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Judgment
T.L. Viswanatha Iyer, J.—The Petitioner is a dealer registered under the Kerala Genera1Sales Tax Act, 1963 (the Act) and an Assessee on the files of the first Respondent. Petitioner undertakes inter alia execution of contract works like construction of buildings and Ors. . For the purpose of executing these contracts, Petitioner had, in the years 1970-71 to 1978-79 and 1981-82, purchased certain materials from unregistered dealers. These purchases were brought to tax u/s 5A(1)(a) of the Act as if the materials concerned had been consumed in the manufacture of other goods for sale or otherwise. Copies of the orders of assessment for these years are Exts. P-1 to P-10, and all of them show ex facie that the purchases of these materials by the Petitioner for the purpose of execution of contract works have been assessed to tax u/s 5A. Petitioner as well as the first Respondent assessing authority, were both under the impression that such purchases were exigible to tax u/s 5A. The tax so assessed was paid by the Petitioner.
While so, and on December 17, 1986, a Division Bench of this Court, of which I was a member, held in the decision in Deputy Commissioner of Sales Tax v. T. Anandan (1987) 65 S.T.C. 349 that such purchases of goods from unregistered dealers for use in the execution of contract works will not attract the levy u/s 5A, for the reason that the consumption envisaged by Sub-clause (a) of Sub-section (1) of the section was only consumption in the manufacture of other goods for sale and therefore the contingency adumbrated by the Sub-clause did not occur when the goods were consumed for other purposes. When a contractor constructed a building or erected sea-wall, as in that case, he was not manufacturing any goods, and therefore the purchase of the materials used in the construction which became part of immovable property, could not be brought to tax u/s 5A.
This decision was confirmed by the Supreme Court in Deputy Commissioner of Sales Tax (Law) v. Kannan Nair (1988) 70 S.T.C. 48 on April 8, 1988.
The effect of these decisions was that the levy of tax u/s 5A on the purchases of materials by the Petitioner for use in the execution of works contracts under the orders of assessment Exts. P-1 to P-10, for the years mentioned earlier, was not legal or proper. Soon after they became aware of the decision of this Court, the Petitioner made a representation Ext. P-11 dated March 14, 1988 to the assessing authority, namely the first Respondent seeking refund of an amount of Rs. 19,683.94 which they had paid as tax on these purchases under mistake of law. This petition did not meet with any response, and therefore this Original Petition was filed on December 19, 1988 seeking a direction to the Respondents to refund the said amount with interest at 24 per cent per annum.
The Respondents have filed a counter-affidavit refuting the claim made by the Petitioner, and contending that the Petitioner should have taken up the assessments in appeal, and that without doing so, they are not entitled to seek refund of the amount paid.
The Supreme Court had, as early as in 1958 held in the decision in Sales Tax Officer v. Kanhaiya Lal Mukund Lal Saraf (1958) 9 S.T.C. 747, that refund of sales tax paid under a mistake of law could be claimed based on Section 72 of the Indian Contract Act, 1872. The Court dealt with the scope of Section 72 and held that a person who pays money either under a mistake of law or of fact, is entitled to recover the amount so paid, and the party receiving the same is bound to repay or return it irrespective of any consideration whether the money had been paid voluntarily, subject however to questions of estoppel, waiver, limitation or the like. That was a case where the levy in question was made under a law which was subsequently held to be unconstitutional and the Supreme Court held that so far Section 72 was concerned, there was no distinction between a tax liability and any other liability and therefore tax paid under a mistake of law under the enactment in question could be got refunded.
The principle of this decision was applied by the Supreme Court in State of Kerala v. Aluminium Industries Ltd. (1965) 16 S.T.C. 689. That was a case of a levy made in violation of Article 286(1)(a) of the Constitution, as it then stood, and the Assessee claimed refund of the amount, when they discovered the mistake. The Assessee had not raised the question of non-liability at the time the assessment was completed and the mistake was common both to the Assessee and the assessing authority. It was only subsequently that the Assessee discovered the mistake, and made the claim for refund which was allowed by this Court in a petition filed under Article 226 of the Constitution. The Supreme Court observed that such payment was within the scope of Section 72 of the Contract Act and the claim for refund was liable to be entertained if it was made within three years from the date on which the mistake became known to the Assessee who made payment by mistake. The Court went on to observe that it was the duty of the State to investigate the facts when the mistake was brought to its notice and to make refund if the mistake was proved, and the claim was made within the period of limitation under Article 96of the Limitation Act, 1908, namely three years from the date when the mistake became known to the person making the payment by mistake. In Commissioner of Sales Tax v. Auraiya Chamber of Commerce (1986) 62 S.T.C. 327, the Supreme Court reaffirmed the position as stated above, and held that when tax is collected without the authority of law, the State has no right to the money and that it was refundable to the Assessee. The same position has been reiterated in the subsequent decisions, both of the Supreme Court, in Shri Vallabh Glass Works Ltd. and Another Vs. Union of India (UOI) and Others, and in Salonah Tea Company Ltd. v. Superintendent of Taxes (1988) 69 S.T.C. 290. In the latter of these cases, the Court ordered refund in an appeal arising out of an application under Article 226 of the Constitution of India, filed within a period of three years from the date of discovery of the mistake, the period prescribed under the Limitation Act for a suit in a civil court for the same relief, being ordinarily taken as the period beyond which the Court should not grant relief under Article 226, though that was not an inflexible rule. Sri Ravi Oil Mills v. Commercial Tax Officer 1990 77 S.T.C. 7, was Anr. case dealt with by the Supreme Court in an analogous situation where an Assessee paid tax under a mistake of law and the mistake came to his knowledge years later. The Assessee''s approach to the High Court proved unsuccessful, the High Court dismissing the writ petition on the ground that a suit for the same relief was time barred. The Supreme Court set aside the order of the High Court and directed refund, holding that in the absence of any denial, or controversy, as to the date on which the Assessee came to know of the mistake on his part, and the excess payment, he was entitled to refund of the amount collected illegally. In Mahabir Kishore v. State of Madhya Pradesh 1990 78 S.T.C. 404 : AIR 1990 S.C. 315, the question under consideration was regarding the starting point of the period of limitation of three years for a proceeding of this nature. The Supreme Court observed that when money is paid under a mistake of law, the period of limitation for recovery of the amount does not begin to run until the date on which the Plaintiff discovers the mistake or could with reasonable diligence have discovered the mistake. Article 113 of the schedule to the Limitation Act, 1963 and the provisions of Section 17(1)(c) of that Act apply in such cases. It was also observed significantly that though a party could, with reasonable diligence, discover a mistake of fact, even before a Court makes a pronouncement, it is seldom that a person can, even with reasonable diligence, discover a mistake of law before a judgment adjudging the validity of the law.
The following principles emanate from the above decisions. Tax paid under a mistake of law falls within the purview of Section 72 of the Indian Contract Act, 1872 and is liable to be refunded to the person making the payment. Article 265 of the Constitution bars the State from recovering any amount by way of tax without the authority of law, and in its turn, it imposes a corresponding duty on the State to refund the tax illegally collected. The Assessee could claim refund of the amount so paid by resort to proceedings under Article 226 of the Constitution. Ordinarily the Courts will entertain such petitions only if they are made within the period prescribed in the Limitation Act, 1963 for a suit for the same relief, that is within a period of three years from the date on which the Assessee discovers the mistake or could with reasonable diligence have discovered the mistake [vide Section 17(1)(c) read with Article 113, but that is not an inflexible rule.
Now coming to the facts of this case, the law on the point relating to the taxability of materials purchased and used in the execution of works contracts was expounded by this Court for the first time only in Anandan''s case (1987) 65 S.T.C. 349 rendered on December 17, 1986. If that judgment applies, the levy of tax u/s 5A on the purchases of materials made by the Petitioner for use in execution of works contracts will not be legal. Petitioner has made his claim for refund, namely Ext. P-11 well within the period of three years, from the date of this Court''s judgment in Anandan''s case (1987) 65 S.T.C. 349, when alone the mistake could have come to light. Even this Original Petition was filed well within the period of three years, on December 19, 1988. Petitioner could have discovered the mistake only after this Court laid down the law authoritatively. Both the Petitioner and the first Respondent were labouring under a mistake of law and it was because of this mistake that the Petitioner had paid the tax. Petitioner is therefore entitled to refund pf the tax paid as alleged by them which was not legally due. Exts. P-1 to P-10 orders of assessments require modification in so far as they levy tax on the purchase of materials used by the Petitioner in the execution of works contracts. The claim made in Ext. P-11 has got to be examined by the Respondents and whatever amount that has been paid by the Petitioner on such purchases should be refunded to them.
Ext. P-11 has not so far been considered by the first Respondent. It is therefore only necessary to direct the first Respondent to deal with the said application in accordance with law and pass appropriate orders.
I accordingly allow the Original Petition and direct the first Respondent to deal with the Petitioner''s application evidenced by Ext. P-11, and to grant refund to the Petitioner of the amount of tax, if any, paid by them u/s 5A of the Act on the purchase of materials effected by them for use in the execution of works contracts. The orders of assessment Exts. P-1 to P-10 will be, modified accordingly. The first Respondent shall pass orders in the matter with opportunity to the Petitioner to be heard, making necessary modifications in Exts. P-1 to P-10 and granting refund, if any due, within a period of four months from the date of receipt of a copy of this judgment. There will be no order as to costs.