Tax paid under a mistake of law is refundable under S.72 of the Indian Contract Act, 1872.

1. The petitioner is a dealer registered under the Kerala General Sales Tax Act, 1963 ("the Act"), and an assessee on the files of the first respondent. Petitioner undertakes, inter alia, execution of contract works like construction of buildings and others. For the purpose of executing these contracts, the petitioner had, in the years 1970-71 to 1978-79 and 1981-82, purchased certain materials from unregistered dealers. These purchases were brought to tax under S.5A(11)(a) of the Act as if the materials concerned had been consumed in the manufacture of other goods for sale or otherwise. Copies of the orders of assessment for these years are exhibits PI to P10, and all of them show ex facie that the purchases of these materials by the petitioner for the purpose of execution of contract works have been assessed to tax under S.5A. Petitioner as well as the first respondent, assessing authority, were both under the impression that such purchases were exigible to tax under S.5A. The tax so assessed was paid by the petitioner.

2. Whileso,and on December l7, 1986, a Division Bench of this Court of which I was a member, held in the decision in Deputy Commissioner of Sales tax v. T. Anandan, 1987 (1) KLT 192 : (1987) 65 STC 349 that such purchases of goods from unregistered dealers for use in the execution of contract works will not attract the levy under S.5A, for the reason that the consumption envisaged by sub clause (a) of sub-s.(1) of the section was only consumption in the manufacture of other goods for sale and therefore the contingency adumbrated by the sub clause did not occur when the goods were consumed for other purposes. When a contractor constructed a building or erected sea wall, as in that case, he was not manufacturing any goods, and therefore the purchase of the materials used in the construction which became part of immovable property, could not be brought to tax under S.5A.

3. This decision was confirmed by the Supreme Court in Deputy Commissioner of Sales Tax (Law) v. Kannan Nair, 1988 (2) KLT 109 : (1988) 70 STC 48 on April 8, 1988.

4. The effect of these decisions was that the levy of tax under S.5A on the purchases of materials by the petitioner for use in the execution of works contracts under the orders of assessment, exhibits P1 to P10, for the years mentioned earlier, was not legal or proper. Soon after they became aware of the decision of this Court, the petitioner made, a representation Ext. P11 dated March 14, 1988 to the assessing authority, namely, the first respondent seeking refund of an amount of Rs.19,683.94 which they had paid as tax on these purchases under mistake of law. This petition did not meet with any response and therefore this original petition was filed on December 19, 1988, seeking a direction to the respondents to refund the said amount with interest at 24 per cent per annum.

5. The respondents have filed a counter affidavit refuting the claim made by the petitioner, and contending that the petitioner should have taken up the assessments in appeal, and that without doing so, they are not entitled to seek refund of the amount paid.

6. The Supreme Court had, as early as in 1958 held in the decision in Sales Tax Officer v. Kanhaiya Lal Makund Lal Saraf (1958) 9 STC 747 that refund of sales tax paid under a mistake of law could be claimed based on S.72 of the Indian Contract Act, 1872. The court dealt with the scope of S.72 and held that a person who pays money either under a mistake of law or of fact, is entitled to recover the amount so paid, and the party receiving the same is bound to repay or return it irrespective of any consideration whether the money had been paid voluntarily, subject however to questions of estoppel, waiver, limitation or the like. That was a case where the levy in question was made under a law which was subsequently held to be unconstitutional and the Supreme Court held that as far S.72 was concerned, there was no distinction between a tax liability and any other lia