Tax Law : The Supreme Court of India in Dhulabhai Vs. State of Madhya Pradesh, AIR 1969 SC 78 :  3 SCR 662 :  22 STC 416 held that challenge to provisions of Act as ultra vires cannot be brought before Tribunals constituted under that Act.
A full bench comprising of HIDAYATULLAH, M. (CJ) BACHAWAT, R.S. VAIDYIALINGAM, C.A. HEGDE, K.S. GROVER, A.N. JJ. observed that even High Court cannot go into that question on revision or reference from decision of Tribunals.
Madhya Bharat Sales Tax Act (30 of 1950)
By Notifications issued by the State Government under s. 5 of the Madhya Bharat Sales Tax Act 1950 sales-tax was imposed and collected from the appellants. They filed suits, for refund of the tax on the ground that it was illegally collected from them being against the constitutional prohibition in Art. 301 and not saved under Art. 304(a).
In Bhailal v. State of M.P. (1960) M.P.L.J. 6011, the petitioner therein challenged in a writ petition, the levy of sales tax on the same grounds and the High Court declared the notifications to be offensive to Art. 301 and held that, the imposition of tax was illegal.
Following that decision, the trial court decreed the suits filed by the appellants. In appeal before the High Court it was conceded by the State that the tax could not be imposed in view of Art. 301, but it was contended that the suits were not maintainable in view of s. 17 of the Act which provides that no assessment made under the Act shall be called in question in any court. The High Court held that the suits were incompetent.
In appeal to the Apex Court, held that the suits were maintainable. An enquiry into the diverse views expressed in the decisions of this Court shows that an exclusion of the jurisdiction of civil court is not readily to be inferred unless the following conditions apply :
(1) Where the statute gives a finality to the orders of the special tribunals the civil court’s jurisdiction must be held to be excluded if there is adequate remedy to do what the civil courts would normally do in a suit. Such provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure.
In Firm Illuri Subbayya Chetty & Sons’ case the assessee conceded that the tax was payable and did not raise the issue before the appellate authorities under the Act. The suit for refund of tax was held not maintainable on those special facts, with reference to the addition of s. 18A excluding the jurisdiction of civil court and the special remedies provided in ss. 12A to 12D in the Madras General Sales Tax Act, 1939.
This Court, however, did not think it necessary to pronounce any opinion on the Judicial Committee’s view in the Raleigh Investment Co. case  L.R. 74 I.A. 50) that even the vires of the provisions could be considered by the Tribunals constituted under the Act. Dealing with Mask & Co.’s case, it was pointed out that non- compliance with the provisions of the statute meant non- compliance with such fundamental 663 provisions of the statute as would make the entire proceedings before the appropriate authority illegal and without jurisdiction.
(2) Where there is an express bar of the jurisdiction of the an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court.
Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not.
In Provincial Government v. J. S. Basappa,  5 S.C.R. 517 it was held that the civil court had jurisdiction because, at the relevant time,
(a) the Madras General Sales Tax Act, 1939, did not have s. 18A (which was introduced later barring the jurisdiction of civil court)
(b). the Act did not have the elaborate machinery for adequate remedy which was also introduced later, and
(c) the tax was illegally collected ignoring the fundamental provisions of the Act.
Therefore, the observation in Kerala v. Ramaswami Iyer & Sons that Basappa’s case was wrongly decided is open to doubt.
M/s. Kamala Mills Ltd. v. State of Bombay,  1 S.C.R. 64 was a decision of a Special Bench holding that s. 20 of the Bombay Sales Tax Act 1946 excluded the jurisdiction of the civil court in suits for refund of tax, in cases, where the decision of the authorities under the Act was merely an error in assessment capable of correction by the usual pro- cedure of appeals etc.
But the Bench observed, that in such cases, where the jurisdiction of the civil court is barred- by providing an adequate machinery in the Act, it becomes ‘pertinent to enquire whether remedies normally associated with actions in civil court are prescribed by the statute or not’, and thus expressly left open the question as to how far the bar would operate in cases where the charging provision is ultra vires.
(3) Challenge to the provisions of the particular Act as ultra vires cannot be brought before Tribunals constituted under that Act. Even the High Court cannot go into that question on a revision or reference from the decision of the Tribunals.
(4) When a provision is already declared unconstitutional or the constitutionality of any provision is to be challenged, a suit is open. A writ of certiorari may include a direction for refund if the claim is clearly within the time prescribed by the Limitation Act but it is not a compulsory remedy to replace a suit.
In State of M.P. v. Bhailal,  6 S.C.R. 261 which confirmed the decision in 1960 M.P.L.J. 601 this Court upheld the order of refund by the High Court in its writ jurisdiction held that in cases where a defence of limitation was open or other facts had to be decided, the order of refund was not proper, and accepted the proposition that a suit lay in’ such cases without adverting to, the provisions of the Act to see whether the jurisdiction of civil court was barred either expressly or by necessary implication. Therefore, this case cannot be an authority for holding that the- civil court has jurisdiction to entertain such suits.
(5) Where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegally collected a suit lies.
(6) Questions of the correctness of the assessment apart from its constitutionality are for the decision of the authorities and a civil suit does not lie if the orders of the authorities are declared to be final or there is an express prohibition in the particular Act. In either case, the scheme of the particular Act must be examined because it is a relevant enquiry.
In the present case, though the Madhya Bharat Sales Tax Act contains ,Provisions for appeal, revision, rectification and reference to the High Court, the notifications having been rightly declared void in the earlier -decision of the High Court, the appellants could take advantage of the fact that tax was levied without a complete charging section. Since the tax authorities could not even proceed to assess the party their jurisdiction was affected and the case fell within categories (3) and (4) above, ,and not in category (2).
Case Law Reference
- Secretary of State v. Mask  L.R. 67 I.A. 222
- Firm Illuri Subbayya Chetty & Sons v. State of Andhra Pradesh,  1 S.C.R. 752
- Kerala v. Ramaswami Iyer and Sons,  3 S.C.R. 582
- K. S. Venkataraman v. State of Madras,  2 S.C.R. 229
- Deputy Commercial Tax Officer, Madras v.Rayalaseema Constructions, 17 S.T.C. 505
- Circo’s Coffee Co. v. State of Mysore, 19 S.T.C. 66 (S.C.)
- C. T. Senthulnathan Chettiar v. Madras, (C.A. 1045 of 1966. dated 20th July, 1967)
- Pabojan Tea Co. Ltd. v. Dy. Commissioner, Lakhimpur,  1 S.C.R. 260; A.I.R. 1968 S.C. 271
- Bharat Kala Bhandar Ltd. v. Municipal Council, Dhamangaon,  3 S.C.R. 499.