Indivisible works contract and mistake of law justify quashing sales tax assessments and ordering refund in writ jurisdiction

Contracts for completion of the Dry Water Flow Channel were treated as indivisible works contracts, because the agreement required execution of construction work to specification and did not disclose separate bargains for sale of materials and work. On that basis, the supply of materials was incidental and the transaction was not a taxable sale of goods. The text also states that tax realised without authority may be recovered in writ jurisdiction where it was paid under a mistake of law, subject to the court's discretion on delay and limitation. Here, the writ was filed shortly after the mistake was discovered, so delay and limitation did not defeat relief.

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Issues: (i) Whether the contracts for completion of the Dry Water Flow Channel were works contracts not liable to sales tax as sales of goods. (ii) Whether the assessment orders and tax collected thereunder could be quashed and refunded in writ jurisdiction on the ground that the tax had been paid under a mistake of law, despite the plea of delay and limitation.

Issue (i): Whether the contracts for completion of the Dry Water Flow Channel were works contracts not liable to sales tax as sales of goods.

Analysis: The contracts were for execution and completion of construction work according to specification, with materials supplied and used in the performance of the work. The agreement did not disclose two separable bargains, one for sale of materials and the other for work and labour. Applying the settled distinction between a contract of sale and an indivisible works contract, the dominant object was work and labour, and the supply of materials was incidental to the execution of the work. In such a contract, there was no sale of goods as such, and the assessing authority had no jurisdiction to treat the transaction as a taxable sale.

Conclusion: The contracts were indivisible works contracts and were not liable to sales tax as sales of goods.

Issue (ii): Whether the assessment orders and tax collected thereunder could be quashed and refunded in writ jurisdiction on the ground that the tax had been paid under a mistake of law, despite the plea of delay and limitation.

Analysis: Money paid under a mistake of law is recoverable under section 72 of the Indian Contract Act, 1872. In writ jurisdiction, refund can be ordered where tax has been realised without authority, but the relief remains discretionary and may be refused if there is unreasonable delay or a prima facie bar of limitation. On the facts, the mistake was discovered only when the later judgment declared the contracts to be works contracts, and the writ petition was filed shortly thereafter. The delay was not unreasonable, and the claim was not defeated on limitation grounds.

Conclusion: The assessment orders could be quashed and refund could be granted; the plea of delay and limitation failed.

Final Conclusion: The tax was realised without lawful authority on indivisible works contracts, and the assessee was entitled to writ relief by way of quashing of the assessments and refund of the amount collected.

Ratio Decidendi: An assessment of sales tax on an indivisible works contract is without authority of law, and money paid under a mistake of law is recoverable in writ jurisdiction if the mistake is discovered within a reasonable time and the claim is not barred by delay or limitation.

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