction.  To give too wide a construction               to the expression "under the Act" may lead  to               the serious consequence of attributing to  the               legislature,  which owes its existence  itself               to   the   Constitution,  the   intention   of               affording protection to unconstitutional acti-               vities  by limiting challenge to them only  by               resort to the special machinery provided by it                             in place of the normal remedies availa ble under               the  Code  of Civil Procedure, that is,  to  a               machinery  which cannot be as  efficacious  as               the  one provided by the general law.  Such  a               construction     might     necessitate     the               consideration of the very constitutionality of               the provision which contains this  expression.               This  aspect of the matter does not appear  to               have  been  considered in  Raleigh  Investment               Co.’s case(1)." These  observations  by  this  Court  clearly  question  the correctness  of the decision in Raleigh’s case(1) in so  far as it held that s. 67 of the Income-tax Act was a bar to the maintainability of a suit, even if an assessment was made on the  basis  of  a  provision  which  was  ultra  vires   the Constitution.   Though  in a sense it may be said  that  the said observations are in the nature of obiter, they are  the considered views of this Court. (1)  (1947) L.R. 74 I.A. 50. 246 The decision in Raleigh’s case (1) was again considered by a Bench of this Court in M/s.  Kamala Mills Ltd. v. The  State of  Bombay (2) . There the Sales-tax Authority held  on  the material  placed before him that certain  transactions  were inside  sales  and on that basis assessed the  appellant  to sales-tax.  The appellant filed a suit on the original  side of  the  Bombay High Court to recover the  amount  from  the respondent  on the ground that the Sales-tax Officer had  no jurisdiction  to,  assess the outside sales in view  of  the judgment  of this Court in The Bengal Immunity Co., Ltd.  v. The State of Bihar(1).  It was contested by the  respondent, inter alia, on the ground that S. 20 of the Bombay Sales Tax Act,   1946,   (No.   V  of  1946),  was  a   bar   to   the maintainability  of the suit.  This Court accepted the  said contention and held that s. 20 of the said Act was a bar  to the  maintainability of the suit.  Under s. 20 of  the  said Act  no assessment made’ and no order passed under that  Act or  the  rules made thereunder by the  Commissioner  or  any person appointed under s. 3 to assist him shall be called in question in any Civil Court.  This Court, after  considering the relevant provisions of that Act and the decisions on the subject,  including that in Raleigh’s case(1), held that  S. 20 of that Act was a bar to the suit.  This Court held  that the  Sales tax Officer had jurisdiction to decide whether  a sale was an inside sale or an outside sale; and, as the said officer  held the sale to be an inside sale, it was  subject to sales tax and if that finding was wrong, the Act provided an effective machinery for correcting the said mistake.   On that reasoning this Court held that the assessment was  made under  the Act within the meaning of S. 20 of that Act  and, therefore,  the  suit was not maintainable.   This  judgment followed the decision in Firm and Illuri Subbayya Chettey  & Sons v. The State of Andhra Pradesh(1).  This decision  does not  touch the question whether a suit would lie in  a  case

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where  the assessment was made on the basis of  a  provision which  was  ultra vires the Constitution.   Presumably,  for that reason this Court observed :               "We  would also like to make it clear that  we               do  not think it is necessary in  the  present               case to consider whether the majority  opinion               in  the  case  of  Bharat  Kala  Bhandar  Ltd.               (1965)2 S.C.R. 499] was justified in casting a               doubt  on  certain observations  made  by  the               Privy Council in Raleigh Investment Co.’s case               C.L.R.               (1)   (1947) L.R. 74 I.A. 50.               (3)   [1955] 2 S.C.R, 603.               (2)   [1966] 1 S.C.R. 64.               (4)   [1963] 1 S.C.R. 752                                    247               741A. 50], or on the validity or the propriety               of the conclusion in respect of the effect  of               s. 67 of the Income-tax Act." We have considered these decisions in some detail as it  was contended  that the present question was finally decided  by some  of the decisions of this Court.  But a perusal of  the judgment& discloses that the said question, namely,  whether a suit would lie when an assessment was made on the basis of a provision which was ultra vires the Constitution, was left open  and indeed in one of the decisions clear  observations were made questioning the correctness of the decision of the Privy Council in so far as it held that a suit would not  be maintainable  even in such a case.  The question  left  open directly calls for a decision in this appeal. Let  us now scrutinize the said machinery to  ascertain  its scope  and  ambit.  Section 3 of the Income-tax Act  is  the charging section; it imposes a tax upon a person in  respect of  his  income.   As. a learned  author  pithily  puts  it, "Section 3 charges total income; s. 4 defines its range;  s. 6  qualifies it; and ss. 7 to 12B quantify it."  Section  23 empowers  the  Income-tax Officer to assess the  said  total income   in   the   manner   prescribed   thereunder.    His jurisdiction  is confined to the ascertainment of the  total income. of a person in accordance with the provisions of the Act.  His duty is to-assess the income of a person under the provisions  of  the Act and certainly not to ignore  any  of them for any reason whatsoever.  Against the said assessment an  appeal his to the Appellate Assistant Commissioner,  who also functions under the Act.  Section 30 confers a right of appeal on an assessee in respect of specified orders of  the Income-tax  Officers.  He can, by an appeal,  object,  inter alia, to the amount of income assessed, to the amount of tax determined  and to his liability to be assessed’  under  the Act.   Section 31 provides the procedure to be followed  and the  powers to be exercised by the Assistant Appellate  Com- missioner  in disposing of the appeal.  Indeed,  the  appeal being  in  substance  the  continuation  of  the  assessment proceedings  in regard to the specified subject  matter,  he cannot out step the jurisdiction conferred on the Income-tax Officer.   An assessee, objecting to an order passed by  the Appellate Assistant Commissioner may appeal to the Appellate Tribunal; under s. 33 of the Act the Appellate Tribunal  can canvass  the  correctness  of the  order  of  the  Assistant Appellate  Commissioner  and pass a suitable  order,  as  it thinks fit. Up to this stage all the three authorities are the creatures of’  the  Act  and they function  thereunder.   They  cannot ignore any 248

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sources of income on the ground that the relevant provisions offend  the  fundamental  rights  or are  bad  for  want  of legislative  ,competence.  The Act does not confer any  such right  on  them.   Their jurisdiction  is  confined  to  the assessment of the income :.,and the tax under the provisions of  the Act.  Whether the provisions are good or bad is  not their concern.  But, it is said that s. 66 of the Act  makes all  the difference.  Section 66 is in two parts.  Under  s. 66(1), within the prescribed time, on an application made by an  assessee  or the Commissioner,  the  Appellate  Tribunal shall  refer to the High Court any question of  law  arising out  of  such order; if the Appellate  Tribunal  refuses  to state a case, on an application filed by either of them, the High  Court may require the Appellate Tribunal to state  the case  and  to  refer  the same  to  it  accordingly.   On  a reference made by the Appellate Tribunal to the High  Court, the  High  Court shall decide the questions  of  law  raised thereby  and  pass its judgment thereon and  thereafter  the Appellate Tribunal may pass such orders as are necessary  to dispose  of the case conformably to such judgment.   It  has been held by this Court that the jurisdiction conferred upon the  High Court by s. 66 of the Income-tax Act is a  special advisory  jurisdiction and its scope is strictly limited  by the section conferring the jurisdiction.  It can only decide questions of law that arise out of the order of the Tribunal and that are referred to it.  Can it be said that a question whether  a  provision  of  the Act is  ultra  vires  of  the Legislature  arises  cut of the Tribunal’s order  ?  As  the Tribunal  is a creature of the statute, it can  only  decide the  dispute  between the assessee and the  Commissioner  in terms  of the provisions of the Act.  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 said 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 the ultra vires of a provision.  At the most the only  question  that  it may be called  upon  to  decide  is whether  the  Tribunal has jurisdiction to decide  the  said question.  On the express provisions of the Act it can  only hold that it has no such jurisdiction.  The appeal under  s. 66A(2)  to the Supreme Court does not enlarge the  scope  of the said jurisdiction.  This Court can only do what the High Court can. The said machinery provisions cannot be construed in  vacuum : they must be collated with the charging sections; that  is to  say,  the  Act provided for  a  machinery  for  deciding disputes 249 that arise under the substantive provisions of the Act.   To illustrate  : suppose there is provision in the Act  to  the effect  that  the  said Act does not  apply  to  indivisible building  contracts.   Can the officer decide that  the  Act applies  to such building contracts ?  Such a  decision,  if given, will not be under but outside the Act.  Take  another illustration : suppose this Court has held that a  provision authorising  the taxing of an indivisible building  contract is  ultra  vires  the power of the  State  Legislature  and, therefore,  void;  in  that  event,  how  can  an  authority functioning  under the Act tax such a contract on the  basis of  a provision declared to be ultra vires  and,  therefore, non-existent  ? If it does, it will be assessing  not  under the  Act but outside it.  The same legal position will  flow though there is no such previous declaration by a  competent

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court, but a charging provision is in fact and in law  ultra vires the Legislature.  Any assessment made on the basis  of such a void provision cannot be a decision under the  provi- sions of the Act.  Briefly stated, the procedural  machinery under  the Act can be utilized only to decide disputes  that arise under the substantive provisions of the Act which  are not ultra vires. The proposition that an authority constituted under the  Act cannot,   unless  expressly  so  authorised,  question   the validity of the Act or any provision-, thereof, is sound and is also supported by authority. Derbyshire, C.J., who was one of the Judges who took part in Raleigh Investment Co.’s case(1) in the Calcutta High Court, referring  to  the jurisdiction of the  Appellate  Assistant Commissioner, observed thus "He  was employed to administer the Act and he had  to  take the Act as he found it." Mitter, J., in the same decision, adverting to the scope  of the questions that can be raised by an assessee under S.  30 of  the  Income-tax Act, clearly stated the  legal  position thus :               "He can object to the amount of his income  as               determined by the Income-tax Officer or to the               amount  of  loss computed under s. 24  or  the               amount of the tax, etc.  He can also deny  his               liability to be assessed under the Act.   That               phrase,  to  my mind, means that he  can  only               urge  before that tribunal that provisions  as               they stand in the Act do not make him  liable,               i.e.,  exempt  his  income or a  part  of  his               income from               (1)   [1944]1 Cal. 34,56,83.               250               assessment.  He cannot urge there that, though               a  provision  of the Act makes his  income  or               part  thereof  liable  to  be  assessed,  that               provision  is illegal, being ultra  vires  the               Indian  Legislature.  The Appellate  Assistant               Commissioner  also would not be  competent  to               entertain  or  decide that question.   On  the               principle  that the scope of an appeal  cannot               be  enlarged  but must be  limited  to  points               which were open for adjudication by the  Court               or  tribunal of first instance, the  Appellate               Tribunal  functioning under the Act, to  which               an appeal is taken under S. 33, would have  no               power to entertain the said question and  deal               with  it  in  its  order.   This  Court  on  a               reference being made to it under s. 66  cannot               also  deal  with  such  a  question,  as   the               reference  must be limited to  points  arising               out  of  the  order passed  by  the  Appellate               Tribunal." The  Judicial Committee did not take any serious  notice  of the  legal  position  so clearly  explained  by  Mitter,  J. Chagla,  C.J.,  in the Bombay High Court  in  United  Motors (India)  Ltd. v. The State of Bombay(1)  distinguishing  the decision in Raleigh Investment Co.’s case(2) observed               "They   have   come  before  us   before   any               assessment could be made, contending that  the               authorities  under  the Act have no  right  to               assess them because the Act is ultra vires  of               the  Legislature.  Therefore  the  petitioners               are  challenging the very authorities who  are               supposed to decide the assessment made against

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             them,  and it is difficult to  understand  how               under the machinery provided under the Act  it               would  be open to the various  authorities  to               decide whether the very statute of which  they               are the creatures is a valid statute or not." It is true that decision was given in a proceeding that  was taken before the assessment was made, but the learned  Chief ,Justice accepted the principle that an authority which is a creature of a statute cannot decide whether the very statute of which he is a creature is a valid statute or not.  In the Bengal  Immunity Company Limited v. The State  of  Bihar(,’) Venkatarama Ayar, J., in the context of the  maintainability of a writ of prohibition, observed thus at p. 765 : (1) (1952) 55 B.L.R. 246,254.                (2) (1947) L.R. 74 I.A.50. (3)  [1955] 2 S.C.R. 603.                             251 "Indeed,  the contention that the Act is ultra vires is  not one  which the Tribunals constituted under the Act,  whether original,  appellate, or revisional, could entertain,  their duty being merely to administer the Act." A  division Bench of the Madras High Court has, in M. S.  M. M.  Meyappa  Chettiar v. Income-tax  Officer,  Karaikudi(1), elaborately  considered the correctness of the  decision  in Raleigh InvestMent Co.’S CaSe(2).  Adverting to the question of  machinery  so  much  emphasized  upon  by  the  Judicial Committee in Raleigh’s case(1), the Division Bench observed               "It   is  needless  to  point  out  that   the               jurisdiction under the provision is limited to               answering  the  questions referred.  Only  the               question that arises out of the order of the               Tribunal can come within the scope of  section               66.   The  assessee cannot, of  course,  raise               the  question,  before the department  or  the               Tribunal,   of  the  vires  of  any   of   the               provisions  of  the  Indian  Income-tax   Act,               either on the ground that the legislature  was               not  competent to enact the measure or on  the               ground that it offended the fundamental rights               guaranteed under the Constitution.  The reason               is simple, because neither the department  nor               the  Tribunal can give relief to the  assessee               holding that the impugned provision is in  any               way bad in law.  If such a contention were  to               be raised, it has necessarily to be ignored by               the   department  and  the  Tribunal,   though               sometimes  the  Tribunal  does  refer  to  the               question, if raised, and gives the only answer               which  it  can, namely, that is not  a  matter               within its competence to d ecide.               We  wish to make it very clear that it is  not               the  province  of the department or  even  the               statutory   Tribunal,  which  is  really   the               creation  of  the statute,  to  entertain  any               objection  to a piece of legislation as  being               ultra  vires or unconstitutional, and that  it               would  be  beyond  the  jurisdiction  of  this               court,  functioning  under section 66  of  the               Act,  which, as stated already, is  narrow  in               its scope and reach, to consider and determine               a question not properly within its sphere." We  agree with the said observation.  There  is,  therefore, weighty authority for the proposition that a tribunal, which is a creature (1) (1964) 54 I.T.R. 151,156-157.

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(2) (1947) L.R. 74 I.A. 50 252 of  a statute, cannot question the vires of  the  provisions under which it functions. The  legal position that emerges from the discussion may  be summarized  thus  :  If a statute imposes  a  liability  and creates an effective machinery for deciding questions of law or  fact  arising in regard to that liability,  it  may,  by necessary  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 vires of that statute or any of the  provisions thereof whereunder it functions.  It must act under the  Act and not outside it.      If  it  acts  on  the  basis  of  a provision of the statute, which is ultra   vires,  to   that extent it would be acting outside the Act.   In that  event, a  suit  to  question the validity of  such  an  order  made outside the Act would certainly lie in a civil court. On the  said legal basis it follows that in the instant case the sales-tax authorities have acted outside the Act and not under  it  in  making  an assessment on  the  basis  of  the relevant part of the charging section which was declared  to be ultra vires by this Court. The  next question is whether s. 18-A of the Act would be  a bar  to the maintainability of the suit.  Under s.  18-A  of the  Act,  "No  suit or other proceeding  shall,  except  as expressly  provided in this Act, be instituted in any  Court to set aside or modify any assessment made under this  Act." We  do not see any justification for the contention  of  the learned  counsel  for  the respondent  that  the  expression "under this Act" refers 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.   Any  assessment made  under  the Act, that is, under the provisions  of  the Act, cannot be questioned.  If the charging section is ultra vires,  the assessment made thereunder cannot be said to  be made  under the Act; it is really an assessment outside  the Act.   Indeed, as we have held, the foundation laid  by  the Judicial Committee for giving a limited construction to  the expression  "under  this Act" has no legal basis.   We  must give plain meaning to the words used in the section.  If  so construed, we must hold that "under this Act" refers both to procedural  and substantive provisions of the Act.   As  the relevant part of the charging section was held                             253 to be ultra vires, we hold that S. 18-A is not a bar to  the maintainability of the present suit. The next argument of the learned counsel is that if we  give a  narrow  construction to S. 18-A of the Act,  which  found favour  with the Judicial Committee, the said section  would be  ultra vires of the powers of the State Legislature.   As the  State Legislature has no legislative power to impose  a tax in respect of indivisible works contracts, the  argument proceeds,  it  cannot  indirectly  confer  on  a   sales-tax authority  power to impose a tax on such a  transaction  and impose  a  bar  against the maintainability  of  a  suit  to question  its validity.  This certainly raises an  important question;  but,  in  the  view  we  have  expressed  on  the construction  of S. 18-A of the Act, this does not fall  for our decision in the present appeal. Lastly,  it  is  contended that the suit is  not  barred  by

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limitation.   The City Civil Court Judge held that the  suit was  governed by Art. 62 of the Limitation Act and, on  that basis,  declared  that  the suit for  the  recovery  of  the amounts that were paid prior to three years from the date of the  suit was barred by limitation.  But the High Court,  in the view it had taken on the question of the maintainability of  the  suit,  did  not express any  opinion  on  the  said question.  Learned counsel for the appellants contends  that the  suit  was for the recovery of the amounts paid  to  the respondent  under a mistake of law and that such a  suit  is governed  by Art. 96 of the Limitation Act.  This  Court  in The  State  of  Kerala  v.  The  Aluminum  Industries  Ltd., Kundara, Quilon(1) accepted that contention and held that to such  a  suit  Art. 96 of the Limitation  Act  would  apply. Article  96  of the Limitation Act prescribes  a  period  of limitation  of 3 years for relief on the ground  of  mistake when  the mistake became known to the plaintiff.   When  did the  plaintiffs come to know of the mistake in  the  present case ? In the plaint it is alleged that the plaintiffs  came to  know  of  the mistake when the decision  in  the  Gannon Dunkerley’s  case(1)  was pronounced by the  High  Court  of Madras  on April 5, 1954.  The respondent in  the  writtenJr statement  did  not deny that fact.  The suit was  filed  on March  23, 1955, which was within 3 years from the  date  of the  said  knowledge and, therefore, it was  clearly  within time tinder Art. 96 of the Limitation Act. In  the  result,  the appeal is allowed.  There  will  be  a decree,    in  favour of the plaintiffs as  prayed  for  with costs throughout. (1)  C.A.  No.  720 of 1963.  Decided on  April  21,  1965,. (unreported) (2)  5 S.T.C. 216. 254 shah  J. M/S.  K. S. Venkataraman & Company  Ltd.-appellants in  this  appeal,  who carry on  the  business  of  building contractors, were assessed to sales-tax on the turnover from their  trading  receipts in the financial years  1948-49  to 1952-53 by the Deputy Commercial Tax Officer.  For the years 1948-49  to  1950-51 returns filed by  the  appellants  were accepted and orders of assessment were made and tax was paid by  the appellants without objection.  For the year  1951-52 the Deputy Commercial Tax Officer did not accept the  return and  assessed  tax  after  disallowing  certain   exemptions claimed by the appellants.  The matter was carried in appeal to the Commercial Tax Officer, Sales Tax Appellate  Tribunal and  ultimately to the High Court of Madras.  For  the  year 1952-53  on  the  turnover  as  determined  by  the   Deputy Commercial Tax Officer, after disallowing certain deductions claimed by the appellants, the appellants paid tax. For the five years in question, the appellants paid  between May  21, 1949 and February 2, 1954, Rs. 36,320/1/11 as  tax. Thereafter  the  appellants came to learn that on  April  4, 1954  the  Madras High Court in Gannon Dunkerley  &  Co.  v. State  of  Madras(1) had held that in  a  building  contract there  is  no element of sale of the materials for  a  price stipulated,   and  the  turnover  received   from   building contracts was not taxable under the Madras General Sales Tax Act.   They therefore on March 23, 1956, instituted  in  the City  Civil  Court at Madras on its original side  suit  No. 2272  of  1955  for a decree for refund of  tax  levied  and collected by the Sales-tax authorities for the years 1948-49 to  1952-53.   The  State  of  Madras  resisted  the   claim contending  that  the suit was barred under s. 18-A  of  the Madras General Sales Tax Act and in any event by the law  of limitation.   The  Trial Court dismissed the suit,  and  the

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High Court of Madras confirmed the decree.  With certificate granted  by the High Court of Madras,, the  appellants  have appealed to this Court. The  orders of assessment made by the Deputy Commercial  Tax Officers are not on the record, nor are the contracts  which gave  rise  to the turnover.  It was assumed  in  the  Trial Court  and the High Court, that the appellants  had  entire’ into  works  contracts  in  which  there  was  no  sale   of materials, used in the construction of buildings independent of the contract for construction and we must proceed to deal with this appeal on the footing      Three,  questions fall to be determined : (1)  whether- s.  2(h)  and Explanation (1)(i) of s. 2(i)  of  the  Madras General Sales (1)  I.L.R. [1955] Mad. 832.                             255 Tax Act, 1939 read in the light, of r. 4(3) of the  Turnover and  Assessment Rules, were ultra vires the  Legislature  of the Province of Madras; (2) whether a suit for refund of tax paid  pursuant  to orders of assessment made by  the  Deputy Commercial  Tax  Officer  was maintainable in  view  of  the general  scheme  of the Act, and in particular of  s.  18-A, which was added by Madras Act 6 of 1951; and (3) whether the suit was barred by the law-of limitation. Very  little need be said on the third question.  It is  now settled by decisions of this Court that a suit for refund of tax  paid under a mistaken belief that in law tax  was  pay- able,  was at the material date governed by Art. 96  of  the Indian  Limitation Act, 1908, and the period  prescribed  by that article commenced to run from the date when the mistake became  known : State of Madhya Pradesh v. Bhailal  Bhai(1); State of Kerala v. The Aluminium  Industries Ltd.  Kundara ( 2  The  appellant’s suit was instituted within  three  years from  the date on which the appellants claim that they  came to  know about the decision of the Madras High Court in  the Gannon Dunkerley(3), and the claim was unquestionably within limitation. The relevant provisions of the Madras General Sales Tax  Act 1939 which have a bearing on the other two questions may  be summarised.  By s. 2(a-1) as introduced by Madras Act 25  of 1947 "assessing authority" was defined as meaning any person authorised  by the State Government to make  any  assessment under  the Act.  The Madras Legislature by Madras Act’ 6  of 1951  renumbered s. 2(a-1) as s. 2(a-2) and added s. 2-B  by which  the  State- Government was authorised to  appoint  as many Deputy Commissioners of Commercial Taxes and Commercial Tax  Officers  as  they  thought  fit  for  the  purpose  of performing the functions conferred upon them by or under the Act’.  "Sale" by s. 2 (h)     as amended by Madras Act 25 of 1947 was defined as follows :               "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;               (1)   (1954) 6 S.C.R. 261               (2) C.A. 72) of 1963.  Decided  April  21,1965               (Unreported)               (3) I.L.R. [1955] Mad. 832..               L2Sup.CI/66-3               256

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             Explanation (1) --- - - - - Explanation (2).-               Section 2(i) defined "turnover" as meaning 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 (1)  (i)  to  the               definition of ’turnover’ provided :               "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 prescribed of such  amount,               representing the usual proportion of the  cost               of  labour  to the cost of materials  used  in               carrying out such contract;" "Works  contract"  was defined by S. 2(i-i) as  meaning  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 3  prescribed  the rate  of  tax,  and  S. 9 prescribed  the  procedure  to  be followed  by  the assessing authority.  Section  10  imposed liability  upon  the assessee to pay tax assessed,  in  such manner and in such installments and within such time as  may be specified in the notice of assessment.  By S. 1 1 a right of  appeal  was  given  to  an  assessee  objecting  to   an assessment  made on him to the prescribed authority, and  by S.  12  as  originally  enacted the  Board  of  Revenue  was authorised  to exercise revisional powers in respect of  any order  passed or proceeding recorded by any authority  under the provisions of the Act.  By S. 9 of Madras Act 6 of 1951, S.  12 was modified and ss. 12-A, 12-B, 12-C and  12-D  were added.   By  S.  12 so modified power to  revise  orders  of subordinate  authorities was conferred upon  the  Commercial Tax  Officer,  the  Deputy Commissioner  and  the  Board  of Revenue.  Under s. 12-A an appeal lay to the Appellate  Tri- bunal at the instance of the assessee objecting to an  order relating to assessment passed by the Commercial Tax Officer. By 257  S.  12-B  the  High  Court  of  Madras  was  authorised  to entertain  a  revision application against an  order  passed under S. 12-A sub-ss. (4)     or  (6) against the  order  of the Appellate Tribunal.  Bys. 12-C  an  appeal, lay  to  the High  Court against the order of the Board of  Revenue  made suo  motu  under S. 12(3).  By s. 18-A which  was  added  by Madras Act 6 of 1951, it was provided               "No suit or other proceeding shall, except  as               expressly provided in this Act, be  instituted               in  any  court  to set  aside  or  modify  any               assessment made under this Act." By  S. 19 the State Government was authorised to make  rules to carry out the purposes of the Act. Section  22  was added by the President in exercise  of  the power under Art. 372(2) of the Constitution by an Adaptation Order dated July 2, 1952, for bringing the provisions of the

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Act   in   conformity  with  Art.  286(1)  &  (2)   of   the Constitution.  Sub-clause (3) of cl. 4 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, which dealt with computation of gross turnover, provided that the amount for which goods are sold by a dealer shall, in relation to a works  contract, be deemed to be the amount payable  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  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 maxima  set  out therein   in  respect  of  different  classes  of   building contracts. Counsel for the appellants contended that this Court in  The State of Madras v. Gannon Dunkerley & Co. (Madras)  Ltd.(1), while, affirming the decision of the High Court of Madras in Gannon  Dunkerley’s case(1) has held that the provisions  of the  Madras  General Sales Tax (Amendment) Act  25  of  1947 which  incorporated in the definition in S. 2(h)  the  words "and includes also a transfer of property in goods  involved in the execution of a works contract" and incidental changes in  the  definition  of  "turnover"  were  ultra  vires  the Legislature  of the Province of Madras.  But that plea  does not  seem, in our judgment, to be correct.  The Madras  High Court had in Gannon Dunkerley’s case(1) held that the "works contracts" of the assessee in that case "were not  contracts of sale of goods and the Provincial Legislature had no power to tax those contracts treating them as sale of goods", (1)[1959] S.C.R. 379. (2) I.L.R. [1955] Mad. 832. 258 because the legislative power to levy tax on sales of  goods was  " confined to transactions of sale . . . as  understood in the law relating to the sale of goods, and any attempt of the  Legislature  to  tax under the guise of  or  under  the pretence  of  such a power transactions  which  were  wholly outside  it, was ultra vires and must be declared  invalid". This Court in confirming the order setting aside the  orders of  assessment, did not affirm the view of the  Madras  High Court  that  any part of the definition in S. 2 (h)  of  the Madras  General  Sales Tax Act was ultra vires.   In  Gannon Dunkerley’&  Company’s case(1) the High Court held that  the expression "sale of goods" had the same meaning in Entry  48 which it had in the Indian Sale of Goods Act, 1930, and that the  works  contracts  of the  assessee  were  contracts  to execute  construction  works  to be paid  for  according  to measurements at the rates specified in the schedule thereto, and  were not contracts for sale of materials used  therein, and  being  contracts entire and indivisible  could  not  be broken up into contracts for sale of materials and contracts for  payment for work done.  This Court held, agreeing  with the High Court, that ordinarily in a building contract,  the agreement between the parties is that the contractor  should execute a building contract according to the  specifications in   that   behalf  in  the  written   agreement,   and   in consideration  thereof receive payment stipulated : in  such an  agreement  there  is  neither a  contract  to  sell  the materials  used in the construction, nor does property  pass therein  as  movable.   The Court  also  observed  that  the expression  "sale  of  goods"  was, at  the  time  when  the Government  of India Act, 1935 was enacted, a term of  well- recognised legal import in the general law relating to  sale of  goods and in the legislative practice relating  to  that topic  and  must ’be interpreted in Entry 48 in List  11  in

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Sch.   VII of the Government of India Act, 1935,  as  having the  same  meaning  as  in the  Sale  of  Goods  Act,  1930. Therefore,  in a building contract which is one, entire  and indivisible,  there is no sale of goods and  the  Provincial Legislature was incompetent under Entry. 48 to impose a  tax on the supply of materials used in such a contract  treating the  supply  as a sale.  In the very  elaborate  discussion, which Venkatarama Ayyar, J., speaking for the Court, entered upon,  at no stage did he express the opinion that any  part of the definition of "sale" in s. 2(h) after it was  amended by  the Madras General Sales Tax (Amendment) Act 25 of  1947 was  ultra vires the Legislature, and the observations  made clearly  indicate a contrary conclusion.  The learned  Judge in summing up his conclusion. observed at p. 425 (1)  I.L.R. [1955] Mad. 832               ". . . the expression "sale of goods" in Entry               48 is a nomen juris, its essential ingredients               being  an  agreement to sell moveables  for  a               price and property passing therein pursuant to               that agreement.  In a building contract, which               is,  as in the present case, one,  entire  and               indivisible-and that is its norm, there is  no               sale  of  goods,  and it  is  not  within  the               competence of the Provincial Legislature under               Entry 48 to impose a tax on the supply of  the               materials used in such a contract treating  it               as a sale.", and at p. 427 :               "To  avoid  misconception, it must  be  stated               that  the  above conclusion has  reference  to               works   contracts,   which  are   entire   and               indivisible,   as   the   contracts   of   the               respondents  have  been held  by  the  learned               Judges of the Court below to be.  The  several               forms which such kinds of contracts can assume               are  set out in Hudson on Building  Contracts,               at p. 165. "It  is possible that the parties might enter into  distinct and  separate contracts, one for the transfer  of  materials for  money  consideration,  and the  other  for  payment  of remuneration  for  services and for work done.   In  such  a case,  there  are really two agreements, though there  is  a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to  do work  and render service and to impose a tax thereon  cannot be questioned, and will stand untouched by the present judg- ment." In substance this Court held-that the definition in s.  2(h) must  be  read  in  the  light  of  and  restricted  by  the legislative  power of the Province as contained in Entry  48 in List 11 in Sch.  VII and on that view if a works 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 would be included in the turnover. It is true that in Pandit Banarsi Das Bhanot v. The State of Madhya  Pradesh  (1), which case was heard  along  with  The State of Madras v. Gannon Dunkerlev & Company (Madras)  Ltd. (2 and decided on the same day, it was observed at p. 437 :               "But on our finding on the first question that               the  impugned provisions of the Act are  ultra               vires the               (1) I.L.R.[1959] 427.   (2) [1959] S.C.R. 379.               259               260               powers  of  the Provincial  Legislature  under               Entry  48 in List II in the Seventh  Schedule,

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             we  should set aside the orders of  the  Court               below." It  is clear from the observations made at p. 433  that  the Court  intended  and  did  lay  down  that  the   Provincial Legislature  had  no power to impose a tax in respect  of  a building contract which is one, entire and indivisible,  but there   might  be  contracts  consisting  of  two   distinct agreements,  one for the sale of materials, and another  for work  and  labour,  and that in such a  case,  it  would  be competent  to  the  State  to impose  tax  on  the  sale  of materials even construing that word in its narrow sense.  At p. 437 also the Court observed that "the prohibition against imposition of tax is only in respect of contracts which  are single  and  indivisible and not of contracts  which  are  a combination of distinct contracts for sale of materials  and for work, and that nothing . . . in this judgment shall  bar the sales tax authorities from deciding whether a particular contract falls within one category or the other and imposing a  tax  on  the agreement of sale of  materials,  where  the contract belongs to the latter category." In  The  State  of  Madras v.  Gannon  Dunkerley  &  Company (Madras)   Ltd.(1)  the  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 the  Court  did not  declare  the clause added by Act 25 of  1947  as  ultra vires  :  it  merely  directed that  in  the  assessment  of turnover   from  building  contracts,  restriction  on   the legislative power inherent in Entry 48 of List II, Sch.  VII ought to be imported, and that the taxing authority must  on that  account  determine whether the  transaction  of  sale, turnover whereof is sought to be taxed, is of the nature  of sale  of goods within the meaning of the Sale of Goods  Act. A  transaction which does not involve sale of goods  is  not taxable, for the definition of the word ’sale’ in every case must  be read subject to the constitutional  restriction  on the  legislative power imposed upon the  Provinces.   Stated differently,  power  to  levy  tax in  respect  of  a  works contract is not wholly denied to the Provinces or the States :  in  each  case  it  has  to  be  considered  whether  the transaction involves sale of goods strictly so-called, or 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 (1)  [1959] S.C.R. 379.                             261 transaction  : if it is the former, the element of  sale  of goods  would  be  taxable.   This  approach  conforms  to  a recognised rule 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 read words used in a statute as  subject  -to restrictions  imposed by the Constitution  upon  legislative power  so that the statute may harmonise with the  constitu- tional restrictions.  The rule applies unless the restricted meaning  of  the  words makes  the  legislation  incomplete, unintelligible  or  unmeaning.  In in re the  Hindu  Women’s Rights  to Property Act, 1937, and the Hindu Women’s  Rights to  Property (Amendment) Act, 1938(1) the Federal Court  had to  deal  with  the meaning of the word  "Property"  a  word apparently  of wide connotation and  including  agricultural land-  in  the  Governors’ Provinces-in  the  Hindu  Women’s Rights  to  Property  Act, 1937, Sir  Maurice  Gwyer,  C.J.,

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speaking for the Court, observed :               "No doubt if the Act does affect  agricultural               land  in  the  Governors’  Provinces,  it  was               beyond  the competence of the  Legislature  to               enact it : and whether or not it does so  must               depend  upon the meaning which is to be  given               to  the word "property" in the Act.   If  that               word necessarily and inevitably comprises  all               forms  of  property,  including   agricultural               land,  then  clearly the Act went  beyond  the               powers  of  the  Legislature  :  but  when   a               legislature with limited and restricted powers               makes  use of a word of such wide and  general               import, the presumption must surely be that it               is  using  it with reference to that  kind  of               property with respect to which it is competent               to legislate and to no other.  The question is               thus  one of construction, and unless the  Act               is  to be regarded as wholly  meaningless  and               ineffective,  the Court is bound  to  construe               the word "property" as referring only to those               forms  of property with respect to  which  the               Legislature   which   enacted  the   Act   was               competent  to  legislate  : that  is  to  say,               property other than agricultural land.........               The Court does not seek to divide the Act into               two   parts,   viz.,  the   part   which   the               Legislature was competent, and the part  which               it was incompetent, to enact.  It holds  that,               on  the  true  construction  of  the  Act  and               especially of the word " property" as used  in               it,  no  part  of  the  Act  was  beyond   the               Legislature’s powers.               (1)   [1941] F.C.R. 12.               262               There   is  a  general  presumption   that   a               Legislature  does  not intend  to  exceed  its               jurisdiction  :  .  . .  and  there  is  ample               authority  for  the proposition  that  general               words  in a statute are to be  construed  with               reference  to  the powers of  the  Legislature               which enacts it."               After referring to a number of cases, cited at               the Bar, the learned Chief Justice observed :               "If  the restriction of the general  words  to               purposes  within the power of the  Legislature               would be to leave an Act with nothing or  next               to nothing in it, or an Act different in kind,               and not merely in degree, from an Act in which               the   general  words  were  given  the   wider               meaning,  then it is plain that the Act  as  a               whole  must be held invalid, because  in  such               circumstances it is impossible to assert  with               any   confidence  and  that  the   Legislature               intended  the general words which it has  used               to  be construed only in the narrower sense  :               If  the Act is to be upheld, it  must  remain,               even  when a narrower meaning is given to  the               general  words,  "an Act  which  is  complete,               intelligible,  and  valid  and  which  can  be               executed by itself :" This is precisely the approach this Court made in The  State of  Madras v. Gannon Dunkerley & Co. (Madras) Ltd.(1).  They interpreted  the  expression "works contract"  used  in  the Madras   General  Sales  Tax  Act,  1939,  subject  to   the

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restrictions which inhered the exercise of its power by  the Madras Legislature and held that the right to assess tax  on a works contract which is " one, entire and indivisible" was not  conferred  by  the Act.  The Court  thereby  implied  a restriction   in  the  meaning  of  the  expression   "works contract"  in  S. 2 (h) and S. 2 (1 ) (i) so as to  make  it consistent with the legislative power of the Madras Legisla- ture. Application   of   this  rule  is  often  invoked   in   the interpretation   of   Indian  statutes,   because   of   the restrictions placed upon the power of the legislative bodies by  the Constitution.  In view of the federal  structure  of our  Constitution, wide words used by the Legislature  have, wherever  necessary, to be read subject to  the  presumption that they were intended to be used by the Legislature so  as to make the exercise of power consistent with the  Constitu- tional   scheme.    For  instance,  Art.   286(1)   of   the Constitution,  before  it was amended  by  the  Constitution (Sixth Amendment) (1)  [1959] S.C.R. 3 79.                             263 Act,  imposed  restrictions  upon the  power  of  the  State Legislature  to  tax outside sales, sales in the  course  of import   and   export,  inter-State  sales  and   sales   of commodities which are declared by Parliament to be essential to   the   life  of  the  community.    Even   without   the incorporation  of S. 22 by the Adaptation Order, 1952,  made by  the President under Art. 372(2) as a matter of  abundant caution,  the  word ’sale’ as defined in the Act had  to  be read subject to the constitutional limitations. The definition of "sale" in the Act cannot be read  divorced from  the scheme of the Act, and the restrictions  upon  the power.  of  the  Legislature which enacted  it.   There  are diverse  provisions in the Act which restrict the  power  of the  taxing authorities to levy tax on sale or  purchase  of goods.   For  instance,  s.  4  expressly  enacts  that  the provisions  of  the  Act  shall not apply  to  the  sale  of electrical energy, motor spirit and manufactured tobacco and of  any other goods on which duty is or may be levied  under the  Madras Abkari Act, 1886, the Madras  Prohibition,  Act, 1937,  or the Opium Act 1878.  Exemption is also granted  in certain cases by s. 5 of the Act and authority is  conferred by the Act upon the executive Government to make  exemptions from or reductions in rates in respect of tax payable on the sale  of any specified classes of goods or by any  specified classes  of  persons in regard to the whole or any  part  of their  turnover.  These restrictions upon the power  of  the taxing  authorities  are imposed expressly  by  the  statute itself  :  the other restrictions to which we  have  already referred,   are  restrictions  which  are  implied  by   the constitutional limitations.  But on that account there is no real  difference  between the quality of  the  restrictions. The definition clause and the charging section operate  only on  sales which may appropriately be called sales  of  goods under  the general law, of goods which are not  exempted  by the  Act, and are not taken out of the taxing power  of  the State by the constitutional or other provisions.  Apparently wide words of the definition clause and the charging section will not on account of these restrictions be rendered  ultra vires  or  invalid : the words will be construed  so  as  to confer  power upon the taxing authorities in  assessing  tax only within the limited field. Ordinarily a taxing authority has power to-ascertain whether the transaction before him is taxable, and for that  purpose he  may  determine  facts  which  have  a  bearing  on   the

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taxability  of  the transaction : He has also the  power  to interpret the provisions of the taxing statute as well as of any  other  statute which has a bearing  on  that  question. Within the limits assigned to 264 him, the authority of the taxing officer is complete.  He is not  a  court  of summary  jurisdiction  whose  jurisdiction depends upon existence of some fact collateral to the actual matter  which  is  liable to be  challenged  in  independent proceeding,  nor  does  his  jurisdiction  depend  upon  the fulfilment   of  some  condition  precedent.    Within   his jurisdiction is included the power to decide finally whether the  transaction submitted to his scrutiny is taxable.   His decision is open to challenge by appropriate proceedings  in the hierarchy of tribunals set up for that purpose, but  not outside the Act.  In dealing with the authority of the Sales Tax  Officer appointed under the Bombay Sales Tax Act  5  of 1946  in M/s.  Kamala Mills Ltd. v. The State  of  Bombay(1) this Court observed               "It  would . . . be seen that the  appropriate               authorities  have been given power in  express               terms to examine the returns submitted by  the               dealers  and to deal with the questions as  to               whether  the transactions entered into by  the               dealers  are liable to be assessed  under  the               relevant provisions of the Act or not.. . . it               is plain that the very object of  constituting               "appropriate  authorities under the Act is  to               create  a  hierarchy of special  tribunals  to               deal with the problem of levying assessment of               sales  tax as contemplated by the Act.  If  we               examine  the relevant provisions which  confer               jurisdiction on the appropriate authorities to               levy  assessment on the dealers in respect  of               transactions  to  which the  charging  section                             applies,   it  is  impossible  to  esc ape   the               conclusion  that all questions  pertaining  to               the liability of the dealers to pay assessment               (tax)  in  respect of their  transactions  are               expressly   left   to  be   decided   by   the               appropriate  authorities  under  the  Act   as               matters  falling  within  their  jurisdiction.               Whether or not a return is correct; whether or               not  transactions which are not  mentioned  in               the  return, but about which  the  appropriate               authority  has  knowledge,  fall  within   the               mischief of the charging section; what is  the               true and real extent of the transactions which               are  assessable;  all these and  other  allied               questions   have  to  be  determined  by   the               appropriate  authorities themselves;.....  The               whole  activity of assessment  beginning  with               the  filing of the return and ending  with  an               order   of   assessment,  falls   within   the               jurisdiction               (1)   [1966] 1 S.C.R. 64.                                    265               of the appropriate authority and no part of it               can   be  said  to  constitute  a   collateral               activity   not  specifically   and   expressly               included  in  the jurisdiction of  the  appro-               priate authority ’as such." The Deputy Commercial Tax Officer had therefore jurisdiction to determine whether the particular transactions in  respect

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of  which tax was sought to be levied were assessable  under the  Act.  He may have committed a mistake, even a  grievous mistake,  but  he had jurisdiction to  decide  the  question arising  before him in the manner he did.  Exercise  of  his jurisdiction  is not conditioned by the correctness  of  his conclusion. The  Act contains complete machinery for levying,  assessing and  collecting  tax  :  it  also  contains  machinery   for rectification  of mistakes.  The rules framed under the  Act contain  machinery  for making refund of  tax  collected  in excess of the amount legitimately due.  The entire machinery for  levy, assessment, collection and refund is  within  the Act and has to be administered by the authorities  entrusted with power in that behalf.  To expose this machinery and the adjudications laboriously made under the Act by  authorities competent  in  that behalf to collateral  attacks  in  civil suits would make the statute in practice unworkable.  It  is true that exclusion of the jurisdiction of the civil  courts is  not to be lightly inferred : such exclusion must  either be explicitly  expressed  or clearly implied. But where  the scheme of the Act   implies such exclusion, the Courts  will give effect to it.In     Secretary   of  State  v.  Mask   & Company(1) on the importof   betel   nuts   the   Assistant Collector of Customs assessed duty at   rates applicable  to boiled betelnuts. After the appeals filedby the importer to  the  Collector of Customs and the  Government  of  India failed,  the importer filed a suit for refund of the  amount collected  from  him  in excess of the  invoice  value.   In appeal  by  the  Secretary  of  State  before  the  Judicial Committee  it  was  contended  that  the  decision  of   the Assistant  Collector of Customs confirmed in appeal  to  the Collector  of Customs and in revision to the  Government  of India  was final and the civil court had no jurisdiction  to entertain  the  suit.  The Judicial Committee  examined  the scheme of the Sea Customs Act, 1878 and observed               "......in  this case the, jurisdiction of  the               civil  courts is excluded by the order of  the               Collector  of Customs on the appeal  under  S.               188........ The main principles to be observed               in the present case are               (1)L.R. 67 I.A. 222.               266               to  be  found in the well  known  judgment  of               Wiles J., in Wolverhampton New Waterworks  Co.               v. Hawkesford-(1859)6 C.B.(N.S.) 336-which was               approved ‘ in the House of Lords in Neville v.               London  "Express" Newspaper  Ltd.-(1919)  A.C.               368.  The question is whether the present case               falls under the third class stated by Wiles J.               :  "Where a liability not existing  at  common               law is created by a statute which at the  same               time gives a special and particular remedy for               enforcing it." In  Firm  of Illuri Subbayya Chetty & Sons v. The  State  of Andhra Pradesh(1) a person who had paid tax under the Madras General  Sales  Tax Act, 1939, for the years  1952-54  under voluntary   returns   on   the   assumption   that   certain transactions of purchase of groundnuts were taxable, filed a suit  in the civil court for recovery of the tax paid.   The Trial  Court decreed the suit, but the High  Court  reversed the  decree and dismissed the suit, holding that it was  not maintainable.   It was observed by this Court in  appeal  by the taxpayer at p. 760 :               "The  fact  that  the  order  passed  by   the               assessing  authority may in fact be  incorrect

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             or wrong does not affect the position that  in               law,  the  said order has been  passed  by  an               appropriate authority and the assessment  made               by it must be treated as made under this  Act.               Whether  or  not an assessment has  been  made               under   this  Act  will  not  depend  on   the               correctness  or  the  accuracy  of  the  order               passed by the assessing authority.", and               at p. 761               there  can be no doubt that where an order  of               assessment  has been made by  the  appropriate               authority (under) the provisions of this  Act,               any  challenge  to  its  correctness  and  any               attempt  either  to  have  it  set  aside   or               modified must be made before the appellate  or               the   revisional  forum  prescribed   by   the               relevant provisions of the Act." A question which is closely analogous to the question raised in this appeal fell to be determined in M/s.  Kamala  Mills’ ,case(1).   The assessee sold goods inside and  outside  the then  :State  of Bombay.  On the turnover of  the  assessee, general sales (1) [1964] 1 S.C.R. 752. (2) [1966] 1 S.C. R. 64.                             267 tax  and  special  sales tax were levied  by  the  Sales-tax authorities exercising power under the Bombay Sales Tax Act, 1946.   After learning about the decision of this  Court  in The  Bengal  Immunity Company Ltd. v. The State of  Bihar  & Ors.(1)  the assessee commenced an action in the High  Court of Bombay for a decree for refund of the tax paid on outside sales.  The High Court held on a preliminary issue that  the suit  was  not maintainable and in appeal the  decision  was confirmed.   Before  this Court it was  contended  that  the action of the sales-tax authorities was without jurisdiction and   on   that   account   the   suit   was    maintainable notwithstanding  s. 20 of the Bombay Sales Tax Act by  which the jurisdiction of the civil courts is barred.  This  Court held  that  the  appropriate  authority  was  invested  with jurisdiction to determine the nature of the transaction  and to levy tax in accordance with its decision.  The Court also held  that  the finding of the authority that  a  particular transaction  is  taxable  under the charging  section  is  a finding   not  on  a  collateral  fact  upon   the   correct determination  of  which  the  jurisdiction  of  the  taxing authority depends, and observed : if   the  appropriate  authority,  while,   exercising   its jurisdiction and powers under the relevant provisions of the Act,  holds  erroneously  that a transaction,  which  is  an outside  sale, is not an outside sale and proceeds  to  levy sales-tax  on  it, can it be said that the decision  of  the appropriate  authority  is  without jurisdiction  ?  In  our opinion,  this question cannot be answered in favour of  Mr. Sastri’s contention." In  M/s.   Kamala  Mills case(1) it was  the  case,  of  the taxpayer   that   tax  was  levied  in  violation   of   the prohibitions contained in Art, 286 of the Constitution as it then stood.  The sales-tax authorities were of the view that the  sales  were  taxable  a view  which  was  later  found, according  to  the  opinion  of this  Court  in  the  Bengal Immunity  Company’s case(1), to be erroneous.  But  on  that account  it could not be said that the order passed  by  the Sales-tax  Officer was without jurisdiction.  The suit  for- recovery  of the tax already paid, pursuant to an  order  of assessment  which had become final, was therefore  held  not

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maintainable. The principle of M/s. Kamala Mills’ case (2) in our judgment governs this case.  In the present case the, validity of the orders  of assessment is challenged on the ground  that  the transactions (1) [1955] 2 S.C.R. 603. (2) [1966] 1 S.C.R. 64. 268 which  were  held taxable were not such works  contracts  as would be within the taxing power of the Province under Entry 48  in List II of Sch.  VII to the Government of India  Act, 1935.  The taxing authority being of the view that they were taxable  charged the turnover to tax.  Appeals  lay  against the  decisions  of the taxing authority, but they  were  not filed  in respect of four out of the five years and  in  the remaining  only the question as to the quantum  of  turnover was  raised was pending before the High Court.  In the  case of  M/s.   Kamala Mills’(1) the transactions  were,  it  was apparently claimed, sales falling within the meaning of Art. 286(1)(a)  Explanation and not taxable by the State in  view of  a  constitutional prohibition.  This Court held  that  a plea that tax levied pursuant to an erroneous decision as to the  applicability  of  the sales tax  Act  to  transactions which,  if  the  true position were  appreciated,  were  not liable to be taxed could not be raised in a suit for  refund of tax paid.  Ratio of that decision applies to the  present case  in  which tax was levied in  respect  of  transactions which  the  taxing authority erroneously regarded  as  works contracts and taxable on the footing that they involved sale of  goods strictly so-called.  An erroneous decision of  the taxing authority that they are taxable transactions, when on a correct view of the law they would not have been, did  not affect the power entrusted to him by the Act nor render  his decision without jurisdiction. It is true that S. 18-A was incorporated in the Madras Gene- ral Sales Tax Act, 1939 by Madras Act 6 of 195 1. There  was before Act 6 of 1951 was enacted no express provision in the Act barring the jurisdiction of civil court to set aside  or modify any assessment made :under the Act.  But S. 18-A  did not  incorporate a new concept : it merely  enunciated  what patently   underlines  the  scheme  of  the  Act.    Special authorities  have  been constituted under the  Act  for  the purpose of assessing and collecting tax : these  authorities have the power to entertain or ask for returns and to assess and collect tax.  Against the orders of assessment,  appeals are   provided  for  and  the  proceedings  of  the   taxing authorities are liable to be corrected by the High Court  or the  Board of Revenue in exercise of jurisdiction  conferred by  the  Act.   The  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 made under the Act by authorities invested  with power in that behalf.  By enacting s. 18-A (1)[1966]1S.C.R.64.                             269 the  Legislature  did no more than enact  what  was  clearly implicit  in the scheme of the Act.  Absence of s.  18-A  on the  statute  book for the first two years out of  the  five years of assessment is therefore of no materiality. Even on the assumption that the clause "and includes also  a transfer of property in goods involved in the execution of a works contract" added by Act 25 of 1947 in the definition of ’ sale’ was subsequently declared ultra vires by this  Court in The State of Madras v. Gannon Dunkerlev Company  (Madras)

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Ltd.  (1)  in our view the suit to set aside  or  modify  an assessment  made on the assumption that the  definition  was wholly invalid was not maintainable. Two  grounds are urged in support of the plea that the  suit was  maintainable  :  (a) the  taxing  authority  acting  in exercise of powers conferred by a statute cannot entertain a plea  that a part of the statute is invalid : he  must  take the  statute  as  he finds it; and (b)  that  the  authority conferred  by the Act is to levy tax on  transactions  which are  made taxable by the Act, and if the charging  provision or  a  part  thereof is ultra vires  the  Legislature  which enacted  it,  the decision of the taxing  authority  to  tax transactions under that ultra vires provision is outside the Act. A taxing authority is undoubtedly a creature of the  statute under which he is appointed but ordinarily by the statute he is  invested  with authority to decide all  questions  which have  a bearing on the taxability of a transaction.   He  is entitled  to decide that the transactions submitted  to  his scrutiny are taxable.  When the taxing authority levies  tax on  a  transaction,  he holds either  expressly  or  by  the clearest implication that the transaction is in his  opinion taxable.  Investment of authority to tax involves  authority to tax transactions which in exorcise of his authority,  the taxing officer regards as taxable, and not merely  authority to  tax only those transactions which are on a true view  of the  facts  and  the law, taxable.  The  taxing  officer  in exercising  his power may err : but he has authority to  err in exercise of his jurisdiction.  It matters 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.   It would be confusing the issue to press into aid illustrations of  cases  in  which the taxing authority  seeks  to  tax  a transaction  which he holds is not taxable.  In such a  case he is not exercising the power entrusted by the statute : he acts (1)[1959] S.C.R. 379. 270 outside  the law.  But that cannot be said of a decision  in which  by an erroneous interpretation of the law he holds  a transaction  taxable.   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 exempted commodity or is an exempted sale, or  because it  is  not  a  transaction of sale,  and  there  are  ample indications of an implication to the contrary. We  are not considering a case in which the statute  in  its entirely or insofar as it relates to the appointment of  the authority  invested with power by the statute to assess  tax is challenged as ultra vires.  That may raise problems which do not arise here.  We are dealing with a case in which  the entrustment  of power to assess is not in dispute,  and  the authority  within the limits of his power is a  tribunal  of exclusive  jurisdiction.  Such an authority is invested  for the purpose of determining questions entrusted to him,  with power to determine all questions of fact and law, and of his own  jurisdiction  as well.  Being a tribunal  of  exclusive jurisdiction,  there is no other authority which can  decide the  questions  raised  before  him.   If  by  an  erroneous decision, he can clothe himself with jurisdiction, which  on a  true view of the facts or law he does not possess, it  is difficult  to  appreciate  the ground on  which  it  can  be asserted  that he must decline to adjudicate when the  vires of a part of the statute which he has to administer falls to

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be  determined.   There  is  no  special  sanctity  in  that question, that the taxing authority cannot determine it.  It could  not be attended that when a question about the  vires of  a statute which the taxing authority has  to  administer arises, he must deliberately adjudicate upon the  taxability of  a transaction contrary to his own conviction.  There  is nothing in our view, certain contrary casual observations in cases referred to at the Bar notwithstanding, which  compels him to adopt an unjudicial attitude. A  quasi-judicial  authority  is within  the  definition  of "Stale" in Art. 12 of the Constitution.  That is so held  in Parbhani Transport Co-operative Society Ltd. v. The Regional Transport Authority, Aurangabad and Others(1) : and  assumed in  Basheshar  Nath v. Commissioner of Income-tax,  Delhi  & Rajasthan  and  Another(1) and K. S. Ramamurthy  Reddiar  v. Chief Commissioner, Pontlicherry and Another(1) and in other cases.   Is  a  quasi-judicial  authority  deliberately   to violate fundamental rights of a citizen who is subjected  to his jurisdiction and to act in a manner trans- (1) A.I.R. 1960 S.C. 801,                    (2) A.I.R. 1959 S.C. 149. (3)  A.I.R. 1963 S.C. 1464. 27 1 parently  unjust  because for some vague reason it  is  said that  within  the  amplitude  of  his  jurisdiction  is  not included  the  right  to determine whether  a  part  of  the statute  he  is called upon to administer is ultra  vires  ? What one may ask is the principle underlying such a rule ? It is common ground that a High Court entertaining an appeal or  revision against the decision of a  tribunal  exercising quasijudicial  authority  with  exclusive  jurisdiction,  or entertaining  a reference made by that tribunal, is  subject to the same restrictions to which the original tribunal  was subject.   In a large, number of cases in which  proceedings relating to taxation have reached the High Courts by way  of a  reference, appeal or revision, the question of  vires  of the statute under which the authority functioned was raised, entertained  and  decided,  and  in  some  cases   statutory provisions  were  declared ultra vires.  The first  case  to which attention may be invited is Gannon Dunkerley & Company v. State of Madras(1).  In that, case the proceeding reached the High Court of Madras in a revision petition under s. 12- B of the Madras General Sales Tax Act, 1939.  The High Court entertained  the  plea  of ultra vires, and  decided  it  in favour  of the taxpayer, and if the assumption we have  made in dealing with this part of the case as to the true  effect of  the judgment reported in (1959) S.C.R. 379  be  correct, this  Court also considered that argument.  In  Navinchandra Mafatlal v. The Commissioner- of Income-tax, Bombay  City(2) in a reference under s. 66(1) of the Indian Income-tax  Act, 1922  a  question as to the vires of s. 12-B of  the  Indian Income-tax  Act was raised before the  Income-tax  Appellate Tribunal  and was referred to the Bombay High  Court.   This Court in appeal from the opinion expressed by the High Court on  the reference also considered that question.  In  Sardar Baldev Singh v. Commissioner of Income-tax, Delhi & Ajmer(1) in  an  appeal from the order of  the  Income-tax  Appellate Tribunal with special leave, the constitutional validity  of s.  23A of the Indian Income-tax Act, 1922 was permitted  to be  challenged.  In Tata Iron & Steel Company Ltd. v.  State of  Bihar(1)  a reference was made by the Board  of  Revenue raising  questions as to the vires of certain provisions  of the  Bihar Sales-tax Act and decided by the High Court,  and ultimately by this Court.. In Ram Krishna Ramnath Agarval of Kamptee v. Secretary, Municipal Committee,, Kamptee, (5) the

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High  Court of Nagpur dealt with a case on a reference  made by the Extra Assistant Comi- (1)  I.L.R. [1955] Mad. 832. (2)  [1955] 1 S.C.R. 829.. (4)  [1958] S.C.R. 135 (3)  [1961] 1 S.C.R. 482. (5) [1950] S.C.R. 15. 2Sup.CI/66-4 27 2 missioner,  Nagpur  before  whom  the  vires  of  provisions relating to levy of octroi duty under the Central  Provinces Municipalities  Act was raised.  Other cases  which  support the  jurisdiction  of the High Court and  therefore  of  the taxing authorities to entertain and consider the plea that a part of the statute is ultra vires are Administrator-General Lahore  Municipality  v. Daulat Rant Kapur(1),  Chatturam  & Others v. Commissioner of Income.tax (2 )  Kaumakhya  Narain Singh v. Commissioner of Income tax(3). We  do  not propose to, refer to other cases (and  they  are many) except one in which the Judicial Committee  considered the  argument  whether in a reference under  the  Income-tax Act,  a  plea  of the vires of a statute  which  the  taxing authority  has to administer may be considered.  In  Raleigh Investment  Company Ltd. v. Governor-General  in  Council(4) the  basic facts were closely parallel to the facts of  this case.   A  joint  stock company having its  main  office  in England  was assessed to income tax and super-tax as a  non- resident  on income which included dividend income  received from  companies some of which were incorporated  in  England and  others in the Isle of Man, and carrying on business  in British  India.   The  Company paid the  tax  assessed,  and instituted  a suit in the High Court of Calcutta claiming  a declaration that Explanation 3 and other provisions of S.  4 of  the  Indian  Income-tax Act,  1922  which  purported  to authorise assessment of and charging to tax, a  non-resident on dividends declared or paid outside British India but  not brought into British India, were ultra vires the legislative power  of the federal legislature, and that  the  assessment was   "illegal   and  wrongful",  and  for   an   injunction restraining  the income-tax authorities from  making  future assessments in respect of such dividends.  The High Court of Calcutta held, that the impugned provisions were ultra vires and the jurisdiction of the civil courts to entertain a suit was not excluded, either by S. 67 of the, Income-tax Act, or by s. 226 of the Government of India Act, 1935.  Derbyshire, C.J.,  in  the  High  Court in  Raleigh  Investment  Co.  v. Governor-General  of  India,  [I.L.R.  (1944)  1  Cal.   34] observed "the Appellate Tribunal. must take the Act as  they find  it,  and  not  call it in  question  and  Mitter,  J.. ,observed  "He (the assessee) cannot urge there  (in  appeal under is. 30 of the Income-tax Act) that, though a provision of  the  Act makes his income or part thereof liable  to  be assessed,  that provision is illegal, being ultra vires  the Indian Legislature." In appeal (1)  [1942] F.C.R. 31.                           (2)  [1947] F.C.R. 116. (3)  [1947] F.C.R. 130.                         (4) L.R.  74 I.A. 50. 27 3 the Federal Court held in Governor-General-in-Council v. The Raleigh Investment Company Ltd.(1) that the impugned  provi- sions  were not ultra vires the Indian Legislature, but  the suit was not maintainable because of the bar contained in s. 226  of  the Government of India Act,  1935.   The  Judicial Committee  without  deciding whether the provisions  of  the

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Income-tax Act pursuant to which the dividends received from the  foreign  companies were brought into  computation  were ultra  vires held that under the general scheme of  the  Act and  s.  67 of the Income-tax Act, 1922, the  suit  was  not maintainable.   The Judicial Committee held that the  Indian Income-tax Act, 1922, contained effective machinery for  the review of assessment on rounds of law including the question whether  a  provision  of the Act  was  ultra  vires.   They observed               "Under  the  Act  the income  tax  officer  is               chared  with the duty of assessing  the  total               income of the assessee.  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               phrase   describes  the  provenance   of   the               assessment  :  it  does  not  relate  to   its               accuracy  in  point of law.  The  use  of  the               machinery provided by the Act, not the  result               of that use, is the test." Their  Lordships then examined the consequences which  would ensue  if  the  contentions raised by  the  appellants  were accepted, and proceeded to state               "All  questions of law affecting the  accuracy               of an assessment might therefore be raised  in               proceedings in any civil court where  reliance               was  sought  to be placed on  the  assessment.               The section on the appellants construction  is               robbed  of all practical content.  Second,  on               the  appellant’s  construction,  in  order  to               ascertain  whether a civil court is barred  by               the  section  from  reviewing  an   assessment               brought  before it, the, legal merits  of  the               assessment  have  first to be  considered  and               decided.  For if the assessment is  determined               to be               (1)[1944] F.C.R. 229.               274               right  in  law the jurisdiction of  the  civil               court to entertain the suit is excluded.   The               assessment    is,    on    the     appellant’s               construction, made under the Act.  If, on  the               other hand, the assessment is determined to be               wrong  the jurisdiction of the civil court  to               entertain  the suit arises.  The result of  an               inquiry  into the merits of the assessment  is               on the appellant’s construction, to  determine               whether jurisdiction existed to embark on  the               inquiry  at  all.  Jurisdiction  is  made  to,               depend  not  on  subject-matter,  but  on  the               correctness  of  the  suitor’s  contention  as               respects subject-matter.  The language of  the               section   is   inapt  to  justify   any   such               capricious      method     of      determining               jurisdiction." This  is weighty authority in support of the view  that  the taxing  officer is competent to entertain a plea  about  the vires of a provision under which he may assess tax, and that if  the Act provides a complete machinery  for  adjudicating

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upon  the  disputes  relating  to  liability  of  tax,   the jurisdiction of the civil court to, entertain a suit to  set aside an assessment even based upon a provision ultra  vires the  legislature  is  barred.   But it  was  said  that  the Judicial Committee erred in so holding.  It was urged that a provision  ultra vires the Legislature has no  existence  in point of law in the statute book and if the taxing authority relies upon that provision for levying tax, the order has no support  from the Act, and may be set aside in a  collateral proceeding. On  this line of reasoning attempts have been made  in  this Court  to challenge the correctness, of the decision of  the Judicial  Committee in two decisions of this Court: Firm  of Illuri  Subbayya  Chetty & Sons’ case(1)  and  M/s.   Kamala Mills’  case(1),  but  the  question  was  left  open.   The majority judgment of this Court in Bharat Kala Bhandar  Ltd. v. Municipal Committee, Dhamangaon(3) contains  observations which  appear  to  throw doubt on  the  correctness  of  the decision in the Raleigh Investment Company’s case(1).  If it were  a decision on a question arising in that  appeal,  the decision  would  undoubtedly be binding upon us, but  as  we will  present  point  out, the question did  not  arise  for decision  in that case and the observations are  dicta,  the correctness  of  which is open to challenge,  and  has  been challenged by counsel for the State of Madras in this  case. In  Bharat Kala Bhandar’s case(3) a ginning factory sued  to recover  cotton cess paid to the local  Municipal  Committee contending that the amount in excess (1) [1964] (3)  [1965]3 S.C.R. 499. (2)  [1966] 1 S.C.R. (4)  L.R. 74 T.A. 50. 275 of the maximum amount prescribed by s. 142-A of the  Govern- ment  of  India  Act,  1935,  was  illegally  levied.    The Municipal  Committee pleaded that the suit was barred by  s. 48  of the Central Provinces Municipalities, Act. 1922.   It was  held  by  this Court that the tax  recovered  could  be ordered to be refunded because it was in excess of the limit prescribed  by the Constitution.  Counsel for the  Municipal Committee,  urged for the first time in this Court,  relying upon  the  Raleigh  Investment Company’s  case(1)  that  the Central  Provinces  Municipalities  Act  contains   adequate machinery  dealing  with refund of taxes and that  the  pro- visions  of s. 85 (2) barred an action for recovery  of  tax wrongfully  recovered  by the Municipal Committee.   It  was held  by this Court that the Act does not set  up  machinery for entertaining a claim for refund or repayment in cases of the  nature  before  the Court, and  that  no  finality  was apparently  given to the decision rendered by  an  authority under s. 83 refusing to refund a tax improperly or illegally assessed  or  recovered.  Dealing  with  Raleigh  Investment Company’s case(1) it was observed :               "But,  with respect, we find it  difficult  to               appreciate  how taking into account  an  ultra               vires provision which in law must be  regarded               as  not being a part of the Act at  all,  will               make  the assessment as one ’under  the  Act’.               No  doubt the power to make an  assessment  is               conferred by the Act and, therefore, making an               assessment would be within the jurisdiction of               the,    assessing    authority.     But    the               jurisdiction can be exercised only  according,               as  well  as  with  reference,  to  the  valid               provisions  of the Act.  When,  however,  the,

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             authority travels beyond the valid  provisions               it must be regarded as acting in excess of               its jurisdiction." On  the view taken by the Court that there was no  machinery for  granting refund of tax unlawfully levied, and  on  that account  the suit was not barred under s. 85 of the  Central Provinces   Municipalities   Act,  the   observations   were unnecessary. Jurisdiction   of  the  civil  court  to  grant  relief   is undoubtedly  excluded if the statute contains  adequate  and effective machineiy for granting relief against the  alleged wrong  and not otherwise.  However application of a  statute which has not been declared ultra vires by a court competent in that behalf, at best amounts to misinterpretation of  the law  which  is  in  the  statute  book.   If  ,an  erroneous interpretation of law to make a transaction taxable (1)L.R. 74 I.A. 50. 276 is  not  open  to  collateral attack,  failure  to  apply  a constitutional  restriction on legislative power  cannot  be raised to a higher pedestal so as to make the decision  open to   such  attack,  In  both  cases  the  error  arises   in misinterpretation of the law. We do not desire to deal in detail with the observations  of Derbyshire,  C.J.,  &  Mitter,  J.,  in  Raleigh  Investment Company  v.  Governor General in Council(1)  of  Venkatarama Ayyar,  J., in The Bengal Immunity Company’s case(1) and  of Jagadisan,  J., in M. S. 11  M. Meyappa Chettiar v.  Income- tax  Officer, Karaikudi(3) on which reliance was  placed  by counsel  for  the,  appellants.   In  the  first  case   the observations  were not supported by any- reasons,  and  were dissented from by the Judicial Committee.  The  observations of  Venkatarama  Ayyar, J., in the second case  are  in  the nature of dicta, and in the third case the Madras High Court expressed  the  view that the bar created by s.  67  of  the Income-tax  Act did not prevent a High Court in  a  petition tinder  Art. 226 of the Constitution from investigating  the validity of the complaint that the fundamental rights of the applicant   were  infringed  by  the  action  of  a   taxing authority.   In  proceedings  for  assessment  of  tax,  the applicant raised no question of vires of s. 3 of the Income- tax Act, and a reference under s. 66 of the Act was answered by the High Court.  Thereafter in a petition under Art.  226 of  the  Constitution  he challenged  the  validity  of  the assessment  on the ground that the discretion given  to  the Incometax  Department  to assess members of  an  association separately  or collectively as an association infringed  the guarantee  of equal protection of laws.  The High  Court  of Madras  in considering the plea that there was a bar of  res judicata   observed   that  the   Incometax   Tribunal   was incompetent  to  entertain  a plea about the  vires  of  the statute under which it functioned.  But beyond observing  at p.  157  "We wish to make it very clear that it is  not  the provision (within the province ?) of the department or  even the statutory Tribunal, which is really the creation of  the status (statute ?), to entertain any objection to a piece of legislation,  as  being ultra vires  or  unconstitutional.", nothing else was stated. It was submitted that this Court in The State of Tripura  v. The Province of East Bengal Union of India (4 ) has  refused to accept Raleigh Investment Company’s case(5) as  correctly decided.   In The State of Tripura’s case (4)   the  Income- tax’Officer, Dacca, serveal a notice upon the Manager of  an Estate belonging to the (1)I.L.R. [1944] 1 Cal. 34.

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(3)[1964] 54 T.T.R. 151. (5) L.R. 74 I.A. 50. (2)[1955] 2 S.C.R. 603. (4) [1951] S.C.R. 1.                             277 Tripura State but situate in Bengal, calling upon the latter to  furnish a return of the agricultural income  under  the, Bengal Agricultural Income-tax Act, 1944.  The State by  its Ruler sued the Province of Bengal and the Income-tax Officer in  the  court  of  the Subordinate Judge  of  Dacca  for  a declaration that the Act, insofar as it purported to  impose liability  to pay agricultural income-tax on  the  plaintiff was  ultra  vires and void, and for a  perpetual  injunction restraining  the defendants from taking any steps to  assess the  plaintiff.  After the partition of India the  suit  was tried  by  the Subordinate Judge, Alipore, in the  State  of West Bengal.  The High Court of Calcutta held that the Court of  Alipore  had no jurisdiction to proceed with  the  suit. This Court inappeal held that the suit did lie in the  Court of  the  Subordinate  Judge, Alipore, and that  a  suit  for injunction  being  not  one  to  set  aside  or  modify  any assessment  made  under  the  Act,  s.  65  of  the   Bengal Agricultural  Income-tax  Act, 1944 did not  bar  the  suit, which was one in respect of an actionable wrong.   Patanjali Sastri,  J., delivering the majority judgment of this  Court observed at p. 14 :               " . . that the suit in question is not a  suit               "to  set aside or modify an  assessment"  made               under  the Act, as no assessment had yet  been               made   when   it  was  instituted,   and   the               subsequent  completion of the  assessment  was               made by the Pakistan Income-tax authorities on               terms  agreed  to  between  the  parties   and               sanctioned by the Court......               The gist of the wrongful act complained of  in               the  present case is subjecting the  plaintiff               to  the harassment and trouble  by  commencing               against   him  an  illegal  and   unauthorised               assessment  proceeding  which  may  eventually               result  in an unlawful imposition and levy  of               tax." Mukherjea, J., who delivered a Supplementary judgment agreed with  Patanjali Sastri, J. It is expressly recorded  in  the judgment  that  the correctness of the decision  in  Raleigh Investment  Company’s case(1) was not challenged before  the Court.  Fazl Ali, J., took a different view relying upon the principle of Raleigh Investment Company’s case(1), observing that it could not have been the intention of the Legislature that though the officer is not liable to be restrained  from proceeding  with an assessment, the provision which  ensures such  a  result may be rendered nugatory  by  permitting  an injunction to be claimed against the Provincial Govern- (1)L.R. 74 I. A. 50. 278 ment  or the State.  The question whether a suit  to  obtain refund  of tax based on a provision of a statute alleged  to be  ultra  vires  was  maintainable  did  not  fall  to   be determined  in the State of Tripura’s case(1), and  was  not decided. In our view, the authority of the taxing officer is  derived from  the  investment  of power under the Act  which  he  is authorized  to  administer.  If there is no  defect  in  the enactment of a taxing statute, insofar as it authorises  the constitution  of  a Tribunal, the  ’Tribunal  invested  with authority  in  the matter of assessment and  ,collection  of

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tax,  would  in  a  judgment  have  power  to  entertain  an objection and to decide whether a provision of the Act which it  is  called upon to administer is ultra vires  and  hence unenforceable. The  Deputy  Commercial Tax Officer had therefore  power  to -assess the transaction of sale in works contract.  Assuming that  he erred in the interpretation of the contract or  the relevant statutory provision, the order was on that  account not  without  jurisdiction.  It could noly be set  aside  by appropriate  proceedings under the Madras General  Sales-tax Act, 1939, and not otherwise.  The suit was therefore barred by  the  scheme  of  the Act and s.  18-A  which  was  later incorporated by Act 6 of 1951. This appeal must therefore fail and is dismissed with costs.                            ORDER In accordance with the opinion of the Majority the appeal is allowed.  There will be a decree in favour of the plaintiffs as prayed for with costs throughout. (1) (1951] S.C.R. 1. 279