1964 (1) TMI 33 - SC - VAT and Sales Tax

Whether the relief of repayment has to be sought by the taxpayer by an action in a civil court? Whether such an order can be made by the High Court in exercise of its jurisdiction under Article 226 of the Constitution? Held that - Appeal allowed. The period of limitation prescribed for recovery of money paid by mistake under the Limitation Act is three years from the date when the mistake is known. If the mistake was known in these cases on or shortly after January 17, 1956, the delay in making these applications should be considered unreasonable. If, on the other hand, as Mr. Andley seems to argue, the mistake was discovered much later, this would be a controversial fact which cannot conveniently be decided in writ proceedings. In either view of the matter we are of opinion the orders for refund made by the High Court in these seven cases cannot be sustained.

Issues Involved:
1. Constitutionality of the taxing provision under Article 301 and Article 304(a) of the Constitution.
2. Entitlement to refund of taxes collected under the unconstitutional provision.
3. Jurisdiction of the High Court under Article 226 to order refunds.
4. Delay in seeking relief under Article 226 and its impact on granting refunds.

Issue-wise Detailed Analysis:

1. Constitutionality of the Taxing Provision:

The petitioners, dealers in tobacco, challenged the taxing provision under which sales tax was assessed and collected, arguing it infringed Article 301 of the Constitution and did not fall within the special provisions of Article 304(a). The High Court found that the tax imposed only on imported tobacco, not on home-grown tobacco, violated Article 301. The tax was thus deemed void as it impeded the freedom of trade and commerce. The Supreme Court affirmed this, stating that the tax payable at the point of sale by the importer directly impeded the freedom guaranteed by Article 301. The tax did not qualify as regulatory or compensatory and thus did not benefit from the exceptions outlined in the Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan case.

2. Entitlement to Refund of Taxes Collected:

The petitioners sought refunds of the taxes collected under the unconstitutional provision. The High Court allowed the refund in certain cases, finding the tax provisions void. The Supreme Court upheld the High Court's decision, noting that the tax was assessed and paid under a mistake, making the government liable to repay under Section 72 of the Indian Contract Act. The Court emphasized that the High Courts have the power to order such refunds to enforce fundamental and statutory rights.

3. Jurisdiction of the High Court under Article 226 to Order Refunds:

The Supreme Court affirmed that High Courts have the jurisdiction under Article 226 to order refunds of money paid to the government by mistake. The Court noted that the jurisdiction conferred by Article 226 is wide, allowing High Courts to issue directions, orders, or writs to enforce fundamental and statutory rights. The decision referenced previous cases where High Courts had used the writ of mandamus to enforce such repayments, including Firm Mehtab Majid and Co. v. State of Madras and Sales Tax Officer, Banaras v. Kanhaiya Lal Makund Lal Saraf.

4. Delay in Seeking Relief under Article 226:

The Supreme Court discussed the impact of delay in seeking relief under Article 226. It emphasized that the power to grant relief under Article 226 is discretionary, and unreasonable delay can be a ground to refuse relief. The Court noted that the maximum period fixed by the Limitation Act for recovery of money paid by mistake is three years, which can be a reasonable standard to measure delay. In the cases where applications were made within three years of discovering the mistake, the High Court's decision to order refunds was upheld. However, in cases where applications were made after three years, the Supreme Court found the delay unreasonable and set aside the High Court's orders for refunds.

Conclusion:

The Supreme Court upheld the High Court's decision that the taxing provision was unconstitutional and void, and that the petitioners were entitled to refunds of the taxes collected under this provision. The Court affirmed the High Court's jurisdiction under Article 226 to order such refunds but emphasized that unreasonable delay in seeking relief could justify refusal of such orders. The Court allowed some appeals in part, setting aside orders for refunds where there was unreasonable delay, while upholding the orders in cases where the delay was deemed reasonable.

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