1977 (6) TMI 90 - HC - VAT and Sales Tax

Issues Involved:
1. Nature of the contracts (whether they were works contracts or involved sale of goods).
2. Jurisdiction of the State Government to levy sales tax on the contracts.
3. Mistake of law and its discovery.
4. Delay in filing the writ petition.
5. Refund of sales tax paid under a mistake of law.

Detailed Analysis:

1. Nature of the Contracts:
The primary issue was whether the contracts between the petitioner and the Corporation of Calcutta were works contracts or involved the sale of goods. The court examined the terms of the contracts, including the specimen tender document. It was concluded that the contracts were for the execution and completion of the construction of Dry Water Flow Channels and involved work and labour, not the sale of goods. The court referred to the Supreme Court's decision in State of Madras v. Gannon Dunkerley & Co., which established that in a works contract, there is no sale of materials as defined in the Sale of Goods Act. The court found that the contracts were indivisible works contracts and did not include any agreement for the sale of goods.

2. Jurisdiction of the State Government:
The court addressed whether the State Government had the jurisdiction to levy sales tax on the works contracts. It was held that the State Legislature could not impose a tax on the supply of materials used in the execution of a works contract by treating it as a sale. The court reiterated the principle from State of Madras v. Gannon Dunkerley & Co. that in an indivisible works contract, there is no sale of goods, and thus, the State Government lacked the jurisdiction to levy sales tax on such contracts.

3. Mistake of Law and Its Discovery:
The petitioner argued that the sales tax was paid under a mistake of law, which was discovered only after the judgment by Hazra, J., on 1st March 1972. The court examined whether the payment was made under a mistake of law and when the petitioner discovered this mistake. It was determined that the petitioner was under the impression that the transactions attracted sales tax until the judgment clarified that the contracts were works contracts. The court accepted that the mistake was discovered only on 1st March 1972, and the petitioner moved the application promptly thereafter.

4. Delay in Filing the Writ Petition:
The respondents contended that the writ petition should be dismissed due to inordinate delay since the Supreme Court's decision in Gannon Dunkerley & Co. was delivered in 1958. The court held that the petitioner discovered the mistake only in 1972 after the judgment by Hazra, J., and filed the writ petition within a reasonable time thereafter. The court applied the principle that the period of limitation for recovery of money paid by mistake is three years from the date when the mistake becomes known. Since the writ petition was filed within three months of discovering the mistake, it was not considered to be unreasonably delayed.

5. Refund of Sales Tax Paid Under a Mistake of Law:
The court discussed the principles under Section 72 of the Indian Contract Act, 1872, which allows for the recovery of money paid by mistake. It was established that the petitioner was entitled to recover the sales tax paid under a mistake of law. The court directed the sales tax authorities to refund the sum collected from the petitioner by way of sales tax in respect of the said contracts.

Conclusion:
The court quashed the assessment orders dated 29th March 1955 and 17th August 1959, and directed the sales tax authorities to refund the sum of Rs. 53,045.10 collected from the petitioner. The appeal by the sales tax authorities was dismissed, and the judgment of D. Pal, J., was upheld, confirming that the contracts were works contracts and no sales tax was payable on them.

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