1971 (10) TMI 91 - SC - VAT and Sales Tax

Supreme Court upholds Bihar Sales Tax assessments, dismisses refund suit due to lack of jurisdiction.

The Supreme Court held that the assessments made under the Bihar Sales Tax Act, 1947 were valid for the years in question. It was determined that the ... Whether the High Court of Calcutta had territorial jurisdiction to entertain the plaintiff's suit? Whether any part of the cause of action for the suit arose outside Bihar in consequence of the order of the appellate authority? Held that:- Appeal allowed. Unable to agree with the High Court that any part of the cause of action for the suit arose in Calcutta. Hence we set aside the judgment of the Division Bench of the Calcutta High Court and restore that of the single judge but not on the ground that found favour with the learned Judge. Issues Involved:1. Validity of the assessments made under the Bihar Sales Tax Act, 1947.2. Jurisdiction of the Calcutta High Court to entertain the suit.3. Entitlement of the plaintiff to a refund based on the appellate authority's order.Detailed Analysis:Validity of the Assessments:The primary issue was the validity of the assessments made for the years 1950-51, 1951-52, and 1952-53 under the Bihar Sales Tax Act, 1947. The plaintiff argued that the assessments were invalid based on the Supreme Court's decision in Bengal Immunity Co. Ltd. v. State of Bihar, which held that states could not tax inter-State sales unless authorized by Parliament. The appellate authority allowed the plaintiff's appeals and set aside the assessments, citing this decision.However, the Sales Tax Laws Validation Act, 1956, retrospectively validated the levy and collection of taxes on inter-State sales for the period from April 1, 1951, to September 6, 1955. This Act was upheld by the Supreme Court in M. P. V. Sundararamier & Co. v. State of Andhra Pradesh, which confirmed that Parliament had the authority to enact laws with retrospective effect.For the year 1950-51, the assessment was governed by the Sales Tax Continuance Order, 1950, which was valid under the Constitution. Therefore, the assessment for 1950-51 was validly made. For the years 1951-52 and 1952-53, the assessments were validated by the Sales Tax Laws Validation Act, making them legally binding.Jurisdiction of the Calcutta High Court:The plaintiff filed a suit in the Calcutta High Court for a refund of the taxes paid, arguing that a part of the cause of action arose in Calcutta because the cheques were encashed there, the appellate authority's order was received there, and the plaintiff's registered office was located there. The trial court initially held that the Calcutta High Court had jurisdiction because the cheques were encashed in Calcutta and the State of Bihar, as the debtor, was required to pay the creditor in Calcutta.However, the Division Bench of the Calcutta High Court held that the doctrine that the debtor must find the creditor did not apply because the refund could only be made inside Bihar as per the rules framed under the Act. Despite this, the Division Bench concluded that the encashment of cheques in Calcutta constituted a part of the cause of action, giving the Calcutta High Court jurisdiction.The Supreme Court disagreed, stating that the payments were made based on the original assessments, not the appellate authority's order. The entire cause of action for the refund claim arose in Bihar, as per the Bihar Sales Tax Rules, which required applications for refunds to be made to the Commissioner in Bihar and payments to be made through Government treasuries in Bihar.Entitlement to Refund:The plaintiff claimed a refund based on the appellate authority's order, which set aside the assessments. The Division Bench of the Calcutta High Court held that the order of the appellate authority became final as it was not appealed against, and thus, the plaintiff was entitled to a refund.The Supreme Court noted that the appellate authority's order, although erroneous, gave the plaintiff the right to claim a refund. The Sales Tax Laws Validation Act did not override the decision of the appellate authority, and the validity of the appellate authority's order could not be questioned in a civil court as per Section 23 of the Bihar Sales Tax Act.However, since the entire cause of action for the refund claim arose in Bihar, the Calcutta High Court lacked jurisdiction to entertain the suit. Consequently, the Supreme Court set aside the judgment of the Division Bench of the Calcutta High Court and restored the decision of the single judge, dismissing the plaintiff's suit.Conclusion:The Supreme Court concluded that the assessments for the years in question were validly made, and the Calcutta High Court did not have jurisdiction to entertain the suit for a refund. The plaintiff's suit was dismissed, and each party was directed to bear its own costs.