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The Sales Tax Officer, Banaras And Others v. Kanhaiya Lal Makund Lal Sarraf
Factual and Procedural Background
This opinion concerns an application for leave to appeal to the Supreme Court from a judgment of this Court dated 1st December 1955, which dismissed an appeal against an order by Mr. Justice Chaturvedi dated 30th November 1954. The applicants are the State of Uttar Pradesh, the Commissioner of Sales Tax, Uttar Pradesh, and the Sales Tax Officer, Banaras. The respondent firm, a dealer in bullion and gold and silver ornaments, had entered into forward contracts in silver and was assessed sales tax for the years 1948-49, 1949-50, and 1950-51, amounting to Rs. 1,365-12-0, which it paid.
Subsequently, this Court and the Supreme Court held in Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash that the provisions of the U.P. Sales Tax Act imposing sales tax on forward contracts were ultra vires. Following this, the respondent firm applied to the Commissioner of Sales Tax for a refund of the tax paid, which was refused. The respondent then filed a petition under Article 226 of the Constitution for a writ of mandamus directing the applicants to refund the amount. This petition was allowed by Justice Chaturvedi, and the appeal against that order was dismissed by this Court, leading to the present application for leave to appeal to the Supreme Court.
Legal Issues Presented
- Whether moneys voluntarily paid as tax by an assessee under a law to which the assessee had submitted, but which is later declared invalid, constitute a payment under a mistake of fact or law and are therefore recoverable.
Arguments of the Parties
Applicants' Arguments
- The core issue is whether tax paid voluntarily under a law later declared invalid can be recovered as a payment made under a mistake.
- The question is of great public importance, affecting many persons and involving significant liability for the State.
Respondent Firm's Arguments
- Contended that the question was authoritatively determined by the Judicial Committee of the Privy Council, thus leave to appeal should not be granted.
- Argued that the amount involved (Rs. 1,365-12-0) was small and it would be oppressive to force the respondent to incur the costs of a Supreme Court appeal.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash [1954] 5 S.T.C 193; [1955] S.C.R 243 | Held that provisions of the U.P. Sales Tax Act imposing sales tax on forward contracts were ultra vires. | Formed the basis for the respondent's claim for refund of tax paid on forward contracts. |
| Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi | Addressed whether payments made under an invalid law can be recovered. | The Court considered this Judicial Committee decision persuasive but noted it is no longer binding. |
| Richard Spooner and Bomanjee Nowrojee v. Juddow 4 Moo. I.A 353 | Principle regarding the appropriateness of imposing litigation costs on parties for small amounts at issue. | Used to support the argument that it would be unfair to burden the respondent with appeal costs given the small amount involved. |
Court's Reasoning and Analysis
The Court analyzed the legal question of whether payments made voluntarily under a law later declared invalid are recoverable. It acknowledged the importance of the issue, affecting many persons and involving significant State liability. The Court considered the respondent’s reliance on a Judicial Committee of the Privy Council decision but noted that such decisions are no longer binding on this Court or the Supreme Court, and no Supreme Court decision on the issue exists. The Court also took into account the respondent’s submission on the small monetary amount involved and the potential hardship of litigation costs, referencing precedent emphasizing fairness in such circumstances. Consequently, the Court required the State to undertake to pay the respondent’s costs to justify granting leave to appeal. Given the undertaking by the Advocate-General, the Court found it appropriate to grant leave and certify the matter as fit for appeal under Article 133(1)(c) of the Constitution.
Holding and Implications
Application for leave to appeal to the Supreme Court is allowed.
The Court certified this case as fit for appeal to the Supreme Court under Article 133(1)(c) of the Constitution. The direct effect is that the respondent firm may proceed with the appeal without bearing the costs, as the State undertook to pay all costs incurred by the respondent. No new precedent was established by this order; it primarily facilitates the respondent’s access to the Supreme Court for resolution of a significant legal question.
Mootham, C.J:— This is an application for leave to appeal to the Supreme Court from a judgment of this Court dated the 1st December, 1955, dismissing an appeal from an order of Mr. Justice Chaturvedi dated the 30th November, 1954. The applicants are the State of Uttar Pradesh, the Commissioner of Sales Tax, Uttar Pradesh, and the Sales Tax Officer, Banaras. The respondent firm is a dealer in bullion and in gold and silver ornaments, and as part of its business it entered into forward contracts in silver. In respect of such contracts it was assessed to sales tax for the years 1948-49, 1949-50 and 1950-51 in a sum of Rs. 1,365-12-0 and these amounts it duly paid. Subsequently this Court held, and its decision was affirmed by the Supreme Court in Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash [1954] 5 S.T.C 193; [1955] S.C.R 243., that the provisions of the U.P Sales Tax Act purporting to impose a sales tax on forward contracts were ultra vires; and thereafter the respondent firm applied to the Commissioner of Sales Tax, U.P, for a refund of the aforesaid sum of Rs. 1,365-12-0. The refund being refused, the respondent firm filed a petition in this Court under Article 226 of the Constitution for a writ of mandamus requiring the applicants to refund the amount of tax paid by it. That petition was allowed by an order of Chaturvedi, J., and it is from the judgment of this Court dismissing the appeal from that order that this application has been made.
2. The question raised by the applicants is whether moneys voluntarily paid as tax by an assessee, under a law to which the assessee had submitted but which is later declared invalid, is a payment under a mistake of fact or law which is recoverable. There is no doubt that the question is one of great public importance the decision of which will affect a large number of persons in this State and the liability of the State to refund a very considerable sum of money.
3. The application is opposed. Learned counsel for the respondent firm has contended that the question has been authoritatively determined by the Judicial Committee of the Privy Council and leave should not therefore be granted. This Court was of the view that the decision of the Privy Council in Sri Shiba Prasad Singh v. Maharaja Srish Chandra Nandi, if correctly decided, concluded the appeal against the appellants and it was, with respect, of opinion that the decision of the Judicial Committee was right. A judgment of the Judicial Committee is however no longer binding upon either this Court or the Supreme Court, and in the absence of a decision by the Supreme Court on the question at issue we think it impossible to say that that question has been authoritatively determined.
4. The second submission of learned counsel for the respondent firm is that the amount involved in the appeal, namely Rs. 1,365-12-0 is very small and that it would be oppressive if the Court granted leave and involved the respondent firm in the cost of fighting the case in the Supreme Court. We think there is much force in this submission, for as Lord Langdale said in Richard Spooner and Bomanjee Nowrojee v. Juddow 4 Moo. I.A 353.:
“The question appears to be of very considerable importance; but you observe that the amount at issue is only a sum of Rs. 250 and for the purpose of deciding that, you put the respondent to the expense of this appeal. The question is, whether this prosecution being by the East India Company, and no doubt important to have decided, for the benefit of the whole country, the whole expense of this appeal should not be borne by them. However important it may be to establish the law, upon a question of this kind, it would be very wrong to put the party to so great expense in a case where so small amount is at issue”.
5. In these circumstances we intimated to the Advocate-General that this was a case in which, in our opinion, leave to appeal should not be granted unless the State was prepared to pay the costs which would be incurred by the respondent firm. The Advocate-General has now given this Court an undertaking that the State will, in any event, pay the costs, charges and expenses incurred by or on behalf of the respondent firm as taxed by the Supreme Court. This undertaking being given, we are of opinion that this Court is justified in granting the application. We certify that this is a fit case for appeal to the Supreme Court under Article 133(1)(c) of the Constitution.
6. We make no order as to costs of this application.
7. Application allowed.
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