1961 (10) TMI 65 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Refund of excess sales tax paid.
2. Delay in filing the writ petition.
3. Classification of goods (cloth vs. clothes).
4. Applicability of Supreme Court decision for refund.
5. Manifest injustice caused to the petitioner.

Detailed Analysis:

1. Refund of Excess Sales Tax Paid:
The petitioner sought a writ of mandamus for the refund of sales tax realized in excess of three pies per rupee on the sale of various articles during the assessment years 1948-49 to 1955-56. The petitioner argued that the articles in question did not fall under the taxable category of "cloth manufactured by mills" at six pies per rupee but were general articles taxable at three pies per rupee. This contention was based on the interpretation of entry 2 of List I of Notification No. ST 117/X-923-1948, dated 8th June 1948, issued under section 3-A of the U.P. Sales Tax Act. The petitioner claimed that the excess tax was paid under a mistake of law, referencing the Supreme Court decision in Sales Tax Officer, Banaras and Others v. Kanhaiya Lal Makund Lal Saraf [1958] 9 S.T.C. 747, which established that sales tax paid under a mistake of law might be refundable under certain circumstances.

2. Delay in Filing the Writ Petition:
The petition was filed on 21st October 1959, and the petitioner argued that the delay was justifiable based on the provisions of section 22 of the U.P. Sales Tax Act, which allowed a period of three years for a rectification application. However, the court found this argument unsubstantiated. The period of one year for rectification had expired for all but one order, and the extension to three years took effect only from 1st April 1959. Furthermore, the rectification under section 22 pertains only to "mistakes apparent on the face of the record," making reliance on this section irrelevant to the delay in filing the writ petition. The court also dismissed the argument that the Supreme Court decision provided a new cause of action, noting that the petitioner should have been aware of the decision much earlier, given its publication and the widespread awareness in the business community. Consequently, the petition was deemed "hopelessly out of time."

3. Classification of Goods (Cloth vs. Clothes):
The petitioner argued that the articles in question (dhotis, saris, chadars, towels, canvas, rags, and fents) were not "cloth" but "clothes" or other specific items and thus should not be taxed as "cloth manufactured by mills." The court examined the definitions and distinctions between "cloth" and "clothes," referencing a previous decision in Jaswant Rai Jai Narain v. Sales Tax Officer and Others [1955] 6 S.T.C. 386. The court concluded that dhotis and saris, as they come out of the mills without any further processing, remain "cloth." Similarly, chadars, towels, canvas, rags, and fents, despite their specific uses or defects, are also considered "cloth" as long as they are the direct product of the mills without additional processing. The court emphasized that the adaptability for specific uses or the fact that these items can be used as garments does not alter their classification as "cloth."

4. Applicability of Supreme Court Decision for Refund:
The petitioner relied on the Supreme Court decision in Kanhaiya Lal Makund Lal Saraf to claim a refund based on the discovery of a mistake of law. However, the court clarified that the Supreme Court decision did not lead to the discovery of any mistake of law regarding the classification of "cloth manufactured by mills." The court noted that the decision merely established that sales tax paid under a mistake of law might be refundable, which was already widely known and did not provide a new cause of action for the petitioner's case.

5. Manifest Injustice Caused to the Petitioner:
The court considered whether any manifest injustice was caused to the petitioner due to the excess tax payment. It was noted that the petitioner had collected sales tax from purchasers on the sale of the articles in question. There was no evidence or plea of any agreement to refund the tax to purchasers if found non-chargeable. The court concluded that no manifest injustice was demonstrated, as the petitioner did not suffer any loss from paying the tax under a mistake of law, having collected it from the purchasers.

Conclusion:
The writ petition was dismissed on the grounds of delay and laches, as well as on the merits. The court found that the articles in question were correctly classified as "cloth manufactured by mills" and taxable at six pies per rupee. No manifest injustice was shown to warrant relief under Article 226. The petition was dismissed with costs.