1993 (3) TMI 334 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the purchases of materials by the petitioner for the purpose of executing contract works were correctly taxed under section 5A of the Kerala General Sales Tax Act, 1963.
2. Whether the petitioner is entitled to a refund of the tax paid on these purchases under a mistake of law.
3. Whether the principles laid down in various legal precedents regarding refund of tax paid under a mistake of law are applicable to the present case.

Analysis:
1. The petitioner, a registered dealer under the Kerala General Sales Tax Act, purchased materials from unregistered dealers for executing contract works. These purchases were taxed under section 5A(1)(a) of the Act based on the understanding that they were consumed in the manufacture of other goods for sale. However, a subsequent court decision clarified that such purchases for contract works were not liable for tax under section 5A as they did not involve manufacturing goods for sale. The petitioner sought a refund of the tax paid on these purchases, which were assessed incorrectly under section 5A (para 2).

2. The Supreme Court has established that tax paid under a mistake of law can be refunded under section 72 of the Indian Contract Act, 1872. The court emphasized that the State has a duty to refund tax collected without legal authority. Various cases have upheld the right of an assessee to claim a refund if the tax was collected illegally, even if the mistake was discovered after the assessment was completed. The petitioner, having paid the tax under a mistake of law, is entitled to seek a refund within the prescribed period of three years from the date of discovering the mistake (para 6-8).

3. The court found that the petitioner's claim for refund was made within the allowable time frame, following the clarification provided in the court decision regarding the taxability of materials purchased for works contracts. Both the petitioner and the assessing authority were operating under a mistake of law when the tax was paid. Therefore, the petitioner is entitled to a refund of the tax paid on the purchases of materials used in the contract works. The court directed the assessing authority to review the petitioner's application for refund and make necessary modifications to the assessment orders to grant the refund within a specified timeframe (para 9-10).