1955 (12) TMI 32 - HC - VAT and Sales Tax

Issues Involved:
1. Liability of the State Government to refund sales tax paid under a mistake of law.
2. Applicability of Section 72 of the Indian Contract Act to the State Government.
3. Interpretation of "mistake" under Section 72 of the Indian Contract Act.
4. Distinction between voluntary payment and payment under coercion or mistake.

Detailed Analysis:

1. Liability of the State Government to Refund Sales Tax Paid Under a Mistake of Law:
The respondent firm, a dealer in bullion and gold and silver ornaments, was assessed to sales tax for the years 1948-49, 1949-50, and 1950-51, which it duly paid. However, in 1952, the provisions of the U.P. Sales Tax Act imposing sales tax on forward contracts were declared ultra vires by the court in Budh Prakash Jai Prakash v. Sales Tax Officer, Kanpur, a decision later upheld by the Supreme Court. Consequently, the respondent firm sought a refund of the paid amount, which was refused, leading to the filing of a writ of mandamus. The court directed the issuance of the writ, and the State Government's liability to repay the amount was not seriously opposed at the lower court level.

2. Applicability of Section 72 of the Indian Contract Act to the State Government:
The Advocate-General argued that the amount was paid under a mistake of law and is therefore irrecoverable, asserting that the State Government is not a "person" within the meaning of Section 72. The court, however, found no reason to give the word "person" a restricted meaning. The General Clauses Act includes "any company or association or body of individuals, whether incorporated or not" within the definition of "person." The court held that the State Government falls within this definition, as the Indian Contract Act involves agreements between "persons," and excluding the Government would imply it cannot enter into contracts, which contradicts common practice and constitutional provisions.

3. Interpretation of "Mistake" Under Section 72 of the Indian Contract Act:
The court referenced Shiba Prasad Singh v. Maharaja Srish Chandra, where the Privy Council interpreted "mistake" in Section 72 to include mistakes of law. The court rejected the Advocate-General's argument that Section 72 conflicts with Section 21 of the Act, which states that a contract caused by a mistake of law is not voidable. The court agreed with the Privy Council's view that Section 72 applies to payments not legally due, and the mistake refers to the payer's erroneous belief that the money was due.

4. Distinction Between Voluntary Payment and Payment Under Coercion or Mistake:
The court examined English and American doctrines, noting that under English law, money paid under a mistake of law or voluntarily cannot be recovered, while money paid under a mistake of fact or coercion can be. The Indian doctrine, as per Section 72 of the Indian Contract Act, does not distinguish between mistakes of law and fact. The court cited earlier Indian cases and the Privy Council's decision, affirming that money paid under a mistake of law is recoverable under Section 72. The court also addressed the Advocate-General's argument that the State is not a "person" for the purpose of recovering taxes paid under a mistake of law, concluding that the State is indeed a "person" under Section 72, capable of being sued for such refunds.

Conclusion:
The court dismissed the appeal, holding that Section 72 of the Indian Contract Act applies to the present case, and the State Government must refund the moneys unlawfully received from the respondents on account of sales tax. The court assessed the costs at Rs. 200, affirming the respondent firm's entitlement to a refund of the tax paid under a mistake of law. The judgment underscores the broad interpretation of "person" and "mistake" within the Indian Contract Act, ensuring that payments made under legal errors are recoverable from the State.

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