Dhulabhai v. State of M.P. and Anr., AIR 1969 SC 78

The appellants, Dhulabhai and others, were tobacco dealers in Ujjain, Madhya Pradesh, engaged in the sale and import of tobacco products. The Madhya Bharat Sales Tax Act, 1950, imposed a sales tax on imported tobacco but not on locally produced tobacco through government notifications under Section 5 of the Act.

Following a writ petition in Bhailal v. State of M.P., the Madhya Pradesh High Court struck down these notifications as unconstitutional, ruling that they violated Article 301 of the Constitution (freedom of trade and commerce) and were not saved by Article 304(a). Relying on this decision, Dhulabhai and others filed civil suits seeking a refund of the tax paid.

The trial court ruled in favour of the plaintiffs, but the Madhya Pradesh High Court reversed the decision, holding that the suits were barred under Section 17 of the Madhya Bharat Sales Tax Act, which stated that assessments made under the Act could not be questioned in civil courts.

The Supreme Court overturned the High Court’s decision, ruling that the bar under Section 17 does not apply where the assessment itself was illegal or unconstitutional.

Observations include: Civil court jurisdiction is not barred unless the statute provides an adequate alternative remedy and expressly ousts civil jurisdiction. If a taxing authority acts beyond its statutory limits or violates constitutional rights, civil courts can intervene. Section 17 of the Act does not prohibit suits where the tax was collected without a proper charging section. Illegal taxation that violates fundamental constitutional provisions is outside the jurisdiction of tax authorities.

The Court established a landmark principle on jurisdictional bars, holding that where the statute provides for a special remedy, civil court jurisdiction is excluded only if the remedy is adequate and the special tribunal has acted within its jurisdiction.