1959 (12) TMI 33 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the imposition of sales tax on imported tobacco under the Madhya Bharat Sales Tax Act, 1950.
2. Entitlement of the petitioners to recover the amount of tax paid.
3. Appropriate legal remedies for claiming the refund of the tax amount.

Detailed Analysis:

1. Validity of the Imposition of Sales Tax on Imported Tobacco:
The petitioners challenged the imposition of sales tax on imported tobacco, arguing that it was discriminatory and violated Article 304(a) of the Constitution. They contended that the sales tax was levied only on imported tobacco and not on locally grown tobacco, thus creating an unfair trade barrier. The court referred to Article 304(a), which allows states to impose taxes on imported goods only if similar goods produced within the state are subject to the same tax, ensuring no discrimination. The court concluded that the imposition of sales tax on imported tobacco, while exempting locally grown tobacco, was discriminatory and thus repugnant to Article 304(a) of the Constitution.

2. Entitlement to Recover the Amount of Tax Paid:
The court examined whether the petitioners were entitled to recover the sales tax paid, which was later declared illegal. Citing the Supreme Court's decision in Sales Tax Officer, Banaras v. Kanhaiya Lal, the court held that payment of a tax subsequently declared ultra vires constitutes a payment under mistake of law. Under Section 72 of the Contract Act, the party receiving the payment is bound to return it. The court found that the petitioners paid the tax under a mistake of law, and thus, the respondents were obligated to refund the amount.

3. Appropriate Legal Remedies for Claiming Refund:
The court addressed whether the petitioners must resort to ordinary legal remedies or could invoke Article 226 of the Constitution for a refund. The Full Bench decision in Messrs Mullaji Jamaluddin and Co. v. The State of Madhya Pradesh supported the issuance of a direction for the refund of tax collected illegally. The court noted that the learned Advocate-General did not oppose the petitioners' prayer for a refund, acknowledging that if the tax levy was ultra vires, the refund could be ordered in these proceedings or through a suit. The court also referenced several Supreme Court decisions, emphasizing that the imposition of an illegal tax infringes on the fundamental right to carry on business guaranteed by Article 19(1)(g) of the Constitution, thus justifying the invocation of Article 226 for a refund.

Conclusion:
The court declared the imposition of sales tax on imported tobacco as repugnant to Article 304(a) of the Constitution and directed the respondents to refund the tax collected from each petitioner. The petitions were allowed, but no costs were awarded to the petitioners. The security deposits made by the petitioners were ordered to be refunded.