Works-contract purchase tax paid under mistake of law was refundable, and the refund claim was not time-barred.

Tax collected under section 5A(1)(a) on purchases of materials used in the execution of works contracts was not legally leviable, because such purchases did not amount to consumption in the manufacture of other goods for sale; the levy was therefore without authority of law, and refund was due under section 72 of the Indian Contract Act, 1872 and Article 265 of the Constitution. A writ remedy under Article 226 was available to seek refund of the unlawful collection. The refund claim was not barred by limitation, because in cases of payment under mistake of law time runs from discovery of the mistake or when it could reasonably have been discovered; the claim was filed within three years of the relevant judicial pronouncement and was within time.

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Issues: (i) Whether tax collected under section 5A(1)(a) on purchase of materials used in the execution of works contracts was legally leviable and refundable when paid under a mistake of law. (ii) Whether the refund claim was barred by limitation.

Issue (i): Whether tax collected under section 5A(1)(a) on purchase of materials used in the execution of works contracts was legally leviable and refundable when paid under a mistake of law.

Analysis: Purchases of materials from unregistered dealers for use in works contracts did not amount to consumption in the manufacture of other goods for sale within the meaning of section 5A(1)(a). Tax collected on such purchases was therefore without legal authority. Money paid under a mistake of law falls within section 72 of the Indian Contract Act, 1872, and Article 265 of the Constitution of India bars retention of tax collected without authority of law. A writ remedy under Article 226 of the Constitution of India was available for refund of such unlawful collection.

Conclusion: The levy on the materials used in the execution of works contracts was not sustainable, and refund was due to the assessee.

Issue (ii): Whether the refund claim was barred by limitation.

Analysis: The claim arose only after the legal position on works-contract purchases was authoritatively declared. In cases of payment under mistake of law, limitation runs from discovery of the mistake or from the point when it could with reasonable diligence have been discovered. Applying that principle, the claim was made within three years of the relevant judicial pronouncement and was not time-barred.

Conclusion: The refund claim was within time and could be entertained.

Final Conclusion: The assessment orders were liable to be modified to exclude the unlawful levy on works-contract purchases, and the petitioner was entitled to refund of any tax so collected.

Ratio Decidendi: Tax collected without authority of law on payment made under a mistake of law is refundable under section 72 of the Indian Contract Act, 1872, and limitation for such refund runs from discovery of the mistake or the point when it could reasonably have been discovered.

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