1988 (12) TMI 324 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to order refusing sales tax refund under mistaken notion of law.

Analysis:
The petitioner, a wholesaler of drugs and medicines, voluntarily paid sales tax of Rs. 6,242.26 for the assessment year 1977-78 under a mistaken belief due to a subsequent amendment in the tax schedule. The Sales Tax Officer did not allow credit for this amount, leading to a refund application being filed under section 14 of the Act. Despite a directive from the Sales Tax Tribunal for reassessment, the refund application remained pending, prompting the petitioner to file a writ petition for early disposal. Opposite party No. 3, after a delay, disposed of the revision application, denying the refund based on the change in taxation policy from 1st January 1978, which led the petitioner to voluntarily pay the tax. The court noted the delay in the process and directed the Sales Tax Officer to consider the refund application or adjust the amount against future liabilities, emphasizing the petitioner's entitlement to refund under mistaken notion of law.

In a similar precedent [1986] 62 STC 327 (SC), it was held that where sales tax was paid under a mistaken view of law, the dealer is entitled to a refund if there is no specific prohibition against it. The Supreme Court emphasized the duty to refund money collected without authority of law, reinforcing the principle that tax paid under a misconception of law must be refunded. Another case [1988] 69 STC 290 (SC) reiterated the obligation to refund amounts paid under a mistake of law, stressing that the taxing authority cannot retain money collected without legal authority. These decisions establish the legal principle that tax paid under a mistaken notion of law must be refunded by the taxing authority.

Section 14 of the Act governs the refund of sales tax, stipulating a 24-month window for refund applications from the date of the assessment order or the final order in appeal, revision, or reference. The petitioner's refund application complied with the Act's requirements, entitling them to a refund or adjustment of the tax paid under a mistaken notion of law. The court emphasized the petitioner's right to refund or adjustment as per the Act's provisions and rules framed thereunder.

The court directed the Sales Tax Officer to address the refund application promptly, especially if the reassessment proceeding is still pending. If the reassessment is concluded, the Officer must revive the refund proceeding and issue a decision. The court allowed the writ petition, quashing the order rejecting the refund application and emphasizing that justice must be served to the petitioner who has been seeking refund for ten years after paying tax under a mistaken notion of law.