1987 (12) TMI 3 - SC - VAT and Sales Tax

Supreme Court rules Assam Tax Act invalid, orders refund

The Supreme Court held that the Assam Taxation Act was valid, and assessment orders were without jurisdiction. The appellant was entitled to a refund of ... Refund of taxes collected without authority of law - writ jurisdiction under Article 226-power to grant consequential relief - laches and limitation in exercise of writ jurisdiction - applicability of section 23 refund provision where payment was ultra vires - consequential refund following setting aside of assessmentRefund of taxes collected without authority of law - writ jurisdiction under Article 226-power to grant consequential relief - consequential refund following setting aside of assessment - Illegally realised tax must be refunded as a consequential relief in writ proceedings where the assessment is set aside. - HELD THAT: - The Court held that taxes collected pursuant to assessments which were without authority of law are liable to be refunded. The High Court had set aside the assessment but refused refund; this Court found that refusal inconsistent because once the assessment is declared bad and the realisation is shown to be without legal authority, refund ordinarily follows as a concomitant duty of the State. The Court observed that Article 226 empowers the High Court to grant appropriate consequential reliefs, and where refund is claimed as a consequential relief after setting aside an assessment, the writ jurisdiction should normally be exercised to direct repayment unless exceptional circumstances of laches or prejudice exist. The Court accepted the appellants' uncontradicted averment that they became aware of their right only after the Loong Soong decision in July 1973 and filed their petition within a month, finding no unexplained delay or change of position by respondents that would render refund unjust.The Court directed refund of the tax illegally realised and set aside the portion of the High Court order refusing refund.Laches and limitation in exercise of writ jurisdiction - applicability of section 23 refund provision where payment was ultra vires - Delay or limitation will bar relief under Article 226 only where there is laches, undue delay causing prejudice or other compelling reasons; section 23 (and prescribed limitation rules) does not apply where payment was not made under the Act (i.e., was ultra vires). - HELD THAT: - The Court reviewed authorities establishing that writ relief by way of refund may be denied for laches or undue delay but that the test is equitable discretion rather than strict application of civil limitation. Section 23 of the Act (statutory refund mechanism) applies only where money was paid under the Act; where realisation was ultra vires and payment was therefore not 'under the Act', section 23 is inapplicable. The Court rejected the High Court's view that the appellants should have known of their right earlier and found that knowledge properly arose on the Loong Soong decision; filing in November 1973 was prompt. The Court further held that a statutory rule of limitation (such as rule 55) cannot defeat constitutional relief where the rule itself is unconstitutional and where no laches or prejudice to third parties is shown.The Court held that no laches or limitation bar existed on the facts and that section 23 did not preclude refund; accordingly refund was ordered.Final Conclusion: Appeals allowed; the High Court's order is set aside to the extent it refused refund of taxes realised without authority of law, and the respondents are directed to refund the amounts; parties to bear their own costs. Issues Involved:1. Validity of the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act.2. Jurisdiction of the assessment orders under the Act.3. Entitlement to a refund of taxes paid under the Act.4. Applicability of limitation and laches in seeking refund under Article 226.Detailed Analysis:1. Validity of the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act:The Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954, was initially struck down by the Supreme Court as ultra vires the Constitution in the Atiabari Tea Co. Ltd. v. State of Assam case (AIR 1961 SC 232). Subsequently, a new Act was passed on April 6, 1961, and was again declared ultra vires by the High Court on August 1, 1963. However, the Supreme Court in Khyerbari Tea Co. Ltd. v. State of Assam [1964] 5 SCR 975 declared the Act intra vires. This led to the State of Assam issuing notices under section 7(2) of the Act for tax returns.2. Jurisdiction of the Assessment Orders:The High Court in Loong Soong Tea Estate (Civil Rule No. 1005 of 1969) declared the assessment orders without jurisdiction. The Supreme Court noted that the tax was collected without the authority of law, and the assessment under section 9(3) of the Act was without jurisdiction. Thus, the respondents had no authority to retain the money collected without the authority of law.3. Entitlement to Refund:The appellant claimed that the assessments were illegal and sought a refund of the taxes paid. The High Court initially set aside the orders and notices of demand but refused the refund. The Supreme Court emphasized that taxes collected without the authority of law should be refunded. The High Court's refusal to grant refund was based on the belief that the appellant should have known about the illegality of the tax as early as 1963. However, the Supreme Court disagreed, stating that the appellant became aware of their right to a refund only after the 1973 judgment in Loong Soong's case.4. Applicability of Limitation and Laches:The Supreme Court discussed the principles of limitation and laches in the context of Article 226. It referred to Suganmal v. State of Madhya Pradesh [1965] 16 STC 398, which held that a writ solely for refund is not ordinarily maintainable. However, where refund is sought as a consequential relief, it can be entertained unless there is an obstruction like limitation. The court noted that the claim for refund was not barred by limitation as the appellant filed the petition within a reasonable time after becoming aware of the right to a refund.The court also referred to State of Madhya Pradesh v. Bhailal Bhai [1964] 15 STC 450, which stated that the period of limitation for a civil suit can be a reasonable standard for delay in seeking remedy under Article 226. The Supreme Court found that the appellant's petition was within the three-year limitation period from the date of discovering the mistake, as per Article 113 of the Limitation Act, 1963.Conclusion:The Supreme Court set aside the High Court's judgment to the extent it refused the refund of the tax illegally realized. The court directed the refund of the tax, emphasizing that the appellant had proceeded diligently and there was no unexplained delay. The appeals were allowed, and each party was ordered to bear its own costs.