Jurisdiction of Civil Court in Taxation

Section 9 of the Code of Civil Procedure, 1908 provides that Courts shall have jurisdiction to try all matters unless barred by the statute, expressly or by necessary implication. A suit is said to be expressly barred when barred by the enactment of a statute, whereas a suit is said to be barred by implication when the enforcement machinery for asserting rights laid down in the Statute is provided in the Statute itself.

Now, taxation statutes being a complete code in themselves with respect to liability/obligation of payment of taxes, the said enactments also provide for internal forums where grievances can be addressed. For example- Section 293 of the Income Tax Act, 1961 provides a specific bar against suits by providing that, no suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act. Pursuant to same, the Act provides that proceedings before income tax authorities and Appellate Authority shall be considered as judicial proceedings and shall have the powers of Civil Court to exercise its jurisdiction. Similar bar is also provided in Section 162 of the Central Goods and Services Act, 2017.

However, time and again, the question of absolute bar on jurisdiction has been litigated. The leading case on this question is the judgement of the Supreme Court rendered in Dhulabhai v. State of M.P., AIR 1969 SC 78, whereby the Court extensively discussed this and observed hereunder:

35. .......The result of this inquiry into the diverse views expressed in this Court may be stated as follows:

(1) Where the statute gives a finality to the orders of the special Tribunals the civil courts' 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.

(2) Where there is an express bar of the jurisdiction of the court, 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.

(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.

(5) Where the particular Act contains no machinery for refund of tax collected in excess of constitutional limits or illegality 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. (7) An exclusion of the jurisdiction of the civil court is not readily to be inferred unless the conditions above set down apply.

The abovementioned principles were extensively discussed and affirmed in the case of Shiv Kumar Chadha v. Municipal Corpn. Of Delhi, 1993 (3) SCC 161. The Court also clarified the classical position of inherent jurisdiction of Civil Court under common law and special enactments.

"11. In the olden days the source of most of the rights and liabilities could be traced to the common law. Then statutory enactments were few. Even such enactments only created rights or liabilities but seldom provided forums for remedies. The result was that any person having a grievance that he had been wronged or his right was being affected, could approach the ordinary Civil Court on the principle of law that where there is a right there is a remedy-ubi jus ibi remedium. As no internal remedy had been provided in the different statutes creating rights or liabilities, the ordinary Civil Courts had to examine the grievances in the light of 6 different statutes. With the concept of the Welfare State, it was realised that enactments creating liabilities in respect of payment of taxes obligations after vesting of estates and conferring rights on a class of citizens, should be complete codes by themselves. With that object in view, forums were created under the Acts themselves where grievances could be entertained on behalf of the persons aggrieved. Provisions were also made for appeals and revision to higher authorities."

Furthermore, in the case of Srikant K. Jituri v. Corporation of the City of Belgaum (1994) 6 SCC 572, the apex Court goes one step ahead and draws distinction between jurisdiction conferred by a statute and the Constitution. The question that arose for consideration of the Court in the said judgment was regarding the jurisdiction the civil courts being barred by Rule 25 contained in Part-I of Schedule-III of the Karnataka Municipal Corporations Act, 1976. Resolving the dispute about the maintainability of a civil suit against the order passed by the revisional authority, this Court held that the suit was not maintainable. In the said case, the submission on behalf of the assessee was that the right to second appeal to the District Court as per the provisions of the Act was coupled with an onerous condition i.e. deposit of the entire amount of property tax. Hence, it was pleaded that the remedy provided under the Act was not adequate. The Court rejected the said submission by holding that the alternate remedy provided by a statute not being an adequate or efficacious remedy, is not a ground for maintaining a civil suit. However, the Supreme Court was of the opinion that a Writ Petition under Article 226 is maintainable if the remedy provided in the statute is not efficacious.

The observations made in the case of aforementioned cases were followed by the Supreme Court in the case of South Delhi Municipal Corporation & Anr. vs. M/s. Today Homes and Infrastructure Pvt. Ltd. etc., (2020) 12 SCC 680.