Refund of tax paid under mistake of law allowed where invalid sales tax restriction lacked authority

Money paid under a mistake of law is recoverable under section 72 of the Indian Contract Act, and limitation runs from discovery of the mistake under the relevant limitation principle. The Court held that the writ for refund was not barred by delay or laches because the assessee could not be treated as aware of the illegality before the Supreme Court invalidated the restrictive rule, and the petition was filed within three years thereafter. It further held that the proviso limiting the use of a declaration for concessional sales tax was unenforceable as inconsistent with the Central Sales Tax Act and beyond the rule-making power, so the excess tax collected under that invalid proviso was without authority of law and refundable.

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Issues: (i) Whether the writ petition for refund of tax could be rejected on the ground of delay or because a civil suit was not instituted within the presumed limitation period; (ii) whether the assessee was entitled to refund and concessional taxation after the proviso to rule 8 of the M.P. Sales Tax (Central) Rules, 1957, was held invalid.

Issue (i): Whether the writ petition for refund of tax could be rejected on the ground of delay or because a civil suit was not instituted within the presumed limitation period.

Analysis: Money paid under a mistake of law is recoverable under section 72 of the Indian Contract Act, 1872. For such a claim, limitation runs from the date on which the mistake becomes known, and under the Limitation Act, 1963, the relevant principle is reflected in section 17(1)(c). The Court held that the petitioner could not be treated as having knowledge earlier than the Supreme Court decision striking down the restrictive rule, and the writ was filed within three years of that decision. In these circumstances, the extraordinary jurisdiction under article 226 of the Constitution of India was not barred by laches.

Conclusion: The objection based on delay and limitation failed, and the petition was not liable to be dismissed on that ground.

Issue (ii): Whether the assessee was entitled to refund and concessional taxation after the proviso to rule 8 of the M.P. Sales Tax (Central) Rules, 1957, was held invalid.

Analysis: The proviso restricting a single declaration from covering more than one transaction had already been held unenforceable as being inconsistent with section 13(1)(d) of the Central Sales Tax Act, 1956, and beyond the competence of the State rule-making authority under sections 13(3) and 13(4). Since the assessment had denied concessional treatment solely on the strength of that invalid proviso, the tax collected in excess of the concessional rate lacked authority of law and was retained under a mistake of law.

Conclusion: The assessee was entitled to have the adverse part of the assessment quashed and to obtain refund of the excess tax collected over the concessional rate.

Final Conclusion: The writ petition succeeded, the assessment was interfered with to the extent it denied the concessional rate, and refund of the excess tax was directed.

Ratio Decidendi: Tax collected under an unenforceable provision can be recovered as money paid under mistake of law, and a writ for refund will not be refused merely on laches where the petition is filed within a reasonable time measured from discovery of the mistake.

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