1986 (4) TMI 50 - SC - VAT / Sales Tax

Refund of Illegally Collected Sales Tax on Forward Contracts Allowed; Limitation Rules (s.5 Limitation Act, Art.96) Permit Claim

SC affirmed the HC and Additional Judge (Revisions) ordering refund of illegally collected sales tax on forward contracts. The Court held that sales tax ... Refund of tax collected without authority of law - mistake of law and restitution under section 72 of the Indian Contract Act - duty of the State to refund taxes levied ultra vires - applicability of limitation provisions to claims for refund - power of sales tax authorities and appellate forum to order refund despite an unvacated assessmentRefund of tax collected without authority of law - mistake of law and restitution under section 72 of the Indian Contract Act - Whether amounts collected as sales tax on forward contracts (being ultra vires) were refundable to the assessee. - HELD THAT: - The Court held that the levy and collection of sales tax on forward contracts was ultra vires and therefore the State had no legal right to retain the sums so collected. Article 265 establishes that tax must be by authority of law; where tax has been collected without such authority the money is not due to the State. Section 29 of the U.P. Sales Tax Act recognises refund where tax is in excess or wrongly realised and section 72 of the Indian Contract Act covers restitution where money is paid under a mistake of law. Prior decisions of this Court and other High Courts support refund where tax was realized ultra vires. In these circumstances the assessee had a legal title to recover the amounts and the Additional Judge (Revisions) was correct in directing refund.Assessee entitled to refund of sales tax collected on forward contracts; direction of the Additional Judge (Revisions) for refund affirmed.Applicability of limitation provisions to claims for refund - section 29 proviso and article 96 of the Limitation Act - Whether the claim for refund was barred by limitation. - HELD THAT: - The Court examined the limitation scheme and procedural provisions. Section 29 (as inserted w.e.f. 1-4-1959) contains provisos prescribing time-limits for refund claims; article 96 of the First Schedule to the Limitation Act prescribes three years for suit where mistake becomes known, and section 5 of the Limitation Act may apply. The Court found that the law declaring the levy ultra vires was known to the assessee in May 1954, the assessee filed revision in 1955 and made a refund claim in 1959; on the facts the claim was not time-barred. Moreover, where there is a clear right to restitution because tax was collected without authority, limitation provisions do not operate to defeat substantial justice absent a specific statutory prohibition. Consequently the prohibition in the proviso to section 29 was not attracted on these facts and the claim could be entertained.The refund claim was not barred by limitation on the facts of this case; the Sales Tax Officer's dismissal on limitation grounds was disapproved.Power of sales tax authorities and appellate forum to order refund despite an unvacated assessment - Whether the Additional Judge (Revisions), Sales Tax, was legally justified in entertaining the revision and directing refund despite the assessment order not having been set aside. - HELD THAT: - The Court rejected the proposition that an assessing authority's or revisional forum's hands are tied so long as an assessment order stands even if it is ultra vires. Where realisation is illegal because based on an ultra vires provision, the taxing authority or the revisional court can order refund; a litigant need not be confined to having the assessment set aside first. The Court relied on precedents holding that restitution lies where tax was illegally levied and that procedural bars in a statute do not prevent recovery of money taken without legal authority. Applying these principles to the facts, the Additional Judge was justified in entertaining the revision and directing refund.Additional Judge (Revisions) properly entertained the revision and was empowered to direct refund despite the assessment order remaining unvacated.Final Conclusion: Appeals dismissed. The order of the Additional Judge (Revisions) directing refund of sales tax collected on forward contracts (years 1948-49 to 1951-52) is affirmed; limitation did not bar the claim on the facts and the revisional forum was justified in directing restitution where tax was realised ultra vires. Issues Involved:1. Applicability of the Indian Limitation Act to cases under the U.P. Sales Tax Act.2. Consideration of the period of limitation under Article 96 of the Limitation Act for refund claims under Section 72 of the Indian Contract Act.3. Legality of the Additional Judge (Revisions), Sales Tax, directing the refund of sales tax deposited by the company.4. Justification of the Additional Judge (Revisions), Sales Tax, in entertaining the revision application after a significant lapse of time from the date of the assessment order.Issue-wise Detailed Analysis:Issue 1: Applicability of the Indian Limitation Act to cases under the U.P. Sales Tax ActThe High Court did not find it necessary to answer this question in light of its previous decision in Commissioner, Sales Tax, U.P. v. Auraiya Chambers of Commerce. The Supreme Court also agreed with this view, emphasizing that the question was framed in the abstract without relevance to the facts of the present case.Issue 2: Consideration of the period of limitation under Article 96 of the Limitation Act for refund claims under Section 72 of the Indian Contract ActThe Supreme Court held that the period of limitation under Article 96 of the Limitation Act should be considered. The Sales Tax Officer initially dismissed the refund claim as time-barred under Article 96. However, the Supreme Court noted that the tax was collected without authority of law, making it refundable. The Court emphasized that under Article 265 of the Constitution, no tax shall be levied or collected except by authority of law. The Court further noted that the mistake of law was recognized under Section 72 of the Indian Contract Act, which mandates the repayment of money paid by mistake or under coercion.Issue 3: Legality of the Additional Judge (Revisions), Sales Tax, directing the refund of sales tax deposited by the companyThe Supreme Court affirmed the decision of the Additional Judge (Revisions), Sales Tax, who directed the refund of sales tax for multiple years. The Court noted that the tax was collected on forward contracts, which was later declared ultra vires. The Court emphasized that there was no period of limitation for refund claims at the time the tax was paid and that the introduction of Section 29 in 1959, which provided a limitation period, did not apply retroactively. The Court also highlighted that the assessee filed for a refund within a reasonable time after becoming aware of the mistake.Issue 4: Justification of the Additional Judge (Revisions), Sales Tax, in entertaining the revision application after a significant lapse of time from the date of the assessment orderThe Supreme Court held that the Additional Judge (Revisions), Sales Tax, was justified in entertaining the revision application despite the lapse of time. The Court noted that the assessee made the application for revision within a year of the Supreme Court's decision declaring the tax ultra vires. The Court emphasized that procedural rules should not hinder the delivery of substantial justice and that the assessee's application was timely and justified.Conclusion:The Supreme Court dismissed the appeals, affirming the High Court's judgment and the direction of the Additional Judge (Revisions), Sales Tax, for the refund of the amount to the assessee. The Court held that the tax collected was without authority of law and refundable, and that the assessee's application for refund was justified and timely. The Court emphasized the importance of fairness and justice in interpreting procedural provisions, even in fiscal statutes. The appeals were dismissed with costs.