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1973 Supreme(Cal) 194
HIGH COURT OF CALCUTTA
DEBI PRASAD PAL, J.
Hindusthan Construction Co Ltd - Appellant
Versus
State Of West Bengal – Respondent
Decided on : July 03, 1973
A.P.Sarkar, S.C.Bose, S.N.Dutt, S.Pal,
A works contract is not a contract for sale of goods and hence does not attract sales tax.
Headnote:
SALES TAX - Refund of tax paid under mistake of law - Contract for completion of Dry Water Flow Channel - Whether a works contract or a contract for sale of goods - Interpretation of agreement - Applicability of principles laid down in State of Madras v. Gannon Dunkerley and Co. (A.I.R. (1958) S.C. 560) - Limitation for refund - Delay in seeking remedy - Exercise of discretion under Article 226 of the Constitution.
Fact of the Case:
The petitioner, a registered dealer under the Bengal Finance (Sales Tax) Act, 1941, entered into contracts with the Corporation of Calcutta for the completion of Dry Water Flow Channel. The petitioner paid sales tax on the transactions involved in the execution of the contracts. Subsequently, the Corporation of Calcutta filed a suit against the petitioner for refund of the sales tax paid, contending that no sales tax was payable on such works contracts. The trial court held that the contracts were works contracts and no sales tax was payable. The petitioner then filed a writ petition under Article 226 of the Constitution for quashing the assessment orders and for refund of the sales tax paid.
Finding of the Court:
The court held that the contracts in question were works contracts and not contracts for sale of goods. The court relied on the principles laid down in State of Madras v. Gannon Dunkerley and Co. (A.I.R. (1958) S.C. 560) and held that in a works contract there is no sale of materials as defined in the Sales of Goods Act. The court also held that the petitioner had paid the tax under a mistake of law and that it came to discover the mistake only when the trial court delivered its judgment in the suit filed by the Corporation of Calcutta. The court further held that there was no unreasonable delay in asking for the relief under Article 226 of the Constitution.
Issues: 1. Whether the contracts in question were works contracts or contracts for sale of goods? 2. Whether the petitioner had paid the tax under a mistake of law? 3. Whether there was any unreasonable delay in asking for the relief under Article 226 of the Constitution?
Ratio Decidendi: 1. The court held that the contracts in question were works contracts and not contracts for sale of goods. The court relied on the principles laid down in State of Madras v. Gannon Dunkerley and Co. (A.I.R. (1958) S.C. 560) and held that in a works contract there is no sale of materials as defined in the Sales of Goods Act. 2. The court held that the petitioner had paid the tax under a mistake of law. The court relied on the fact that the petitioner had been contesting the stand taken by the Corporation of Calcutta that no sales tax is payable on such works contracts. The court also relied on the fact that the petitioner came to know the real nature of the transaction only as a result of the judgment delivered by the trial court in the suit filed by the Corporation of Calcutta. 3. The court held that there was no unreasonable delay in asking for the relief under Article 226 of the Constitution. The court relied on the fact that the petitioner had moved the writ petition within three years from the date of the judgment delivered by the trial court in the suit filed by the Corporation of Calcutta.
Final Decision: The court quashed the assessment orders and directed the respondents to refund the sales tax paid by the petitioner.
1. THE petitioner company carries on business as Engineers and Contractors and is registered as a dealer under the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as the Act). Between January and March, 1952 the respondent No. 5, the Corporation of Calcutta invited tenders for completion of Dry Water Flow Channel for "dr. Dey's Kulti Outfall Scheme" for construction of channel. The petitioner is stated to have entered into such contracts with the Corporation of Calcutta. Specimen copy of such tender has been annexed being Annexure 'a' to the petition. From the said tender it appears that the petitioner has to carry out and complete the whole of the works in accordance with the specifications and the terms of the agreement. It is stated that all such contracts including manufacture of bricks were works contracts and were executed in 1953. In terms of the letter dated 24.7.1971 being annexure 'b' to the petition it was agreed that if any sales tax is payable on the transactions involved in the execution of the said contracts, such sales-tax is to be realised from the, Corporation of Calcutta separately. It appears that by a letter dated 22nd September, 1953 the Commissioner of Commercial Taxes wrote to the Commissioner of Calcutta Corporation that the petitioner being a dealer registered under the Act is liable to pay tax to the government on the sale price of the contracts executed by it in favour of the corporation of Calcutta.
2. THE petitioner filed its returns as a dealer and assessments were made and a sum of Rs. 53,045.10 was determined to be the sales tax in respect of the transactions involved in the execution of the contracts with the respondent No. 5. The said sum represented the sales tax for the years 1951-52 to 1954-55. The petitioner deposited the said amount with the Reserve Bank of India. In terms of the agreement between the petitioner and the respondent no. 5, the petitioner realised a sum of Rs.40,871/- from the said respondent no. 5 by way of reimbursement of the taxes paid by it. The respondent No. 5, thereafter filed a suit against the petitioner in this Court for refund of the said sum of Rs.40,871/ - on the ground that sales tax was not payable by the said respondent No. 5 in respect of contract of Dry Water Flow Channel. The said suit being suit No. 1618 of 1960 came up for hearing before Hazra, J. By a judgment delivered on 1st March, 1972, the said suit was decreed and the petitioner was directed to pay the sum of Rs. 40,871 - along with the interest thereupon at the rate of 6% per annum. His Lordship interpreting the agreements in question with the Corporation of Calcutta held them as contracts for construction and that manufacture of bricks were made for the use of the construction work and the using of bricks was part of construction contracts. Proceeding on that view it was held in that case that the principles laid down by the supreme Court in the case of (5) State of Madras v. Gannon Dunicerley and Co. (A.I.R. (1958) S.C. 560) and (1) Dakhneswar Sarkar and Bros. Ltd. v. Commercial Tax Officer and ors. (A.I.R. 1957 Calcutta 283) were attracted and no sales tax was payable on the said contracts. It has been further held that materials used for construction contracts could not be separately assessed for payment of sales tax. The learned Judge further held that when payment was made by the Corporation of Calcutta on 27th September, 1957 to the petitioner the payment was made under mistake of law and fact and hence the petitioner was directed to refund the amount of rs. 40, 8711 to the Corporation of Calcutta.
The said judgment as already stated was delivered on 1st March, 1972. The petitioner thereafter moved this court under Article 226 of the Constitution for quashing assessment orders dated 29th March, 1956 and 7th August, 1959 being annexure E to the petition and for refund of the sum of Rs.53,045.10 collected from it by virtue of the assessment orders for years 1951-52 to
