Supreme Court of India
COMMISSIONER OF SALES TAX, U.P.versusAURIAYA CHAMBER OF COMMERCE, ALLAHABAD
- Citation
- 1986 INSC 69
- Decided
- 10 April 1986
- Disposal
- Dismissed
- Bench
- SABYASACHI MUKHERJI
Holding
Tax collected under a provision later declared ultra vires is unlawful and must be refunded irrespective of any limitation period prescribed in the Sales Tax Act.
Summary
The assessee paid Uttar Pradesh sales tax on forward contracts that were later held ultra vires by the Supreme Court in Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash. After the decision, the assessee sought refund of the tax, but the Sales Tax Officer rejected the claim on the ground of limitation under Article 96 of the Limitation Act. The Additional Judge (Revision) allowed the refund, and the High Court upheld that order. The Supreme Court examined whether the limitation period in Section 29 of the U.P. Sales Tax Act applied, whether a tax collected without authority of law must be refunded, and the relevance of Section 72 of the Indian Contract Act. It held that tax collected under a provision later declared unconstitutional cannot be retained by the State and must be refunded, and that the statutory limitation period does not bar such a refund. Consequently, the Court affirmed the lower courts' orders and dismissed the revenue's appeals.
Issues considered
- Whether the provisions of the Limitation Act, particularly Article 96, are applicable to refund claims under the U.P. Sales Tax Act.
- Whether a tax collected under a provision later declared ultra vires is refundable despite any statutory limitation period.
- Whether Section 72 of the Indian Contract Act, covering payment under a mistake of law, applies to the refund of unlawfully collected sales tax.
- Whether the Additional Judge (Revision) was justified in entertaining the refund application after the lapse of several years from the assessment order.
Legislation cited
- Indian Contract Act, 1872s. 72
- Limitation Act, 1908s. Article 96, s. Section 5
- Uttar Pradesh Sales Tax Act, 1948s. 11, s. 29, s. 2(h), s. 7-F, s. 9
Subjects
sales taxrefundultra vireslimitation periodmistake of lawSection 72U.P. Sales Tax Actconstitutional taxArticle 265
Judgment
430
A
<XHUSSIONER <W SALES TAX. U.P.
v.
AJIRTAYA CllAHllER <W ClHIERCE, AIJAHABAD.
APRIL 10, 1986
B [SABYASACHI MUKHARJI AND K.N. SINGH, JJ.]
Uttar Pradesh Sales Tax Act, 1948, s. 2(h), 7-F and 29 -
Sales Tax - Refund of - Tax paid under provision of law
subsequently held unconstitutional - Liability of State to
refund tax - Limitation period for claiming such refund.
c
Indian Contract Act 1872, s. 72 - Money paid under t
mistake of law - Liability to return/refund. -t-
The proviso to s. 29 of the U.P. Sales Tax Act 1948
provides thst no claim to the refund of any tax or other
D amount paid under the Act shsll be allowed unless it was made
within 24 months from the date on which the order for
assessment was passed or within 12 months of the final order
passed in appeal, revision or reference in respect of the
order of assessment whichever period is later. .+
E The respondent-assessee had been taxed on the basis of
sale of forward contracts for the assessment year 1949-50 and
for subsequent years. After coming to know of the decision of
the Supreme Court in Sal.es Tall Officer, Pilibhit v. M/s. Budh
Prakaah Jai Prakash, [1955] l S.C.R. 243 that the provision ~
for taxation of sales tax on forward contract was ultra vires,
F the respondent-assessee filed a Revision in 1955 for quashing f
the !lSSessment order for the relevant year 1955 i.e. within a
year of the assessment order. The revision was dismissed in
September 1958 on the ground that it had been filed after a
long delay and was barred by limitation. The assessee there-
after made a formal application before the Sales Tax Officer
G for refund of the amounts which were deposited in accordance
with various assessment orders under mistake. The Sales Tax
Officer dismissed that application as barred by period of )'
limitation prescribed under Article 96 of the First Schedule
of the Indian Limitation Act 1908. The assessee then filed a
revision to the court of Additional Judge (Revision) Sales
H Tax, u. p, against the order of the Sales Tax Officer. Relying
c.s.T. v. CHAMBER OF COMMERCE 431
A
~ upon the decision of the Allahabad High C'.ourt in Sales 1-
C_,_i ssiooer,U.P. v. Sada Sukh Veopar llandal, 1959 S.T.C.
57, the Additional Judge (Revision) held that there was no
period of limitation and ordered refund of sales tax of
Rs.3535.3 for 1948-49, Rs.9,205.12 for 1949-50, Rs.3,653.8 for
1950-51 and Rs.5,014.3.3 for 1951-52. The High Court also B
upheld the order of the Additional Judge (Revision) in a
+ reference at the instance of the revenue. It held: (a) that
the period of limitation under Article 96 of the Limitation
Act could not be taken into consideration by the Sales Tax
Authorities in refusing to allow refund; and (b) that the
Additional Judge (Revisions) Sales Tax, U.P. was legally
justified in entertaining the revision application after the c
'-J lapse of several years from the date of the assessment order
-+ and that the sums deposited by respondent-company towards
sales tax for the year 1949-50 and onwards were refundable to
the company.
Dismissing the appeal of the appellant-revenue, this D
Court,
HEU>: 1. (i) Article 265 of the Constitution enjoins
f- that no tax shall be levied or collected except by authority
of law. Therefore, when moneys are paid to the State which the
State has no legal right to receive, it is ordinarily the duty E
.. of the State subject to any special provisions of any
particular statute or special facts and circumstances of the
~ case, to refund the tax of the amount paid. [437 ~]
l.(ii) Where indubitably there is in the dealer legal
..., title to get the money refunded and where the dealer is not F
\ guilty of any latches and where there is no specific
prohibition against refund, one should not get entangled in
the cobweb of procedures but do substantial justice. [445 F-G]
Suresh a.andra Bose v. State of West Bengal, 38 s.T.c.
99 and State of West Bengal and Ors. v. Suresh Chandra Bose, G
45 s.T.c. 118, approved.
2.(i) The rights and the obligations of the parties DJ.lSt
be found within the four corners of the Act and the Supreme
Court in an appeal under an Act lll.lSt act under the four
corners of law, but in interpreting the relevant procedural H
provisions, fairness and justice should be the approach and
432 SUPREME COURT REPORTS (1986] 2 s.c.R.
A
even in a fiscal statute, equity should prevail wherever~
language permits. (438 H; 493 A]
2. (ii) Section 7-F of the Act is significant in the
sense that it proceeds on the basis that refund had to be made
in certain cases. The section enjoins that notwithstanding
B anything contained in the Act, no tax, fee, interest or
penalty under the Act shall be recovered and no refund shall
be allowed if the amount involved for any assessment year w~
less than five rupees. It recognises liability and the obliga-
tion of refund if the amount is more than rupees five.
Sub-section (5) of section 9 stipulates that if the amount of '
c tax assessed, fee levied or penalty imposed was reduced by the
appellate authority under sub-section (3), he shall order the\
excess amount of tax, fee or penalty, if realised to be
refunded. Section 29 stipulates that the assessing authority~
shall, in the manner prescribed, refund to a dealer any amount
of tax, fees or other dues paid in excess of the amount due
D from him under the Act. Sub-section (3) of section 29 provides
certain embargo against refund in certain cases. Therefore, it
is apparent that the obligation to refund in cases of excess
realisation or excess payment by the Taxing Authority of the
dues from the seller as well as from the assessee is recognis-4"
ed in the scheme of the Act. (439 G-il; 440 A-B; E-F]
E
3.(i) Section 72 of the Indian Contract Act, 1872
recognises that a person to whom money has been paid, or •
anything delivered by mistake or under coercion, must repay or
return it. Money paid under a mistake of law comes within "-
'mistake' in section 72 of the Indian Contract Act, and there
F is no question of estoppel when the mistake of law is coDJDOn .
to both the assessee and the taxing authority. (440 G; 443 D] "/
3.(ii) If law of limitation is applicable then.section 5
of the Limitation Act is also applicable and it is apparent
that the application originally was made within time before
G two years as contained in the proviso. Article 96 of the First
Schedule of the Limitation Act, 1908 prescribes a period of
limitation of three years from the date when the mistaker
becomes known for filing a suit. If that principle is also
kept in mind, the assessee had made the application in 1955,
and it was not beyond time, since the judgment came to be
H known in May, 1954. (445 D-F]
c.s.T. v. CHAMBER OF C~RCE 433
A
~ In the instant case, the mistake indubitably was there.
There was no dispute that the tax was not due and had been
collected wrongly. There is no dispute that the assessee is
entitled to the same. There is no dispute that the assesee
made application within a year of the knowledge of the
mistake. There is no dispute therefore that had a suit been B
filed under Article 96 of the Limitation Act, 1908 or an
-flPPlication made under section 29 of the Act, the claim would
have been allowed but the revision was dismissed on the ground
that it was belated. The revision of the assessment order was
- wrong but the consequential relief of refund could have been
granted. The order of the Additional Judge (Revision) was
correct and the assessee was entitled to refund. [ 443 G-H; c
'i,44 A-ll)
-t
Gannon !Amkerley and Co. 's case, 9 S.T.C. 353 and The
State of lerala V• Aluminium Industries Ltd., 16 S.T.C. 689,
relied upon.
D
Sales Tax C,_-jssioner, U.P. v. Sada Sukh Veopar Mandal,
1959 S.T.C. 57; llaja Jagdambika Pratap .Narain Singh v. Central
Board of Direct 1'aieS and Ors., 100 I. T.R. 698; Hindustan
jSugar Hills Etc. v. State of llajasthan & Ors., [1979] l s.c.R.
276 at 297; ec-i ssioner, Sales Tax, Iucknow v. Auraiya
Chambers of Cowrce, 30 S.T.C. 41; The State of Madhya
-
E
Pradesh (Now Maharashtra} V• llaji Hasan Dada, 17 S.T.C. 343;
Ccwni66iooer of Income Tax, West Punjab v. Tribune Trust,
Lahore, 16 I. T.R. 214; K.S. Venkataramn & Co. (P) Ltd. v.
~The State of Madras, 17 S.T.C. 418; Qumon !Amkerley & Co. v.
The State of Madras, 5 S.T.C. 216; Raleigh lnveatllent Co. Ltd.
,. Governor-General in Coimcil, 74 I.A. 50 = 15 I.T.R. 332; F
the Sales Tax Officer, Banaras & Ors. v. lanhaiya Lal Haknnd
I.al Saraf & Ors., 9 S.T.C. 747 and Bharat Kala llhandar (P)
Ltd. V• Municipal Committee, Qwmangaon, 59 I.T.R. 73, referred
to.
CIVIL APPELi.ATE JUklSDICTION Civil Appeal Nos. 874-876 G
. of 1974 •
From the Judgment and Order dated 19.1.1973 of the
Allahabad High Court in Sales Tax Reference No. 763, 764 and
765 of 1970.
H
R.A. Gupta for the Appellant.
434 SUPREME COURT REPORTS [1986] 2 s.c.R.
A A. K. Verma and D. N. Mishra for the Respondent,
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J, These appeals by special leave
arise from the decision of the High Court of Allahabad. Under
Section 11(3) of the U.P. Sales Tax Act, 1948 as amended from
B time to time the following questions were referred to the High
Court for opinion at the instance of the Colllllissioner of+
Sales Tax and statement of the case was submitted.
"l. Whether, the observations (subject, however, to
the question of estoppel, waiver, limitation or the
c like) made by their Lordships of the Hon 'ble~
Supreme Court in the case of Sales Tax Officer,~
Banaras V• Kanhaiya Lal M11kanc!Jal, Saraf, (1958 STCf-
P• 747), imply that the provisions of the Indian
Limitation Act are applicable to cases under the
U. P. Sales Tax Act and whether these observations
D are inconsistent with the view taken by the Hon'ble
High Court in the case of Sales Tax ec-aissiooer,
U.P. V• Sadasukh Veopar Handal, (1959 STC P• 57) ?
2. Whether, in these cases in which refund warl
claimed on the principle of section 72 of the
E lndiap. Contract Act the period of limitation under
Article 96 of the Limitation Act could be taken
into consideration.by the Sales Tax authorities in
refusing to allow refund?
..
3. Whether under the circumstances of this case as
F stated above, the Add!. Judge (Revisions) Sales Tal
was legally justified in holding that the sums
deposited by the Company towards sales tax for the
year 1949~50, was refundable to the company?
4. Whether, the Addl. Judge (Revisions) Sales Tax
G was legally justified in entertaining the revision
application in question of the aforesaid Company
after the lapse of several years from the date of)°'
the assessment order particularly when the appeal
and the revision application of the Company in
respect of the assessment year were dismissed?
H
c.s.T. v. CHAMBER OF CC11MERCE [SABYASACHI MUK!IARJI, J,] 435
A
~ The questions relate to the assessment year 1949-50 and
for subsequent years. In view of the decision of the Allahabad
High Court in ~ssiooer of Sales Tax, U.P. Iucknow v.
Auriaya <Jvmbe1'. of Comierce which was in respect of the
assessment year 1948-49 reported in 30 STC page 41, the High
Court was of the opinion that question No.l aforesaid need not B
be answered, question No.2 aforesaid should be answered in the
negative, question No.3 aforesaid in the affirmative and
-~uestion No.4 aforesaid in the affirmative.
- f
The main question involved is the quest.ion of refund of
sales tax paid in respect of forward contract.
In 'Die Sales Tax Officer, Pilibhit v. Messrs. Budh
c
__Jrakaah Jai Prakash, [1955] l s.c.R. 243 = 5 s.T.c. 193 this
~urt held on 3rd May, 1954 that section 2(h) of the Uttar
Pradesh Sales Tax Act, '/JI of 1948, enlarging the definition of
"sale" so as to include forward contracts must, to that
' extent, be declared ultra vires. A bench of five learned D
judges of this Court held that there was a well -defined and
well-established distinction between a sale and an agreement
to sell. The words 'Taxes on the sale of goods' in entry No.
-f.8, List ll, Schedule VII of the Government of India Act,
1935, conferred power on the Provincial Legislature to impose
a tax only when there had been a completed sale and not when E
there was only an agreement to sell. For the same reason
• Explanation Ill to section 2(h) of the said Act which provided
that forward contract 'shall be deemed to have been completed
~on the date originally agreed upon for delivery' and section
3B of the Act also must be held to be ultra vires.
F
~' As a consequence, the assessee in this case filed a
revision in 1955 for quashing the order for this year. It may
be mentioned that the assessee had been taxed on the basis of
sale of such forward contracts. The revision was dismissed in
September, 1958 on the ground that it had been filed after a
long delay and was barred by limitation. G
'~ '1, The assessee subsequently filed an application before the
Sales-tax Officer for refund of the amount which was deposited
in accordance with the assessment order for the year and the
subsequent years under mistake. This claim of refund was again
made on 24th May, 1959. The Sales-tax Officer dismissed that H
436 SUPREME COURT REPORTS (19861 2 s.c.R.
A
application as barred by period of limitation prescribed under~
Articie 96 of the First Schedule of the Indian Limitation Act,
1908. The assessee thereafter filed revision to the Court of
Additional Judge (Revision) Sales Tax U. P. against the order
of the Sales-tax Officer rejecting the claim for refund.
B The Court of Additional Judge (Revision) Sales Tax U.P.
directed refund of sales-tax of Rs.3,535.3 for 1948-49~
Rs.9,205.12 for 1949-50, Rs.3,653.8 for 1950-51 and Rs,
5,014. 3. 3 for 1951-52. It may be mentioned that prior to 1st
April, 1959, there was no section dealing with any period of
limitation for refund. Section 29 was added by U.P. Sales Tax
.,
n (Amendment) Act VII of 1959 and came into force with effect
from 1st April, 1959. The first proviso to section 29 is at
follows :- •
"Provided that no claim to the refund of any tax or
other amount paid under this Act shall be allowed
unless it was made within 24 100nths from the date
on which the order for assessment was passed or
within 12 100nths of the final order passed in
appeal, revision or reference in respect of the
order of assessment whichever period is later." ~
E It appears that the claim for refund in the instant caae
was made after lst April, 1959. At the time when the taxes
were paid and the assessment was made, there was no •
limitation. The Additional Judge (Revision) Sales Tax U. P.
held that there was no period of limitation and ordered refund--
as mentioned hereinbefore. The said Additional Judge placed
F reliance upon the decision of the Allahabad High
Sales Tax (-Omnissiooer, U.P. v. Sada Sukh Veopar
C:-!iat,
1959 S.T.C. 57.
The said officer at the instance of the revenue ref erred
the four questions indicated above for the opinion of the High
G Court under section 11(3) of the Act.
The main question therefore is are these diversit-
amounts refundable to the assessee?
It is undisputed that the tax was collected from the
H
c.s.T. v. CHAMBER OF CC!IMERCE [SABYASACHI MUKHARJI, J.] .437
A
""3ssessee and the assessee paid the tax on the belief that tax
was due and payable. It was subsequently found that the
provision for taxation of sales-tax on forward contract was
ultra vires. Therefore the levy and collection of sales tax on
forward contracts was ultra vires. In other words, the State
had no right to that !lklney. The assessee was not liable to pay B
that money. This position in law cama to the knowledge of the
.,?,arties only on this Court• s decision being rendered on 3rd
May, 1954. The assessee filed a revision as appears from the
statemant of case for quashing the assessmant for the relevant
year in 1955 i.e. within a year which was dismissed in 1958 on
the ground that it had been filed after a long delay and was
barred by limitation. The assessee thereafter made a formal c
~pplication for refund on 24th May, 1959. That was dismissed
~n the ground of claim being barred by limitation on the
principles of article 96 of First Schedule of Indian
Limitation Act, 1908.
Article 265 of the Constitution enjoins that on tax shall D
be levied or collected except by authority of law. Tax in
this case indubitably has been collected and levied without
the authority of law. It is therefore refundable to the
~ssessee. The question is : is there any machinery for refund
of that tax to the assessee and if so, is there any limitation
for refund of the tax collected without the authority of law? E
If State collects because of its powers !lklneys not due to it,
can it be directed to refund? If so, then is there any period
of limitation?
~
Though not in this context but in a different context,
·~he question whether tax collected by the State without F
authority of law can be directed to be refunded without any
period of limitation was considered in a writ application by
the Calcutta High Court in Suresh Qumdra Bose v. '1be State of
West Bengal, 38 S.T.C. 99. This decision of the single judge
of the Calcutta High Court was approved by the Division Bench
of that High Court in State of West Bengal E. Ors. v. Soresh G
Qiandra Bose, 45 S.T.C, 118. The court under Article 226 of
~the Constitution directed refund in that case. The court
emphasised that when moneys are paid to the State which the
State has no legal right to receive, it is ordinarily the duty
of the State subject to any special provisions of any
particular statute or special facts and circU111Stances of the H
case, to refund the tax of the a!lklunt paid.
438 SUPREME COURT REPORTS [1986] 2 s.c.R.
This Court in Raja Jagdallbika Pratap Narain Singh v.~
A
Central Board of Direct Taxea & Ors., 100 1.T.R. 698 had to
consider from the point of view of the Income-tax Act this
aspect. This court was dealing with the question of limitation
in granting relief in the background of Article 226 of the
Constitution of India. But this Court observed that any legal
system, especially one evolving in a developing country, might
B
permit judges to play a creative role and innovate to ensur~
justice without doing violence to the norms set .by
legislation. But to invoke judicial activism to set at nought
legislative judgment is subversive of the constitutional
harmony and comity of instrumentalities. •
c Here in the instance case we have to find out within th~
four corners of the provisions of U.P. Sales Tax Act_, 194~
whether there is any prohibition prohibiting the assessee from
getting the refund as claimed for. If the original claim of
1955 is accepted as sum claimed for refund, then it cannot be
disputed that there was denial of a rightful claim.
D
We might in this case bear in mind certain observations,
though we are conscious that the same were rendered in a
different context, of this Court in Hindustran Sugar Hill.sf
Etc. v. State of Kajasthan & Ors., [1979] l S.C.R. 276 at 297
where directing payment of certain sales tax collected· from
E
the assessee, this Court observed that though there was no
legal liability on the Central Government but as we are living
in a democratic society governed by the rule of law and every
Government which claims to be inspired by ethical and moral~
values must do what is fair and just to the citizen, regard-
less of legal technicalities, this Court hoped and trust~~
F
that the Central Government would not seek to defeat the
legitimate claim of the assessee for reimbursement of sales
tax in that case on the amount of freight by adopting a
legalistic attitude but would do what fairness and justice
demanded.
G
It is true that this is an appeal from a reference under
section 11(3) of the U.P. Sales Tax Act, 1948. The rights andr
the obligations of the parties must be found within the four
corners of the Act and this Court in an appeal under an Act
must act under the four corners of law but in interpreting the
relevant procedural provisions, fairness and justice should be
H
C.S. T. v. CHAMBER OF CCl1MERCE [SABYASACHI MUKHARJI, J.] 439
~ the approac~ and even in fiscal statutes equity should prevail A
wherever language permits. With this background, let us
examine the actual provisions of the Act.
As mentioned in the order of the High Court, the order
under appeal was passed by the High Court relying on the order
B
of the Special Bench of that High Court for the assessment
+year 1948-49 in Commissioner, Sales Tax, h•cJrnow v. .Auriaya
"'vi•>er of Cmmerce, 30 s. T.C. 41. On a difference of opinion
.. between the two learned judges, the matter was disposed of by
the opinion of third learned judge. The year involved was the
assessment year 1948-49. Four identical questions were
•referred to the High Court. Pathak, J. (as his wrdship then
~was of the Allahabad High Court) expressed the view that the
c
• first question had been framed in the abstract without
relevance to the facts of the present case and therefore need
not be answered. With this view the other learned judge,
Gulati J. agreed. We are also of the same opinion. The facts
before the High Court were identical with the facts of the
D
present case.
In order to appreciate the contentions raised in this
). case, it is necessary to bear in mind the relevant provisions
of the U.P. Sales Tax ACt, 1948 (hereinafter called the
'Act'). Section 3 of the Act enjoins that subject to the
E
provisions of the Act, every dealer shall, for each assessment
year, PaY a tax at the rates provided by or under section 3-A
_. or section 3-D on his turnover of sales or purchases or both
~ as may be which shall be determined in such manner as may be
prescribed. It is not necessary for the present purpose to
\deal in detail with the said provisions.
F
Various sections of the Act deal with the various stages
of taxation. It is not necessary to deal with these in detail.
Section 7-F deals with recovery or refund of petty
amounts to be ignored. The section is significant in the sense
that it proceeds on the basis that refund had to be made in G
_.., certain cases. The section enjoins that nonwithstanding
anything contained in the Act, no tax, fee, interest or
penalty under the Act shall be recovered and no refund shfll
be allowed if the amount involved for any assessment year wn
less than five rupees. It recognises liability and the
H
'
440 SUPREME COURT REPORTS [1986] 2 S,C,R.
A
obligation of refund if the amount is more than rupees five.~,
Section 8 deals with payment and recovery of tax. Section 8-A
deals with registration of dealers and realisation of tax by
dealers. The other sections are not very material except that
section 9 deals with appeal and sub-section (5) of section 9
stipulates that if the amount of tax assessed, fee levied or
B penalty imposed was reduced by the appellate authority under
sub-section (3), he shall order the excess amount of tax, fee..
or penalty, if realised, to be refunded. Section 10 is not
-
material for our present purpose. Section 11 deals with
revision by the High Court in special cases, and section 11(8)
enjoins that the High Court shall, after hearing the parties
c to the revision, decide the questions of law involved therein~
and where as a result of such decision, the amount of tax, feel(
or penalty is required to be determined afresh, the High Cour~
may send a copy of the decision to the Tribunal for fresh
determination of the amount and the Tribunal shall thereupon
pass such orders as are necessary to dispose of the case
D inconfirmity with the said decision.
Section 5 of the Limitation Act has been made applicable.
The other material section for our present purpose is section
29 which was added in the Act on 1st April, 1959 provided fo~
refund. Section 29 stipulates that the assessing authority
E shall, in the manner prescribed, refund to dealer any amount
of tax, fees or other dues paid in excess of the amount due
from him under the Act. Then there is provision for payment of •
interest if there is delay in refund with which we are not
concerned. Sub-section (3) of section 29 provides certain.,_
embargo against refund in certain cases. In the instant case,
F we are not concerned with the same. Therefore, it is apparent'
that the obligation to refund in case of excess realisation o'/
excess payment by the taxing authority of the dues from the
seller as well as from the assessee is recognised in the
scheme of the Act.
G
Section 72 of the Indian Contract Act, 1872 recognises
that a person to whom money has been paid, or anything
delivered, by mistake or under coercion, llllSt repay or return)'-
it. In this case it is not disputed that mistake of law is
also a mistake covered by the provisions of section 72 of the
Indian Contract Act. If the law declared by this court in lludh
Prakash Jai Prakash's case (supra) is correct, as it !lllst be,
H
c.s.T. v. CHAMBER OF COMMERCE [SABYASACHI MUKHARJI, J.] 441
A
.J then the payment of tax by the dealer, the respondent herein,
was under a mistake of law and realisation by the revenue
authorities was also under a mistake. Therefore such sum
should be refunded. This is recognised in the provisions of
the Act as we have noted before. The principle of section 72
of the Indian Contract Act has been recognised. B
J- This was the view expressed by Pathak, J. on this aspect.
We are in respectful agreement. But t)le learned judge was
unable to find in the provisions of the Act any authority for
directing the refund without a suit. The question therefore
arises whether in a case where assessment order determining
the liability was void, but the same was not set aside, can c
-J the sales tax authorities grant refund of the tax assessed
~ thereunder? The learned judge posed this question and answered
it by saying that if the assessment could be said to have been
under the Act, no such power could be exercised by the sales
tax authorities. The learned Judge relied 011 the observations
of this Court in 1be State of Madhya Pradesh <- Maharashtra) D
v. Baji Hasan Dada, 17 S.T.C. 343. There this Court was
dealing with section 13 of the C.P. and Berar Sales Tax Act,
1947 (prior to its amendment by Act 20 of 1953) and the Court
t- said that the refund might be granted only of the amount which
was not lawfully due, and whether a certain amount was
lawfully due or not llllSt be determined by the officer in E
making the order of assessment or re-assessment. Until the
• order of assessment was set aside by appropriate proceedings
under the Act full effect llllst be given to the order even if
1 it be later found that the order was erroneous in law. It was
held by a bench of three learned judges that an application
~or refund of sales tax paid under an order of assessment made F
, by the Assistant Commissioner of Sales Tax could not be
entertained by that officer on the plea that the order was
made on an erroneous view of the law unless the order was set
aside in appropriate proceedings. There the assessee had paid
the amount of tax assessed on him by the Assistant
Colllllissioner of Sales Tax on his turnover from his business in G
yarn for the period 13th November, 1947, to 1st November,
~ 1948, and then applied to that officer under section 13 for an
order refunding an amount on the plea that in the turnover
were included dyeing charges which were not taxable. It was
held that the application was not maintainable under section
13 (as originally passed). There this Court after referring to H
442 SUPREME COURT REPORTS (1986] 2 S.C.R.
\
A
the Judicial Committee's decision in ec.dssiooer of ~
Income-tax, West Punjab V• :rribuoe Trust, Labore, 16 I, T,R,
214 held that such an order by the taxing authority was not
possible but it has to be borne in mind that in this case the
imposition of the tax was really without authority of law as
contemplated under Article 265 of the Constitution. Therefore
from the beginning the realisation was illegal and a right of
B
refund was embedded in the fact of payment.
In K.S. Venkataraman and Co. (P) Ltd. v. 'lbe State of
Madras, 17 S.T.C. 418 this Court had occasion to deal with the
problem similar to this. The appellant company there was
carrying on the business of building contractors and was
c assessed to sales tax under the Madras General Sales Tax Act,~
1939, dliring the years 1948-49 to 1952-53 on the basis that.
the contracts executed by them were works contracts. On 5th
April, 1954, the Madras High Court held in Gannon Dunkerley &
Co. v. l'be State of Madras, 5 s. T.C. 216 that the relevant
provisions of the Act empowering the State of Madras to assess
D
indivisible building contracts to sales tax were ultra vires
the powers of the State Legislature. The appellant issued· a
notice to the State of Madras under section 80 of the Code of
Civil Procedure claiming refund of the amounts collected from -t
them, and, as the demand was not complied with, filed a suit
in the City Civil Court on 23rd March, 1955, for recovery of
E
the amount of taxes illegally levied and collected from them.
The relevant provisions of the Act empowering the Sales Tax
Authorities. to impose sales tax on indivisible building
contracts were unconstitutional and void and the Sales Tax .._
Authorities had not jurisdiction to assess the appellant in
respect of the transactions and the appellant having paid th•~/
F
amounts under a mistake of law was entitled to a refund of tht.
same. Following the decision of the Privy Council in Raleigh
Investment Co. Ltd. v. Governor-General in Council, 74 I.A. 50
= 15 I.T.R. 332 the City Civil Court held inter alia that the
suit was not maintainable under section 18-A of the Act, and
the Madras High Court upheld that decision. On appeal this
G
Court by a majority held that on the facts, that the assess-
ments were made on the appellant in respect of indivisible .,_
works contracts, and that this Court in r...,lll!Ol'I Dunkerley and
Co. 's case 9 s. T. c. 353 ha.i held that the provisions of the
Act in so far as they enabled the imposition of tax on the
turnover of indivisible building contract were ultra vires the
H
C.S. T. v. CHAMBER OF CCllMERCE [SABYASACHI MUKHARJI, J. J 443
A
powers of the State Legislature, and, therefore, void, the
Sales Tax Authorities had acted outside the Act and not under
it in making the assessment on the appellant on the basis of
the relevant part of the charging section which was declared
ultra vires by this Court and therefore it was held that
section 18-A of the Act was not a bar to the maintainability B
of the suit. Shah and Rsmaswami, JJ., however, took a
... different view. But if the realisation of the tax and the
collection of tax on forward contract was an act beyond the
authority and ultra vires then money retained by the taxing
authority should be refunded to the citizen concerned. There
is no express prohibition against that refund.
1 c
• In 1be State of Kerala v. Aluminim ~tries IU., 16
S. T.C. 689 this Court reiterated that money paid under a
mistake of law comes within 'mistake' in section 72 of the
Indian Contract Act, and there was no ques~ion of estoppel
when the mistake of law was common to both the assessee and
the taxing authority. Where the assessee did not raise the D
question that the relevant sales were outside the taxing State
and were therefore exempt under Article 286(1 )(a) of the
Constitution (as it then was), the Sales Tax Officer had no
.. occasion to consider it, and sales tax was levied by mistake
of law, it was ordinarily the duty of the State, subject to
any provision of law relating to sales tax, to refund the tax. E
-. If the refund was not made, remedy through court was open,
""' subject to the same restriction and also to the bar of
limitation under Article 96 of the IJ.mitation Act, 1908. But
this Court reiterated that it is the duty of the State to
investigate the facts when the mistake was brought to its
~ notice and to make a refund if the mistake was proved and the F
claim was made within the period of limitation. In the instant
case before us as we have noted mistake indubitably was there.
There was no dispute that the tax was not due and had been
collected wrongly. There is no dispute that the assessee is
entitled to the same. There is rut dispute that the assessee
made an application within a year of the knowledge of the G
mistake. There is no dispute therefore that had a suit been
filed under Article 96 of the IJ.mitation Act, 1908 or an
application made under section 29 of the Act, the claim would
have been allowed but the revision was dismissed on the ground
that it was belated. The revision of the assesment order was
H
444 SUPREME COURT REPORTS (1986) 2 S.C.R.
A
wrong but the consequential relief of refund could have been ~
granted. In that view of the matter we should construe the
provisions in such manner as there is no contra indication
which will ensure justice to the party and not denied to it
and hold that the order of the Additional Judge (Revision) was
correct and the assessee was entitled to refund.
B
In The Sales Tax Officer, Bauaras, & Ors. v. Kanhaiya
Lal !tJlamd Lal Saraf & Ors., 9 s. T.C. 747 the contention was '.f
raised on behalf of the Sales Tax Authorities to urge that the
procedure laid down in U.P. Sales tax Act by way of appeal and
revision against the assessment order in question ought to
have been followed by a dealer and not having done so, the
c dealer was debarred in Civil Court from obtaining refund of ~
tax paid by it. This Court overruled that contention by reason ~
of the categorical statement made by the Advocate-General
before the High Court. This Court clearly laid down that when
an amount has been recovered as tax by 'an authority in
exercise of the constitutionally permissible amount, a suit of
D
such amount would lie notwithstanding the provisions in the
statute barring a suit in respect of the order made. This
decision was rendered in Bharat Kala Bbandar (Private) Ltd. v.
!bllcipal ec-t.ttee, Piamangaon., 59 I. T.R. 73. '*
As we read this order in the instant case, when the
E
assessee or dealer made an application for revision, the
Additional Judge (Revision) could direct refund because money
was being illegally retained by the revenue. If mistake either
of law or of fact is established, the assessee is entitled to ~
F
recover the money and the party receiving these is bound to
return the same irrespective of any other consideration.
this case there is no delay in making the application for
In'
claiming the refund as set out hereinbefore. It is apparent
that the assessment order and the realisation of the money was
based on the ultra vires provisions of the Act. This should
have been and ought to have been ignored. On that basis the
G
present application was made.
It is true that except special provisions indicated ,.-
before, there is no specific provision which prescribes a
procedure for applying for refund in such a case. But the
rules or procedures are hand-maids of justice not its
mistress. It is apparent in the scheme of the Act that sales
H
c.s.T. v. CHAMBER OF COMMERCE [SABYASACHI MUKHARJI, J,] 445
A
tax is leviable only on valid transaction. If excess amount is
realised, refund is also contemplated by the scheme of the Act
In this case undoubtedly sales tax on forward contracts have
been illegally recovered on a mistaken view of law. The same
is lying with the Government. The assessee or the dealer has
claimed refund in the revision. In certain circumstances B
refund specifically has been mentioned. There is no
~ prohibition against refund except the prohibition of two years
under the proviso of section 29. In this case that two years
prohibition is not applicable because the law was declared by
this Court in Budh Prakash Jal Prakash's case on 3rd May, 1954
and the revision was filed in 1955 and it was dismissed in
1958 on the ground that it had been filed after a long delay. c
Thereafter the assessee had filed an application before the
Sales Tax Officer for refund. The refund was claimed for the
first time on 24th May, 1959. The Sales Tax Officer had
dismissed the application as barred by limitation under
Article 96 of the First Schedule of the Indian Limitation Act,
D
1908.
The assessee filed revision before the court of Addi-
tional Judge (Revisions) rejecting the claim for refund. If
law of limitation is applicable then section 5 of the Limita-
tion Act is-~lso applicable and it is apparent that the appli-
cation originally was made within time before two years as E
contained in the provisio. Article 96 of the First Schedule of
the Limitation Act, 1908 prescribes a period of limitation of
three years from the date when the mistake becomes known for
filing a suit. If that principle is also kept in mind, then
when the judgment came to be known in May, 1954, then in our
~ opinion, when the assessee had made an application in 1955, it F
was not beyond the time.
Where indubitably there is in the dealer legal title to
get the money refunded and where the dealer is not guilty of
any latches and where there is no specific prohibition against
refund, one should not get entangled in the cobweb of proce- G
dures but do substantial justice. The above requirements in
this Case, in our opinion, have been satisfied and therefore
we affirm the direction of the Additional Judge (Revisions),
Sales Tax for refund of the amount to the dealer and affirm
the High Court's judgment on this basis.
H
In the view we have taken, we are of the opinion that
446 SUPREME COUIIT REPORTS [1986] 2 S.C.R.
A
question No. 1 need not be answered. So far as question no. 2 , ,
is concerend, we are of the opinion that in the view we have
taken on question No. 3, this question also need not be
specifically answered. We are in agreement with the majority
view of the learned judges that question No. 3 should be
answered in the affirmative and that really disposes of the
B controversy between the parties. So far as question No. 4 is
concerned, in the way we read the facts of this case, we are
of the opinion that there has not been any lapse of several ~
years from the date of the assessment order and we are further
of the opinion that in the facts of this case, the Additional
Judge (Revision), Sales Tax was justified in entertaining the
c application in question. The question is answered accordingly.
The appeals accordingly fail and are dismissed with
costs.
D
M.L.A. Appeals dismissed.
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