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State of West Bengal and ors. Vs. Hindusthan Construction Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKolkata High Court
Decided On
Case NumberC.R. No. 4189(W) of 1972
Judge
Reported in[1978]41STC112(Cal)
AppellantState of West Bengal and ors.
RespondentHindusthan Construction Co. Ltd.
Appellant AdvocateS.N. Dutta, Adv.
Respondent AdvocateMani Bhusan Sarkar, ;A.K. Mitra and ;J.L. De, Advs. for Respondent No. 1 and ;A.P. Sarkar, Adv. for Respondent No. 2
DispositionAppeal dismissed
Cases ReferredSwadeshi Cotton Mills Co. Ltd. v. Government of U.P.
Excerpt:
- .....alia held by hazra, j., that the contracts between respondent no. 1 and respondent no. 5 were works contracts and the state government was not competent to charge and realise sales tax on such contracts. in that view of the matter, his lordship found that as no sales tax was payable, respondent no. 5 was not liable to reimburse respondent no. 1 the amount of sales tax paid by it. it was further held that the payment and realisation of sales tax were made on account of mistake of law. it was the case of respondent no. 1 in the writ petition that upon perusal of the judgment of hazra, j., it had discovered for the first time in march, 1972, that the said sum of rs. 53,045.10 was paid by it to the sales tax authorities for the years 1951-55 under a mistake of law inasmuch as the.....
Judgment:

M.M. Dutt, J.

1. This appeal is at the instance of the sales tax authorities and it is directed against the judgment of D. Pal, J., whereby the rule nisi obtained by respondent No. 1, M/s. Hindusthan Construction Co. Ltd., was made absolute.

2. Respondent No. 1 carries on the business of engineers and contractors. It is also an assessee under the Bengal Finance (Sales Tax) Act, 1941. Respondent No. 5, the Corporation of Calcutta, invited tenders for the completion of Dry Water Flow Channel for 'Dr. Dey's Kulti Outfall Scheme' for construction of channels. Respondent No. 1 submitted tenders which were accepted by respondent No. 5. A copy of one of such tenders has been annexed to the writ petition and marked with the letter A. The contracts included construction works and also manufacture of bricks. There was a further agreement between respondent No. 1 and respondent No. 5 to this effect that if sales tax was payable on the transaction entered into by them, the same would be realised by respondent No. 1 from respondent No. 5. The sales tax authorities realised from respondent No. 1 a sum of Rs. 53,045.10 during the period between 1951 and 1955 under the Bengal Finance (Sales Tax) Act, 1941. In terms of the said agreement, respondent No. 5 reimbursed respondent No. 1 a sum of Rs. 40,871 towards sales tax paid by it. Respondent No. 1 asked for the balance amount of the sales tax, but after some correspondence, respondent No. 5 ultimately refused to pay the same.

3. Thereafter, a suit was instituted by respondent No. 5, the Corporation of Calcutta, in the Original Side of this Court being Suit No. 1618 of 1960 against respondent No. 1 claiming refund of the said sum of Rs. 40,871 paid to respondent No. 1 on account of sales tax. It was inter alia alleged in the plaint of that suit that sales tax was not payable by respondent No. 5 for the completion of contracts of Dry Water Flow Channel and, as such, respondent No. 1 was bound to refund the said sum. Respondent No. 1 also filed a suit against respondent No. 5 in the Original Side of this Court being Suit No. 467 of 1961 for the recovery of the sales tax from respondent No. 5. Both these suits were heard together by S.K. Hazra, J. and his Lordship by his judgment dated 1st March, 1972, decreed the suit of respondent No. 5 and dismissed that of respondent No. 1. It was inter alia held by Hazra, J., that the contracts between respondent No. 1 and respondent No. 5 were works contracts and the State Government was not competent to charge and realise sales tax on such contracts. In that view of the matter, his Lordship found that as no sales tax was payable, respondent No. 5 was not liable to reimburse respondent No. 1 the amount of sales tax paid by it. It was further held that the payment and realisation of sales tax were made on account of mistake of law. It was the case of respondent No. 1 in the writ petition that upon perusal of the judgment of Hazra, J., it had discovered for the first time in March, 1972, that the said sum of Rs. 53,045.10 was paid by it to the sales tax authorities for the years 1951-55 under a mistake of law inasmuch as the transactions did not constitute sale of goods. It was contended that the mistake of law was common to both respondent No. 1 and the sales tax authorities. Respondent No. 1, accordingly, prayed for the quashing of the orders of assessment dated 29th March, 1955 and 17th August, 1959, by a writ in the nature of certiorari. Further, it was prayed that the sales tax authorities might be directed to refund the said sum of Rs. 53,045.10, which was realised by them from respondent No. 1 on account of sales tax for the said years.

4. D. Pal, J., came to the findings that the contracts between respondents Nos. 1 and 5 were works contracts and sales tax; was paid and realised due to mistake of law. In that view of the matter, he quashed the assessment orders and directed the sales tax authorities to refund the said sum of Rs. 53,045.10 to respondent No. 1. The rule was, accordingly, made absolute. Hence, this appeal.

5. It was contended on behalf of the appellants that the contracts between respondent No. 1 and respondent No. 5 were not works contracts simpli-citer, but they also included contracts for sale of goods. Secondly, it was urged that the writ petition having been filed after inordinate delay it should have been dismissed on that ground. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.), it has been laid down by the Supreme Court that the expression 'sale of goods' in entry 48 in List II of Schedule VII of the Government of India Act, 1935, cannot be construed in its popular sense, but must be interpreted in its legal sense and should be given the same meaning which it has in the Sale of Goods Act, 1930. It was observed that in a building contract which is one, entire and indivisible, there is no sale of goods and it is not within the competence of the Provincial Legislature under entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale. But the parties to the contract might enter into distinct and separate contracts, one for the transfer of materials for money consideration and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them and the power of the State to separate the agreement to sell from the agreement to do work and render service and to impose a tax thereon cannot be questioned. The judgment of the Supreme Court was delivered on 1st April, 1958. Prior to the law settled by the Supreme Court by the said judgment it was understood that sales tax was payable even in respect of supply of materials used in connection with the execution of a works contract in the true sense of the term. In view of the said judgment of the Supreme Court, if it is found that the contracts between respondents Nos. 1 and 5 were contracts for work and labour, in that case, it should be held that the sales tax authorities had no jurisdiction to impose sales tax on such contracts. It has been strenuously urged on behalf of the appellants that the contracts in question were not contracts for work and labour, but they also included contracts for sale of goods. In other words, it is contended that the contracts were divisible in the sense that each of them consisted of two separate contracts, one for the transfer of materials for money consideration and the other for payment of remuneration for services and work done. Our attention has been drawn to item No. 7 of the schedule to the contract (annexure A to the writ petition), which is as follows:

Description of works Qty. Rate per7. Manufacture of precast brick concrete slabs 11,000 1002 ft. 0 in. X 1 ft. 6 in. X 4 in. with 11/2 in. S. ft.down khoa and cement mortar 6 : 3 : 1 atworksite and laying the same dry withbreak joints true to profile for lining thebed and sides of the channel.

6. It is argued on behalf of the appellants that item No. 7 shows that there was an agreement for sale of bricks by respondent No. 1. On a perusal of the different clauses of the terms of the contract it appears to us that respondent No. 1 contracted to do certain works for the construction of channels. The tenders which were submitted by it specified the quality of materials to be used in the execution of the works. Item No. 7 also mentions the works to be done by the contractor with the bricks that would be manufactured by it. One of the works that was to be done by the contractor was that as mentioned in item No. 7. In our view, by no stretch of imagination, it can be said that by item No. 7, the contractor entered into an agreement for sale of bricks with respondent No. 5. There are similar items in the contract which are all mentioned under the heading 'description of works'. They only show the nature of works the contractor was to do in connection with the construction of channels. Merely because the rates for the manufacture of precast brick concrete slabs have been mentioned for the purpose of computing the total amount charged for the execution of the different works, we do not think that the same indicated or constituted an agreement for sale of goods. In our opinion, the contracts in question were contracts for work and labour and they did not include any agreement for sale. We are unable to accept the contention made on behalf of the appellants that the contracts were divisible and they consisted of two distinct and separate contracts, one for the transfer of materials for money consideration and the other for payment of remuneration for services and for work done. The said contention made on behalf of the appellants is without any substance and is rejected.

7. The next question that requires consideration is whether the writ petition should be dismissed on the ground of inordinate delay. It is the case of respondent No. 1 that it paid the said amount of sales tax under a mistake of law inasmuch as a works contract does not attract sales tax as laid down by the Supreme Court in the case of State of Madras v. Gannon Dunkerley & Co. [1958] 9 S.T.C. 353 (S.C.), referred to above. It is not the case of respondent No. 1 that it did not come to know of the judgment of the Supreme Court in that case after it was published, but its case is that it was labouring under a misapprehension as to the true nature of the contracts. Respondent No. 1 was under the impression that each of the contracts was a divisible one and not a simple works contract. The sales tax authorities also considered the contracts as consisting of two separate contracts, namely, one for work and labour and the other for sale of materials. In paragraph 19 of the writ petition, it has been alleged by respondent No. 1 that upon perusal of the judgment of Hazra, J., in the said suits, it discovered in March, 1972, that the said sum of Rs. 53,045.10 was paid to the credit of the appellants as sales tax for the years 1951 to 1955 under a mistake of law as the transactions did not constitute sale of goods. Indeed, it appears from the judgment of Hazra, J., that the contention of respondent No. 1 was that the contracts were also for sale of materials. It is true that the said contention was made by respondent No. 1 obviously for the purpose of fastening the liability of payment of sales tax upon respondent No. 5 and that in the event of the said contention being upheld, respondent No. 1 was not to lose anything. But, at the same time, there is nothing on record to suggest that respondent No. 1 was not labouring under such a mistake of law as to the true nature of the contracts. Save and except a bare denial, the appellants have not put forward any material against the said allegation of respondent No. 1 that it was not under such a mistake till the delivery of the judgment by Hazra, J., in the said suits on 1st March, 1972, directing refund of the said sum of Rs. 40,871 to respondent No. 5. After the mistake was detected by respondent No. 1 he filed the writ petition in this court on 5th June, 1972.

8. Under Section 72 of the Indian Contract Act, a party is entitled to recover money paid by mistake or under coercion. In Sales Tax Officer, Banaras v. Kanhaiya Lal Makund Lal Saraf [1958] 9 S.T.C. 747 (S.C.), it has been observed by the Supreme Court that there is no warrant for ascribing any limited meaning to the word 'mistake' in Section 72 of the Indian Contract Act, 1872 and it is wide enough to cover not only a mistake of fact but also a mistake of law. But, on a true interpretation of Section 72, the only two circumstances that entitle the party to recover the money back are that the money must have been paid by mistake or under coercion. If mistake either of law or of fact is established, he is entitled to recover the moneys and the party receiving the same is bound to repay or return them irrespective of any consideration whether the moneys had been paid voluntarily, subject however to questions of estoppel, waiver, limitation or the like. No question of estoppel can ever arise where both the parties are labouring under a mistake of law and one party is not more to blame than the other.

9. In State of Madhya Pradesh v. Bhailal Bhai [1964] 15 S.T.C. 450 (S.C.), it has been ruled by the Supreme Court that where a person comes to the court for relief under Article 226 on the allegation that he has been assessed to tax under a void legislation and having paid it under a mistake is entitled to get it back, the court, if it finds that the assessment was void, being under a void provision of law and the payment was made by mistake, is still not bound to exercise its discretion directing repayment. Whether repayment should be ordered in the exercise of this discretion will depend in each case on its own facts and circumstances. It is not easy nor is it desirable to lay down any rule for universal application. As a general rule it may be stated that if there has been unreasonable delay the court ought not ordinarily to lend its aid to a party by the extraordinary remedy of mandamus. Again, where, even if there is no such delay the Government or the statutory authority against whom the consequential relief is prayed for raises a prima facie triable issue as regards the availability of such relief on the merits on the grounds like limitation, the court should ordinarily refuse to issue the writ of mandamus for such payment. The maximum period fixed by the legislature as the time within which the relief by a suit in a civil court must be brought may ordinarily be taken to be a reasonable standard by which delay in seeking remedy under Article 226 can be measured. The court may consider the delay unreasonable even if it is less than the period of limitation prescribed for a civil action for the remedy, but where the delay is more than this period, it will almost always be proper for the court to hold that it is unreasonable.

10. It is contended on behalf of the appellants that the mistake was detected by respondent No. 1 in 1958 when the Supreme Court delivered its judgment in the case of Gannon Dunkerley & Co. [1958] 9 S.T.C. 353 (S.C.) and so it must be held that respondent No. 1 came to this court after an unreasonable delay. In that case, the Supreme Court settled the law that no sales tax can be imposed on the supply of materials used in a works contract, but if such a contract also embodies within it a distinct and separate agreement for sale of goods, sales tax can be imposed on such sales. It has been already stated that respondent No. 1 was labouring under a mistake that the contracts also embodied contracts for sale of goods. Item No. 2(ii) read with item No. 3(iii) of the returns which were filed by respondent No. 1 show on the face of them that the contracts were treated as consisting of two separate agreements, one for work and labour and the other for sale of goods. The sales tax authorities also took the same view and, accordingly, assessed respondent No. 1 to sales tax. It thus appears that both the parties were under a mistake as to the true nature of the contracts. The mistake was detected by respondent No. 1 on 1st March, 1972, when the judgment of Hazra, J., was delivered. In view of the principles of law laid down by the Supreme Court in the cases referred to above, the true test for the determination of the question of unreasonable delay seems to depend on the determination of a further question, namely, whether or not a suit would be barred if it was instituted on the day the writ petition was filed. Under Article 96 of the Indian Limitation Act, 1908, the period of limitation for such a suit is three years from the day when the mistake became known. If respondent No. 1 had filed a suit on 1st March, 1972, when it came to know of the mistake, the suit would not be barred by limitation. In our view, respondent No. 1 has not made unreasonable delay in filing the writ petition in this court. The writ petition, as noticed above, was filed within about three months of the detection of the mistake by respondent No. 1. In these circumstances, it is difficult to accept the contention of the appellants that the writ petition should be dismissed as having been filed after inordinate and unreasonable delay.

11. On behalf of the appellants, strong reliance has been placed on the decision of the Supreme Court in Burma Construction Co. v. State of Orissa [1961] 12 S.T.C. 816 (S.C.). In that case, the appellant-firm carrying on business as building contractors paid the sales tax assessed on it for the quarters ending 30th June, 1949, to 31st March, 1954. Subsequently, relying on the judgment of the Madras High Court in Gannon Dunkerley & Co. v. State of Madras [1954] 5 S.T.C. 216, the appellant applied under Article 226 of the Constitution for a declaration that the provisions of the Orissa Sales Tax Act, 1947, authorising the imposition of sales tax on works contracts were ultra vires the State Legislature and for a writ directing the officers to refund the sales tax realised from the appellant. The High Court, following the judgment of the Supreme Court in State of Madras v. Gannon Dunkerley & Co. [1958] 9 S.T.C. 353 (S.C.), held that the assessment of the sales tax on the appellant was not in accordance with law and directed the refund of the tax paid, if recovery thereof was not barred under Section 14 of the Orissa Sales Tax Act, 1947, on the date of the filing of the application. The appellant appealed to the Supreme Court and challenged that the order of the High Court limiting its right to get refund on two grounds, namely, that Section 14 was ultra vires the State Legislature and that an application under Section 14 was not the only remedy open to the taxpayer and the power of the High Court to direct refund of tax illegally recovered was not restricted by that section. It was held by the Supreme Court that the provisions of Section 14 were not ultra vires the State Legislature ; that the appellant's petition was for the enforcement of the liability of the Collector imposed by statute to refund a tax illegally collected and it was maintainable ; but it could only be allowed subject to the restrictions imposed by the legislature and that the appellant was entitled to a refund of that part of sales tax paid by it if the order of assessment pursuant to which the payment was made was within 24 months from the date on which the petition was filed in the High Court and the appellant was not entitled to recover the balance of the tax paid by it. Prima facie the above Supreme Court case seems to support the contention of the appellants before us. But there is one distinguishing feature of that case, namely, that the appellant's claim for refund was not founded on any mistake of law common to it as also the sales tax authorities. In the instant case, the appellant has made out a case of payment of sales tax under a mistake of law and in view of the principles of law laid down by the Supreme Court in the above decisions in Sales Tax Officer, Banaras v. Kanhaiya Lal Makund Lai Saraf [1958] 9 S.T.C. 747 (S.C.) and Slate of Madhya Pradesh v. Bhailal Bhai [1964] 15 S.T.C. 450 (S.C.), we are of the view that the claim of respondent No. 1 for refund cannot be thrown out on the ground of unreasonable delay or on the ground that it should have made an application for refund within the period fixed under Section 12 of the Bengal Finance (Sales Tax) Act, 1941, as contended on behalf of the appellants. The decision of the Supreme Court in Swadeshi Cotton Mills Co. Ltd. v. Government of U.P. [1973] 32 S.T.C. 627 (S.C.) does not also help the appellants, as the facts of that case are different from those of the instant case before us.

12. After having considered the facts and circumstances of the case and the legal principles as laid down by the Supreme Court in the cases mentioned above, we hold that the learned Judge was justified in quashing the orders of assessment and directing refund of the amount of sales tax paid by respondent No. 1 by mistake to the appellants. The appeal, therefore, fails and it is dismissed, but there will be no order for costs.

Sharma, J.

13. I agree.


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