| CITATION | 1959 AIR 135, 1959 SCR Supl. (1)1350 |
| DATE OF JUDGMENT | 23 September, 1958 |
| COURT | Supreme court |
| PETITIONER | SALES TAX OFFICER, BANARAS & OTHERS |
| RESPONDENT | KANHAIYA LAL MUKUNDLAL SARAF |
| BENCH | Das, Sudhi Ranjan (Cj), Bhagwati, Natwarlal H., Sinha, Bhuvneshwar P., Subbarao, K., Wanchoo, K.N. |
INTRODUCTION
The case revolves around the dispute between the Sales Tax Officer in Banaras and Kanhaiya Lal Mukund lal Saraf, who were engaged in the business of selling and purchasing bullion. The main contention in the case was whether the sale of bullion by Kanhaiya Lal Mukund lal Saraf would be subject to sales tax under the Uttar Pradesh Sales Tax Act, 1948.This case holds significance as it provides valuable guidance on the interpretation and application of sales tax laws in India, particularly in relation to export sales. It sets a precedent for future cases involving the interpretation of similar provisions under sales tax statutes across various Indian states.
FACTS
The respondent in this case is a partnership firm registered under the Indian Partnership Act. They are engaged in the business of trading in bullion, gold, silver ornaments, and forward contract involving silver bullion in Banaras, Uttar Pradesh.
For the assessment years 1948-49, 1949-50, and 1950-51, the Sales Tax Officer in Banaras (appellant No. 1) assessed the respondent for Uttar Pradesh Sales Tax on their forward transactions in silver bullion. In response, the respondent deposited the following sums for these respective years: Rs. 150-12-0, Rs. 470-0-0, and Rs. 741-0-0. These sums were utilized to satisfy the sales tax liabilities determined by assessment orders issued on May 31, 1949, October 30, 1950, and August 22, 1951.
However, a significant development occurred when the High Court of Allahabad, in its judgment on February 27, 1952, in the case of Messrs. Budh Prakash Jai Prakash v. Sales Tax Officer, Kanpur (1), declared that the imposition of sales tax on forward transactions was beyond the legal authority (ultra vires). Following this judgment, the respondent, on July 8, 1952, formally requested a refund of the sales tax amounts they had paid.
In response to this request, the Commissioner of Sales Tax, Uttar Pradesh, Lucknow (appellant No. 2), through a letter dated July 19, 1952, declined to issue a refund.
Subsequently, the respondent initiated legal action by filing Civil Misc. Writ Petition No. 355 of 1952 in the High Court of Allahabad under Article 226 of the Constitution. In this petition, they sought a writ of certiorari to annul the three assessment orders in question and a writ of mandamus to compel the appellants to refund the total amount of Rs. 1,365-12-0, which had been paid as sales tax.
ISSUE RAISED
- Whether Section. 72 of the Indian Contract Act applies to the facts of the present case.
CONTENTIONS OF APPELLANT
The sales tax authorities argued that the respondent should not be entitled to a refund for several reasons.
- First, The Additional Solicitor-General, representing the appellants, attempted to argue before the court that the respondent should have adhered to the prescribed procedure outlined in the U.P. Sales Tax Act. According to this argument, the respondent should have pursued avenues such as filing appeals or seeking revisions against the assessment orders in question. Failure to do so, it was contended, should have barred the respondent from pursuing a legal remedy in civil courts to recover the money they had paid.
- Second, they contended that the payments were made willingly without any objections, as a way to fulfil their obligations under the Sales Tax Act.
- Third, it was argued that since the government had already spent the received funds and not retained them, the respondent should not be allowed to recover those amounts.
- Fourth, the Additional Solicitor-General contended that, in any case, the filing of a writ petition was an inappropriate legal avenue for the recovery of the funds that the respondent had paid they claimed that the amounts in question were paid by the respondent due to a misunderstanding of the law, making them non-refundable.
CONTENTIONS OF RESPONDENT
- Exemption or Non-Liability: The respondent argued that they are exempt from paying the sales tax in question due to specific provisions or exemptions provided under the relevant sales tax laws. They contended that their transactions fall outside the scope of taxable events.
- Incorrect Assessment: The respondent claimed that the sales tax officer incorrectly assessed the tax liability. They argued that certain transactions were erroneously included in the tax assessment or that there were errors in calculating the tax amount.
- Double Taxation: The sales tax officer attempted to levy tax on the same transaction multiple times (double taxation), the respondent argued that this is unfair and not in accordance with the law.
- Non-Taxable Transactions: They contended that the sale should be treated as an exempted “export sale” and therefore not subject to sales tax.
- Procedural Irregularities: The respondent may raise objections to procedural irregularities in the tax assessment process, such as improper notices, lack of opportunity to present their case, or violations of due process.
- Unconstitutionality: The respondent also challenged the constitutionality of the sales tax law itself, arguing that it violates fundamental rights or principles guaranteed by the constitution.
PROCEDURAL HISTORY
Prior to this case, the High Court of Allahabad had ruled that the imposition of sales tax on forward transactions was ultra vires, meaning it was beyond the legal authority. This decision set the stage for the subsequent legal proceedings.
Following the High Court’s ruling, the respondent firm, Kanhaiya Lal Mukundlal Saraf, requested a refund of the sales tax amounts they had paid for the relevant assessment years. The Commissioner of Sales Tax, Uttar Pradesh, however, refused to issue a refund.
In response to the denial of the refund, the respondent firm filed a writ petition in the High Court of Allahabad, seeking the annulment of the assessment orders and a writ of mandamus to compel the appellants to refund the sales tax amounts.
JUDGEMENT
The High Court, in its judgment, concluded that Section 72 of the Indian Contract Act was applicable to the current case. According to this determination, the State Government was obligated to refund the money it had unlawfully received from the respondent as Sales Tax. Consequently, the High Court dismissed the appeal filed by the appellants and ordered them to pay the costs associated with the case.
Subsequently, the appellants sought a certificate under Article 133(1)(b) of the Constitution, which was granted by the High Court on July 30, 1956. This certificate allowed the matter to be brought before the Supreme Court for a final decision. As part of this process, the Advocate-General provided an undertaking to the Court, assuring that the State would cover all the costs, charges, and expenses incurred by or on behalf of the respondent, as assessed by the Supreme Court.
As a result, this appeal has now come before SC for hearing and ultimate resolution. The appellants in this case include the Sales Tax Officer, Banaras (appellant No. 1), the Commissioner of Sales Tax, Uttar Pradesh, Lucknow (appellant No. 2), and the State of Uttar Pradesh (appellant No. 3).
In Rogers v. Ingham, the court held If that proposition were trite in respect of this case it must be true in respect to every case in the High Court of Justice where money has been paid under a mistake as to legal rights, it would open a fearful amount of litigation and evil in the cases of distribution of estates, and it would be difficult to say what limit could be placed to this kind of claim, if it could be made after an executor or trustee had distributed the whole estate among the persons supposed to be entitled, every one of them having knowledge of all the facts, and having given a release. The thing has never been done, and it is not a thing which, in my opinion, is to be encouraged.
The Supreme Court rejected the argument presented by the appellants. It was held that the fact that the State of Uttar Pradesh had not retained the funds paid by the respondent but had used them in the regular course of state affairs did not alter the situation. According to the straightforward provisions of Section 72 of the Indian Contract Act, the respondent had the right to recover the money they had paid to the State of Uttar Pradesh due to a mistake of law.
Thus, the Supreme Court found that none of the contentions put forth by the appellants in their attempt to challenge the applicability of Section 72 of the Indian Contract Act to the circumstances of this case were valid. Consequently, the appeal was dismissed, and the appellants were ordered to bear the costs associated with the case.
In conclusion, the appeal was dismissed by the Supreme Court.
ANALYSIS
This case revolved around the assessment and collection of sales tax by the Sales Tax Officer in Banaras from Kanhaiya Lal Mukundlal Saraf, a partnership firm engaged in the bullion and silver trading business. The Sales Tax Officer had assessed the firm for sales tax on forward transactions in silver bullion for specific assessment years.
The central legal issue in this case was the application of Section 72 of the Indian Contract Act. This section deals with the principle of restitution and provides that a person is entitled to recover money paid by mistake of law. The High Court held that Section 72 applied, and the State Government was obligated to refund the money received unlawfully.
The Supreme Court upheld the High Court’s decision, emphasizing that the State’s spending of the funds did not alter the fact that the respondent was entitled to recover the money paid under a mistake of law. The Court affirmed the applicability of Section 72 and dismissed the appeal, ordering the appellants to bear the costs.
The case highlights the importance of the principle of restitution under Section 72 of the Indian Contract Act, which allows individuals or entities to recover money paid under a mistake of law.
It underscores the legal obligation of the State to refund funds received unlawfully, even if those funds have been expended for government purposes.
The case sets a precedent for similar situations where individuals or businesses seek to recover taxes or payments made under a mistaken interpretation of the law.
CONCLUSION
The Sales Tax Officer, Banaras & … vs. Kanhaiya Lal Mukund lal Saraf case is notable for its interpretation of the Indian Contract Act and the principles of restitution, ultimately affirming the respondent’s right to a refund of sales tax paid in error due to the ultra vires nature of the tax
REFERENCES
This Article is written by Yashasvi Sharma student of Vivekananda Institute of Professional Studies, GGSIPU; Intern at Legal Vidhiya.
