State vs Laxminarain

M.A. Razzaque J.

This second appeal of the defendant, the State of Madhya Pradesh, has been directed against the reversing decree passed by Shri N. R. Ithape, Second Additional District Judge. Indore, in Civil Appeal No 217 of 1956-C decreeing plaintiff's suit for permanent injunction.

The respondent plaintiff was an excise contractor who, on 15th February, 1950, obtained from the Government of Madhya Bharat a contract to sell liquor in 6 shops in the city of Indore. The contract was for one year from 1-4-1950 to 31-3-1951. Now there is no dispute that some time after, the said contract was transferred by the plaintiff to 6 sub-contractors (Pot Thekedars) with the consent and knowledge of the Government. One of the questions which arises for consideration is who is liable to pay sales-tax on the sales of liquor of these 6 shops. i. e. plaintiff or the six sub-contractors.

The State of Madhya Bharat levied sales-tax with effect from 1st May 1950 and attempted to recover it from the plaintiff in respect of the liquor sold to consumers from the said six shops by the sub-contractors. The case of the plaintiff as originally laid was that the Excise Commissioner who was present at the time of the auction had given an assurance to the bidders that no sales-tax would be levied and that the plaintiff would not have offered such a high bid had such an assurance not been given. As the sales-tax in respect of the year 1950-51 for the six shops in question was demanded by the Government from the plaintiff he served the Government and the Excise Commissioner with notices u/s 80 of the Code of Civil Procedure. The notices were given on 29-7-1950, they were served on 31-7-1950, and as no reply was received, the plaintiff filed the present suit out of which this appeal arises, on 25/29-9-1950. i. e. before the expiry of two months of the service of the notices.

Cause of action was shown to have arisen on 15-8-1950 and the relief claimed was as under:-

"Yeh thehrava jave ki sal 1950-51 men prativadi ko sales-tax vadi se wasul karne ka akhtiyar nahin hone se prativadi ke khilaf kavan ki takid di jave ki woh vadi se da. viya sales-tax sal 1950-51 ke waste wasul na kare."

For purposes of court-fee and jurisdiction he had valued the suit at Rs. 2,100 and paid Rs. 162-8 as court-fee thereon. The suit was filed against the State of Madhya Bharat and Excise Commissioner, Madhya Bharat, But the latter was subsequently deleted and the former was substituted by the "State of Madhya Pradesh" on account of the Reorganization of the States.

Subsequently on 31-3-1952 the plaintiff applied for permission of the Court to amend the plaint by adding one more ground to the effect that as he had transferred the contract to the six sub-contractors with the consent of the Government in respect of the six shops in question, he could not be held liable to pay sales-tax on the sales of liquor effected by the said six shops as in the circumstances he could not be called a "dealer." Though this amendment was opposed, the learned Judge of the trial Court was pleased to allow it on 19-11-1954 subject to payment of costs Rs. 25 which the appellant-defendant accepted on 1-12-1954 without any demur. It is also now contended before me by the appellant that this amendment should not have been allowed.

On behalf of the defendant State, the alleged representation was denied, the notice was characterised as illegal and that the jurisdiction of the Civil Court to entertain the suit was barred by Section 17 of the Madhya Bharat Sales-Tax Act, Samvat 2007 (Act No. 30 of 1950). It was further contended that inspite of the transfer of the contract to the six subcontractor, the plaintiff was liable to pay sales tax in respect of the said six shops for the year 1950-51 as he continued to remain dealer in respect of those shops under the Sales-Tax Act.

The trial Court held that the alleged representation that no sales-tax would be levied was not proved, that the notice given u/s 80 of the CPC was invalid and the suit was premature having been filed before the expiry of the period of notice, that the defendant State had the authority under the Sales Tax Act to levy the sales tax and that the Civil Court had no jurisdiction to entertain the suit. The learned Judge had also framed issues Nos, 9, 10 and 11 touching the allegation that the plaintiff was not liable to pay any sales tax because of the transfer of the contract to the six sub contractors. The learned Judge did not give any findings on these issues as he dismissed suit on the ground of invalidity of notice and that the Civil Court had no jurisdiction to try it. This was on 15-6-1956.

Against this decision, the plaintiff appealed. The learned judge of the first appellate court held that the notice given u/s 80 was legal and that the Court had jurisdiction to hear the suit. Accordingly, by its order dated 17-9-1956, it remanded the suit to the trial Court for giving findings on the three issues which were not decided by the trial Court.

After the remand, the trial court held that the sub-contracts were effected with the knowledge and consent of the defendant State and that in view of the sub contracts the plaintiff was not liable to pay the sales-tax. These findings were confirmed by the first appellate Court and as it had also held that the notice was valid and the Civil Court had jurisdiction it decreed plaintiff's suit in the following term:-

"It is declared that the plaintiff being a dealer, the defendant State has no authority to levy sales-tax on liquor sold in the year 1950-51 by the sub-contractors of the Indore shops. He is liable to pay sales-tax on the liquor that he himself had sold. The defendants are ordered not to recover sales-tax from the plaintiff..."

Being aggrieved by this decision, the defendant State has preferred this second appeal.

The following points were urged before this Court on behalf of the appellant: -

(1) That the trial court was wrong in allowing the amendment which was made at the late stage.

(2) That the plaint as originally laid did not disclose any cause of action and the court was wrong in not rejecting the plaint under Older 7 rule 11 of the Code of Civil Procedure.

(3) That the suit was bad because it was filed before the expiry of the period of notice, i. e., two months. The lower appellate Court having held that the suit was for declaration and injunction, it should not have held that only 15 days notice was necessary,

(4) That the lower courts erred in holding that the plaintiff was not a "dealer" within the meaning of Section 2 (f) of the Sales-Tax Act and that they have erred in considering the opinion of the Sales Tax Commissioner given in Ex. P-1 to reach the finding that the sub-contractors and not the plaintiff would be liable for the sales-tax in respect of the sales of liquor from the six shops in question.

(5) That the jurisdiction of the Civil Court was barred u/s 17 of the Sales-Tax Act.

On behalf of the respondent, the judgment of the lower Court was fully supported.

As regards the first point that the trial Court was wrong in allowing the amendment, I have to say that apart from other considerations this objection is not now open to the appellant. As already stated; the amendment was allowed by the trial Court subject to the payment of Rs. 25 as costs to the defendant State and the latter accepted those costs without any demur, vide order-sheet dated 1-12-1954. In AIR 1934 163 (Nagpur) which followed Sree Mahant Prayag Dossjee Varu Vs. Raja Venkata Perumal, , it was observed: -

"If under the terms of the order a party receives costs, subject to which the other party has been allowed a relief, the former will not be permitted to challenge the order. He will, of course, be entitled to do so provided he either does not accept the benefit allowed to him under the order or accepts it expressly reserving his right to challenge the order."

This Nagpur case was followed in AIR 1941 273 (Nagpur) , in which it was held that-

"Where an amendment is allowed subject to the payment of costs to the other party, the party receiving the costs cannot challenge the amendment subsequently unless he has expressly reserved his right to do so while accepting the costs."

No authority was cited against these rulings by the learned counsel. It would be found that the costs were accepted without any reservation or demur and therefore it is not now open to the appellant to challenge the discretion of the Court in allowing the amendment in this appeal. On this short ground, therefore, the contention is liable to be rejected.

Even otherwise, the order for allowing amendment cannot be interfered with at this stage. Amendment of pleadings is in the discretion of the Court. That discretion has to be exercised judicially and not arbitrarily or on vague or fanciful ground. The learned judge of the trial Court gave cogent reasons for allowing the amendment. In fact, the judgment of the first appellate Court either before or after the remand does not show that this ground was agitated before it by the appellant. Further, the plaintiff advanced various grounds in his plaint for asking the relief that he was not liable to pay the sales-tax. To those grounds, one more ground embodied in the amendment was also added. That would not amount to introduce an inconsistent case. For all these reasons, I hold that the discretion exercised by the trial Court which was done on sound judicial principles cannot be interfered with in this appeal and therefore I reject this contention.

As ragards the second ground that the plaint as originally laid did not disclose any cause of action and therefore it should have been rejected, too has no force. Cause of action means the whole bundle of material facts which it is necessary for the plaintiff to allege and prove in order to entitle him to succeed in the suit. Following Chand Koer vs. Pratap Singh 16 Cal. 98 PC in L. Gupta vs. V. B. Sarwate AIR 1956 Nag. 205 it was observed that-

"Cause of action refers entirely to the grounds set forth in the plaint as the cause of action or in other words to the media upon which the plaintiff asked the Court to arrive at a conclusion in his favour."

A reference to the original plaint and the one subsequently amended would show that the plaintiff has setforth various grounds therein on the basis of which he asked the Court to arrive at a conclusion in his favour. It may also be noted that the objection that the plaint did not disclose any cause of action and therefore it should be rejected was not taken by the appellant either in the trial Court or in the lower Court. For all these reasons, I reject this contention.

As to the third ground that the suit was bad or premature because it was filed before the expiry of two months period given in the notice as provided by Section 80 of the Code of Civil Procedure, I am of the opinion that this contention also deserves to be rejected. It is common ground that notice was given on 29-7-1950 to the appellant who received it on 31-7-1950 but the suit was filed on 25-9-1950, i. e., within two months of the service of the notice.

From the judgment dated 17-9-1956 of the first appellate Court before remand, it is clear that Section 80 of the CPC as applied to the State of Madhya Bharat stood amended at the material time as far as suits for injunction were concerned. In other suits the period of notice was two months but in the suit for injunction the period of notice was two weeks. This position was not challenged by the learned counsel for the appellant before me. What he challenged was that the instant suit was for declaration and injunction and accordingly he urged that such a suit could not be filed before the expiry of two months it being for declaration. In support, he brought to my notice the relief granted by the first appellate Court which I have already quoted in para 9.

The learned Judge of the lower Court in his elaborate judgment before remand gave cogent reasons to hold that in substance the suit was for permanent injunction only and accordingly it held that the suit having been filed after the expiry of 15 days of the service of the notice, it was not premature. The learned counsel for the respondent fully supports the finding of the lower Court on this point and also urges that on this ground he has given 15-8-1950 as the date of cause of action for the said suit in the plaint.

A reference to the allegations in the plaint and the relief as claimed in para 12 thereof would show that the suit of the plaintiff in substance is a suit for injunction and in effect the plaintiff claims the relief of permanent injunction against the appellant State. It is not a suit for declaration and it would not become so merely because some word to that effect is used either in the plaint or in the relief clause. In the instant case, I have gone through the various allegations made in the plaint. I have also already quoted in para 4 the relief claimed. If we look at the substance of the plaint and the relief asked for rather than its mere form, it would be clear, that the plaintiff prays for relief that as he is not a dealer under the Madhya Bharat Sales-Tax Act, the defendant-appellant be restrained permanently from recovering the sales-tax of the six shops in question from him for the year 1950-51 Merely because the word "thahrao" has been used in the relief clause, the suit will not become a suit for declaration thereby. Further it may be noted, that court-fee for a suit for declaration is only Rs. 10 and had the plaintiff intended only declaratory relief, then he would have done so by paying only Rs- 10 as court-fee but in fact he has paid Rs- 162/8/- as court-fee. This intention is also clear from the fact that date of cause of action is given as 15-8-1950.

For all these reasons. I hold that in substance the suit is for permanent injunction and therefore only 15 days notice was necessary in this case. The suit having been filed after the expiry of 15 days notice is not premature. Therefore, agreeing with the lower Court, I confirm its finding on this point and reject the appellant's contention.

As to point No. 4 relating to plaintiff's liability to pay sales-tax for the sales effected by the six shops in question, the learned counsel for the appellant all along laid emphasis on the point that the plaintiff was a "dealer" within the meaning of Section 2 (f) of the Sales-Tax Act and therefore he alone was liable. A grievance is also made that the lower Courts erred in relying upon the opinion of the Sales-Tax Commissioner expressed in Ex-P-1 of May 1951. But in doing so, the learned counsel entirely ignores toe subsequent developments, i. e, the shops were transferred by the plaintiff to 6 subcontractors in May 1950 or thereabout with the consent and knowledge of the appellant. The appellant itself is responsible for bringing the six sub- contractors on the scene and completely wiping out the plaintiff from the picture. It is therefore obvious that the plaintiff ceased to be a dealer with effect from the dates the shops were so transferred.

If in spite of this position, the appellant wanted to levy tax on the plaintiff in respect of the sales of these shops, it was for the appellant to affirmativaly establish plaintiff's connection with these sales which has not been done. It is not shown that the sales were effected by the plaintiff either personally or through his agent, servant or any other person having an express or implied authority to do so on his behalf. It is also not shown that in spite of the transfers his liability for tax still continued under any of the conditions mentioned in the licence granted to him. The position of these sub-contractors vis-a-vis the plaintiff is not that of an agent, servant etc. That being so, the contention of the appellant must fail.

The two courts below have considered this point from various angles and came to the conclusion that the plaintiff could not be held liable to tax on the sales effected by the six-sub-contractors at these shops from the dates they were transferred. This conclusion has been reached by them with reference to the various provisions of the Act and independently of Ex. P-1. Briefly stated, Ex.P-1 says that the liability to pay sales tax falls on the sub-contractors, i. e. Pot licensees, and the turnover of the principal contractor should not be included for the purpose of determining his liability. This is perfectly consistent with the conclusion reached by the two courts below independently of this document. They committed no wrong if they referred to this document remarking that it also supports their view. No grievance therefore can be made on that account. But for the vehemance with which the point was pressed, I would have disposed it off in a few sentences. A reference to the various provisions of the Act will clearly show that the scheme of the Act and the rules made thereunder is that the "dealer" who either personally or through his agent, servant or any other person authorised effects sales of goods is liable to the sales tax.

u/s 2 (f) ''dealer means any person........who carries on in M. B. the business of selling or supplying goods whether for commission, remuneration or otherwise. Section 2 further defines "goods", "sale", "turnover" and "taxable turnover". u/s 3, a dealer is liable to sales tax on the taxable turnover in the manner as stated therein. Section 7 provides for submission of returns of the turnover and such returns to be accompanied by Treasury Challan showing that the sales tax has been deposited. Section 19 says that true accounts of the goods sold and bought should be maintained by the dealer. According to Section 14 (1), a dealer committing any breaches in respect of the above provisions or the rules made under the Act is to be penalized. u/s 14(2) if a dealer not liable to tax collects sales tax as such from a consumer, he is to be prosecuted and punished with imprisonment.

From the scheme of the Act as stated above, it would be clear that a dealer who effects sales of goods has to maintain true accounts of the goods sold and purchesed, submit correct returns to the sales tax authorities, doposit the tax in the Government Treasury and attach the challan with the returns so submitted. It is he who is liable to be taxed on his taxable turnover. If he commits breaches, he is liable to penalities. If he is a person not liable to a tax and collects such a tax from the consumer, he is liable to be prosecuted and convicted.

In the instant case, it is common ground that neither the plaintiff nor his agent or servants affected any sales of liquor at the six shops in question from the dates they were transferred to the sub-contractors and the sub-contractors are the persons who sold liquor at these shops and probably collected sales-tax from the consumers. In the circumstances, the sub-contractors would be the ''dealers'' in the eye of law and not the plaintiff who ceased to have any connection with the shops in question after their transfer. If the argument of the learned counsel for the appellant were accepted, it would lead to an unreasonable conclusion because it would suggest that the plaintiff should continue to maintain accounts and do all other things as stated above else expose himself to various penalties even though he has been completely removed out of the picture by the act of the appellant and has no connection whatsoever with the sales, a circumstance under which it is impossible for the plaintiff to comply with all these provisions.

The scheme of the Act would therefore suggest that it would be the six sub-contractors who would be liable to sales-tax and not the plaintiff. If the six sub-contractors are not liable to pay tax and even then they collected it from the consumers, it is for the Government to take action against them as contemplated by the Act. If they are liable to pay it and the Government on account of some lacuna cannot recover it, then it is for the Government to correct the mistake but on no account it can recover the tax from the plaintiff.

I accordingly hold, agreeing with the two courts below, that the plaintiff ceased to be a dealer within the meaning of Section 2 (f) of the Act in respect of the six shops in question with effect from the dates on which they were transferred by the plaintiff to the sub-contractors with the consent and knowledge of the appellant. Of course, the plaintiff would be liable to sales-tax for sales of liquor from these shops upto the date of such transfer. The contention is accordingly rejected.

As to the last contention to the effect that the jurisdiction of the Civil Court to entertain the suit is barred by Section 17 of the Madhya Bharat Sales-Tax Act, it has no force. u/s 8, assessment of taxable turnover is made in the manner mentioned therein. Section 11 provides for appeals and it says that any assessee objecting to an assessment or refund or to an order of penalty may appeal to such authority as may be prescribed. u/s 12, revisions against orders in appeals can be to the Sales-Tax Commissioner. u/s 13 a reference can be made to the High Court under certain circumstances. Then Section 17 says: -

"''Save as is provided in Section 13, no assessment made and no order passed under this Act or the rules made thereunder by the assessing authority, appellate authority or the Commissioner shall be called into question in any Court, and save as is provided in Sections 11 and 12 no appeal or application for revision shall lie against any such assessment or order."

Under Section 9 of the Code of Civil Procedure, the courts shall have jurisdiction to try all suits of a civil nature excepting suits for which their cognizance is either expressly or impliedly barred. It cannot be disputed that the suit out of which this appeal arises is a suit of civil nature but the appellant's contention is that the plaintiff's remedy lay under Sections 11 and 12 of the Madhya Bharat Sales Tax Act and therefore Section 17 expressly bars such a suit. The principle is that where a right is created by statute and the method of a enforcing right or of re-dressing the grievance caused in the exercise or enforcement of the right is pointed out by the statute creating such right, then the general remedy of suit will be impliedly barred. Therefore, before a party can claim advantage of Section 17 it if necessary for such a party to show that assessment was made and order was passed in accordance with the provisions of the said Act or rules made thereunder. The moment the authorities concerned transgress the bounds of their legitimate sphere, they act in excess of their limited jurisdiction and whatever order is passed in such circumstances. Civil Court which are courts or inherent jurisdiction will step in and question the legality of such an order. Assuming the sales-tax authorities were to levy tax on a total stranger who has no connection whatsoever with the sales of goods and threatened to recover it from him, can it be said that the remedy of the stranger would be under Sections 11 and 12 and jurisdiction of Civil Court would be barred by Section 17 of the Act-? The answer must be in the negative for the simple reason that the authorities concerned did not act within the legitimate sphere of the provisions of the Act or rules made thereunder. They acted in the excess of their limited jurisdiction. In such circumstances, jurisdiction of the Civil Court would not be barred either expressly or impliedly. After the transfer of the six shops to various sub-contractors, the position of the plaintiff is substantially the same as that of such a stranger.

It therefore follows that the jurisdiction of Civil Court to entertain plaintiff's suit was not barred. The contention is accordingly rejected.

Even otherwise, the contention is not tenable on the plain reading of Section 17. It says that no assessment made and no order passed under this Act or the rules made thereunder by the assessing authority, appellate authority or the Commissioner shall be called into question in any Court. In the instant case, neither assessment made nor order passed under the Act or the rules made thereunder is being challenged. In fact, no such order is on record as neither the plaintiff nor the defendant has filed it. What the plaintiff wants is to guard himself against the threatened injury and therefore he claims permanent injunction against the Government. Accordingly it would follow that the plaintiff's suit is not barred by Section 17 of the Act.

No other ground was pressed. I however find from the relief granted by the lower Court that it has used the word "declared" and on behalf of the appellant some advantage was sought to be taken on this account. I may however mention here that the lower Court in its judgment before remand had specifically stated that the suit of the plaintiff was for relief of permanent injunction and not for declaration. Therefore, the lower Court was never in doubt about the relief claimed. It appears that it has used the word "declared" in the judgment appealed against through some mistake. This can be remedied because the plaintiff in his relief clause in substance claimed only injunction. The modified relief would run as under:-

"It is ordered that the plaintiff not being a dealer, the defendant State has no authority to levy sales-tax on liquor sold in the year 1950-51 by the sub-contractors from the six shops in question and the defendant is permanently restrained from recovering such sales-tax from the plaintiff. He would however be liable to such tax on the liquor sold by him from the said shops before their transfer provided such sales when clubbed with his other sales fall within the ambit of the taxable turnover."

In the result, the appeal fails and it is dismissed. The decree passed by the appellate Court shall however be modified in the terms as stated in the preceding paragraph. The appellant shall pay the costs of the respondent and bear its own. Counsel's fee Rs. 100 for each side, if certified.