1. Sales tax paid on forward transactions later declared ultra vires — Claim for refund under Section 72, Indian Contract Act. (Para 1 , 2 , 3 , 4 )
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1958 Supreme(SC) 113
SUPREME COURT OF INDIA
23rd September, 1958.
S.R. DAS, C.J.I., N.H. BHAGWATI, B.P. SINHA, K. SUBBA RAO AND K.N. WANCHOO, JJ.
The Sales Tax Officer, Banaras and others, Appellants
Versus
Kanhaiya Lal Makund Lal Saraf, Respondent.
Agra Bullion Exchange and others, Interveners.
Civil Appeal No. 87 of 1957.
Advocates Appeared
Mr. H. N. Sanyal, Additional Solicitor-General of India (M/s. G. C. Mathur and C. P. Lal, Advocates with him), for Appellant; Mr. P. R. Das, Senior Advocate (Mr. B. P. Maheshwari, Advocate, with him), for Respondent; Mr. B. P. Maheshwari, Advocate, for Intervener No. 1; M/s. K. Veeraswami and T. M. Sen, Advocates, for Intervener No. 2; Mr. R. C. Prasad, for Inter-Vener No. 3; Mr. H. N. Sanyal, Additional Solicitor-General of India, (M/s. R. Gopalakrishnan and T. M. Sen, Advocates, with him), for Intervener No. 4.
Advocates:
B.P.MAHESHVARI, C.P.LAL, G.C.MATHUR, H.N.SANYAL, K.VIRASWAMY, P.R.DAS, R.C.Prasad, R.GOPAL KRISHNAN, T.M.SEN
B.P.MAHESHVARI, C.P.LAL, G.C.MATHUR, H.N.SANYAL, K.VIRASWAMY, P.R.DAS, R.C.Prasad, R.GOPAL KRISHNAN, T.M.SEN
Section 72 of the Indian Contract Act, 1872, covers both mistakes of fact and law. Any money paid under such a mistake, including tax payments, is recoverable if it was not legally due, regardless of whether the payment was voluntary or the funds were spent.
Headnote:(A) Indian Contract Act, 1872 - Section 72 - Recovery of money paid by mistake - The term "mistake" in Section 72 is wide enough to cover both mistake of fact and mistake of law. Where money is paid under a mistake of law, it is recoverable. (Paras 9, 10, 24)
(B) Interpretation of Statutes - Codified law - Where the terms of a statute are plain and unambiguous, the court must give them legal effect without resorting to the position of law in other jurisdictions or previous laws. (Paras 16, 17, 21)
(C) Indian Contract Act, 1872 - Section 72 vs. Section 21 - Section 21 deals with contracts caused by a mistake of law, whereas Section 72 deals with payments made under a mistake of law where the money was not legally due. There is no conflict between the two provisions. (Paras 22, 23, 24)
(D) Tax Payments - Money paid as tax under a mistake of law is recoverable under Section 72. Voluntary payment of tax does not preclude recovery if a mistake of law is established. (Paras 26, 27) (E) Estoppel and Equity - No estoppel arises when both parties are under a common mistake of law. Equitable considerations, such as the receiver having spent the money, cannot override the clear and unambiguous provisions of Section 72. (Paras 29, 31, 32)
Facts of the case:
A firm dealing in bullion paid sales tax on forward transactions. Subsequently, the levy of such tax was held to be ultra vires. The firm sought a refund of the amounts paid. The state refused the refund, contending that money paid under a mistake of law is irrecoverable and that the payments were voluntary.
Findings of Court:
The court found that the payments were made under a mistake of law as the tax was ultra vires. Such payments are recoverable under Section 72 of the Indian Contract Act. The fact that the payments were voluntary or that the state had spent the money does not bar the recovery.
Issues: Whether Section 72 of the Indian Contract Act applies to money paid under a mistake of law, specifically in the context of tax payments, and whether voluntary payment or the spending of funds by the state creates a bar to recovery.
Ratio Decidendi: Section 72 of the Indian Contract Act does not distinguish between mistake of law and mistake of fact; therefore, any money paid under either type of mistake, which was not legally due, must be repaid. Codified Indian law prevails over foreign precedents. Voluntary payment of tax under a mistake of law is recoverable, and no equitable bar exists if the mistake was common to both parties.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Recoverability of money paid under mistake of law — Maintainability of writ petition for refund — Effect of voluntary payment and expenditure of funds by State. (Para 5 , 8 , 25 )
3. Interpretation of Section 72, Indian Contract Act — Primacy of statutory language over foreign precedents — Distinction between contracts caused by mistake and payments made under mistake. (Para 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 26 , 27 , 28 , 29 , 30 , 31 , 32 )
4. Section 72, Indian Contract Act applies to both mistakes of law and fact; money paid under such mistake, not legally due, must be repaid. (Para 23 , 24 )
5. Appeal dismissed with costs. (Para 33 )
6. Does Section 72 of the Indian Contract Act cover mistakes of law?
Yes. The term mistake in Section 72 is used without qualification and encompasses both mistakes of law and mistakes of fact, regardless of the position in English, American, or Australian law. (Para 9 , 10 , 24 )
7. Is money paid as tax under a mistake of law recoverable?
Yes. If a tax is paid under a mistake of law and was not legally due, the party is entitled to recover it under Section 72, regardless of whether the payment was voluntary. (Para 26 , 27 )
8. Does the expenditure of the received money by the State preclude a refund under Section 72?
No. Equitable considerations regarding whether the receiver has spent the money cannot override the clear and unambiguous statutory mandate of Section 72 to repay money paid by mistake. (Para 30 , 31 , 32 )
9. How does Section 72 differ from Section 21 of the Indian Contract Act?
Section 21 provides that a contract is not voidable because it was caused by a mistake of law. Section 72 deals with payments made under a mistake of law that were not legally due. (Para 22 , 23 )
10. When does the principle of estoppel prevent recovery of money paid by mistake?
Estoppel arises when the plaintiff's conduct leads the defendant to believe they can treat the money as their own, and the defendant alters their position to their detriment. It does not apply when both parties share the same mistake of law. (Para 28 , 29 )
Judgement
N. H. BHAGWATI, J. : The facts leading up to this appeal lie within a narrow compass.
2. The respondent is a firm registered under the Indian Partnership Act dealing in Bullion Gold and Silver ornaments and forward contracts in Silver Bullion at Banaras in the State of Uttar Pradesh. For the assessement years l948-49, 1949-50 and 1950-51 the Sales Tax Officer, Banaras, the appellant No. 1 herein assessed the respondent to U. P. Sales Tax on its forward transactions in Silver Bullion. The respondent had deposited the sums of Rs. 150-12-0, Rs. 470-0-0 and Rs. 7410-0 for the said three years which sums were appropriated towards the payment of the sales tax liability at the firm under the respective assessment orders passed on May 31, 1949, October 30, 1950, and August 22, 1951.
3. The levy of sales tax on forward transactions was held to be ultra vires, by the High Court of Allahabad by its judgment delivered on February 27, 1952, in Budh Prakash Jai Prakash v. Sales Tax Officer, Kanpur , 1952 All LJ 332: (AIR 1952 All 764) and the respondent by its letter dated July 8, 1952, asked for a refund of the amounts of sales tax paid as aforesaid. The appellant No. 2, the Commissioner of Sales Tax, U. P., Lucknow, however, by his letter dated July 19, 1952 refused to refund the same.
4. The respondent thereafter filed in the High Court of Allahabad the Civil Misc. Writ Petition No. 355 of 1952 under Art. 226 of the Constitution and asked for a writ of certiorari for quashing the aforesaid three assessment order and a writ of mandamus requiring the appellants to refund the aforesaid amounts aggregating to Rs. 1,365-12-0. The judgment of the Allahabad High Court was confirmed by this Court on May 3, 1954, in Sales Tax Officer v. Budh Prakash Jai Prakash 1955-1 SCR 243 and the writ petition aforesaid was heard by Chaturvedi J. The learned Judge by an order dated November 30, 1954, quashed the said assessment orders in so far as they purported to assess the respondent in respect of forward contracts in silver and also issued a writ of mandamus directing the appellants to refund the amounts paid by the respondent.
5. The appellants filed a Special Appeal No. 18 of 1955: in the High Court of Allahabad against that order of the learned Judge. A Division Bench of the said High Court heard the said appeal on December 1, 1955. It was argued by the Advocate-General on behalf of the appellants that the amounts in dispute were paid by the respondent under a mistake of law and were therefore irrecoverable. The Advocate-General also stated categorically that in that appeal he did not contend that the respondent ought to have proceeded for the recovery of the amount claimed otherwise than by way of a petition under Art. 226 of the Constitution. The High Court came to the conclusion that S. 72 of the Indian Contract Act applied to the present case and the State Government must refund the moneys unlawfully received by it from the respondent on account of Sales Tax. It accordingly dismissed the appeal with costs.
6. The appellants then applied for a certificate under Art. 133(1)(b) of the Constitution which certificate was granted by the High Court on July 30, 1936, on the Advocate-General s giving to the Court an undertaking that the State will, in any event, pay the costs, charges and expenses incurred by or on behalf of the respondent as taxed by this Court. This appeal has accordingly come up for nearing and final disposal before us at the instance of the Sales Tax Officer, Banaras, appellant No. 1, the Commissioner Sales Tax, U. P., Lucknow, appellant No. 2 and the State of U. P., appellant No. 3.
7. The question that arises for our determination in this appeal is whether S. 72 of the Indian Contract Act applies to the facts of the present case.
8. The learned Additional Solicitor-General appearing for the appellants tried to urge before us that the procedure laid down in the U. P. Sales Tax Act by way of appeal and/or revision against the assessm
