1. Sales tax assessed on works contracts under Orissa Sales Tax Act, 1947 — claim for refund of tax and penalties paid. (Para 1 , 2 , 3 )
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1961 Supreme(SC) 350
SUPREME COURT OF INDIA
26th October,1961
B.P. SINHA, C.J.I., J.L. KAPUR, M. HIDAYATULLAH, J.C SHAH AND J.R. MUDHOLKAR, JJ.
M/s Burmah Construction Company, Appellants,
Versus
The State of Orissa and others Respondents.
Civil Appeal No. 494 of 1960.
Advocates appeared
Mr. G.C. Mathur, Advocate, for Appellants, Mr.H.N. Sayanal, Additional Solicitor General of India, and Mr. K.N. Rajagopal sastri. Senior Advocate (M/s. G. K. Mishra and T. M. Sen, Advocates, with them), for Respondents.
Advocates:
G.C.MATHUR, G.K.MISHRA, H.N.SANYAL, K.N.RAJAGOPAL SASTRI, T.M.SEN
G.C.MATHUR, G.K.MISHRA, H.N.SANYAL, K.N.RAJAGOPAL SASTRI, T.M.SEN
The power to legislate on taxes includes the authority to prescribe procedures and limitation periods for refunds. A writ petition to enforce a statutory refund is subject to the limitations imposed by the legislature.
Headnote:(A) State Sales Tax Act - Section 14 - Constitution of India - Article 226 - Power to legislate on tax - Includes power to prescribe machinery for collection and refund - Imposition of restrictions on the right to claim refund of tax improperly or illegally collected is an ancillary or subsidiary matter to the primary head of tax on sale of goods and is therefore within the legislative competence of the State Legislature. (Para 5)
(B) Writ Jurisdiction - Enforcement of statutory obligation - A petition under Article 226 to enforce a statutory obligation to refund tax illegally collected is maintainable but is subject to the restrictions imposed by the Legislature - A claimant cannot rely upon a statutory right while ignoring the restrictions subject to which the right is made enforceable. (Para 6)
Facts of the case:
A contractor paid sales tax on materials used in works contracts. Following a judicial determination that such contracts were not subject to sales tax, the contractor sought a declaration that the assessments were illegal and requested a refund of the tax paid. The High Court directed a refund but limited it to claims not barred by the limitation period prescribed under the relevant state sales tax legislation. The contractor challenged the validity of the limitation period and argued that the High Court's power to direct refunds under the Constitution is not restricted by such statutory bars.
Findings of Court:
The power to legislate with respect to a tax includes the power to impose the tax, prescribe collection machinery, and regulate the granting of refunds for tax improperly collected. Consequently, the statutory limitation period for claiming refunds is not ultra vires. While a writ petition can be used to enforce a statutory obligation to refund tax, it cannot be used to bypass the legislative restrictions attached to that obligation.
Issues: Whether the statutory limitation period for claiming a refund of tax is ultra vires the State Legislature and whether the power of the High Court under Article 226 to direct a refund of illegally recovered tax is restricted by such statutory limitation.
Ratio Decidendi: The legislature is competent to prescribe limitations on the right to claim refunds as it is ancillary to the power to tax. A party seeking to enforce a statutory right to a refund through a writ petition must abide by the restrictions imposed by the statute.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Validity of statutory limitation period for tax refunds — whether High Court's power under Article 226 is restricted by such statutory limitations. (Para 4 )
3. Power to legislate tax includes prescribing refund machinery and limitations — Article 226 cannot be used to bypass statutory restrictions when enforcing statutory obligations. (Para 5 , 6 )
4. Legislative competence to impose tax includes the power to prescribe ancillary restrictions on the right to claim refunds of improperly collected tax. (Para 5 )
5. Appeal dismissed — refund restricted to assessments within the statutory limitation period from the date of the petition. (Para 7 , 8 )
6. Is the power to prescribe a limitation period for tax refunds within the legislative competence of a State Legislature?
Yes. The power to legislate with respect to a tax includes the power to impose the tax, prescribe collection machinery, and legislate on ancillary or subsidiary matters, such as granting refunds of improperly collected tax and imposing restrictions on the exercise of that right. (Para 5 )
7. Can a petition under Article 226 of the Constitution be used to bypass statutory limitation periods for tax refunds?
No. While a petition under Article 226 can be used to enforce a statutory obligation to refund illegally collected tax, it cannot be used to ignore the restrictions imposed by the legislature on the enforceability of that right. (Para 6 )
Judgment
SHAH, J. : Messrs. Burmah Construction Company- a firm carrying on business as building and works contractors executed sevral contracts in the state of Orissa for construction of buildings, roads, bridges etc. Messrs.Burmah Construction Company, who are hereinafter referred to as the appellants, were registered as dealer in Orissa under the Orissa Sales Tax Act, 1947 from the quarters ending June 30, 1949. The sales Tax Officers treating the transfer of the materials used in the construction of the buildings, roads and bridges, as sale of goods, assessed the appellants to tax under the Orissa sales Tax Act. The tax so assessed under the diverse orders of assessment was paid from time to time. For the quarters ending June 30, 1949 to March 31, 1954 the appellant paid Rs. 1,17,869-8-0 as tax and Rs. 2,917-11-0 as penalty. The following table sets out the tax and penalty Paid to the sales Tax Authorities for the twenty. quarters :
Srl. No. Circle Name Registration No. Tax paid Penalty paid Total Amount paid.
Rs. A. P. Rs. A. P. Rs. A. P.
1. PU II 1755 35336 7 0 350 0 0 35686 7 0
2. BA 1596 53990 6 6 310 0 0 54300 5 6
3. BA 1596A 2719 3 0 ... 2719 3 0
4. MB 806 3376 6 0 1352 4 0 4728 10 0
5. BP 1560 5349 1 0 ... 5349 1 0
6. CU III 1375 10913 12 0 905 7 0 11819 3 0
7. CU I 3940 6184 6 0 ... 6184 6 0
117869 8 6 2917 11 0 120787 3 6
2. Relying upon the judgment of the Madras High Court in Gannon Dunkerly & Co,, Ltd. v. State of Madras, 1954-5 STC 216 the appellants applied on August 9, 1954 to the High Court of Judicature, Orissa for
(a) a declaration that the provisions of the Orissa Sales Tax Act, 1947 authorising imposition of the sales tax on a turnover of works contracts and repair works were ultra virus the State Legislature;
(b) a declaration that the assessment made by the State Sales Tax Authorities on the appellant s works contracts which had resulted in payment of Rs. 1,20,787-3-6 by way of sales tax and penalties for different quarters were without jurisdiction and illegal and liable to be quashed and that the appellant was entitled to get refund of the said amount;
(c) a direction restraining the state and its sales Tax Officers from taking any steps in making any further assessment or complete the assessments pending before them in respect of the appellant s works contracts with the state Government and levying and collecting any sales tax from the appellant on works contracts; and
(d) issue of appropriate writ or directions directing the state of Orissa and its sales Tax Officers to refund the amount of sales tax and penalties realised from the appellant.
3. Following the judgment of this Court in the State of Madras v. Gannon Dunkerly & Co., Ltd.,1959 SCR 379 ; which confirmed the decision of the Madras High Court in 1954-5 STC 216 the High Court declared that the assessment of sales tax was not in accordance with law and directed that no steps either by certificate proceedings or otherwise should be taken to realise the arrears of sales tax in respect of those contracts. The High Court also directed refund of tax paid, if recovery thereof was not barred under S.14 of the Orissa Sales Tax Act, 1947 on the date of the filing of the application. The High Court also directed the Sales Tax Authorities to revise the assessments made in the light of the decision of this Court in respect of assessments made after the date of the petition. The appellants have appealed to this Court with special leave challenging the order in so far as their claim for refund is partially declared to be barred by the rule of limitation prescribed by S. 14 of the Orissa Sales Tax Act.
4. The appellants challenge the correctness of the order declaring that the portion of the tax paid refund whereof is beyond the period of limitation under S. 14 of the Orissa Sales Tax Act, 1947 on the date of the filing of the application under Art, 226, as not refundable on two grounds:
(1) that S. 14 of the Act is ultra vires the State Legislature:
(2) that
