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Mafatlal Industries Ltd. v. Union Of India .
Factual and Procedural Background
A Division Bench (Hon’ble Mr Justice P.N. Bhagwati and Hon’ble Mr Justice Ranganath Misra) by order dated 14-08-1985 directed that a group of matters be placed before a Bench of seven Judges because, in its view, the Constitution Bench decision in STO v. Kanhaiya Lal Mukundlal Saraf required reconsideration. Subsequently, other matters were tagged with this batch of appeals.
It was noted that, when the 14-08-1985 order was made, the Division Bench’s attention was apparently not drawn to an existing seven-Judge Bench decision in State Of Kerala v. Aluminium Industries Ltd., Kundara, Quilon (1965) 16 STC 689.
Legal Issues Presented
- Whether, in light of the seven-Judge Bench decision in State Of Kerala v. Aluminium Industries Ltd., Kundara, Quilon (1965) 16 STC 689, the earlier view that STO v. Kanhaiya Lal Mukundlal Saraf required reconsideration should stand, and how the observations in the former affect the latter.
- Whether the observations in State Of Kerala v. Aluminium Industries Ltd. amount to approval of the ratio in STO v. Kanhaiya Lal Mukundlal Saraf, particularly on refund of tax paid under a mistake of law under Section 72 of the Contract Act and the absence of estoppel when the mistake of law is common to both parties.
Arguments of the Parties
Appellants’/Petitioners’ Arguments
- Counsel for the appellants/petitioners (Mr F.S. Nariman) submitted that STO v. Kanhaiya Lal Mukundlal Saraf has been “expressly approved” on both points by the seven-Judge Bench in State Of Kerala v. Aluminium Industries Ltd. (1965) 16 STC 689.
- He emphasized the observation that money paid under a mistake of law falls within “mistake” in Section 72 of the Contract Act; that there is no estoppel where the mistake of law is common to both parties; and that, ordinarily, the State has a duty (subject to any sales tax law provision) to refund tax levied by mistake of law, with a court remedy available if refund is not made.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| STO v. Kanhaiya Lal Mukundlal Saraf, 1959 SCR 1350; AIR 1959 SC 135 | Treated (through quotation from the later case) as authority that money paid under a mistake of law is covered by “mistake” in Section 72 of the Contract Act; and that estoppel does not arise where the mistake of law is common to both parties. | The court noted that issues in the batch are connected with the continuing force and treatment of this decision, and considered it necessary that a larger Bench address contentions arising in relation to it. |
| State Of Kerala v. Aluminium Industries Ltd., Kundara, Quilon . (1965) 16 STC 689 | Cited for an observation stating that, in view of STO v. Kanhaiya Lal, tax paid under a mistake of law ordinarily ought to be refunded by the State (subject to any relevant statutory provisions), and that remedy through court is open if refund is not made. | The court treated this seven-Judge Bench decision as significant because it appeared to approve the ratio in Kanhaiya Lal; therefore, it considered it desirable to have the matters decided by a larger Bench. |
Court's Reasoning and Analysis
The court observed that the earlier direction (dated 14-08-1985) to place the matters before a seven-Judge Bench was made on the footing that STO v. Kanhaiya Lal Mukundlal Saraf required reconsideration, but the Division Bench’s attention was apparently not drawn to a prior seven-Judge Bench decision in State Of Kerala v. Aluminium Industries Ltd.
In submissions opening the case for the appellants/petitioners, it was stated that State Of Kerala v. Aluminium Industries Ltd. had “expressly approved” Kanhaiya Lal on both points, and reliance was placed on a passage discussing Section 72 of the Contract Act, common mistake of law, absence of estoppel, and the State’s ordinary duty to refund tax levied under mistake of law (subject to any relevant statutory provisions).
Given this position, and the potential that the quoted observations may be held to approve the ratio in Kanhaiya Lal, the court concluded that it was desirable for the matters to be placed before a larger Bench so that the Bench deciding the batch would be able to address any contentions arising from the relationship between the two decisions.
Holding and Implications
REFERRED / DIRECTED TO BE PLACED BEFORE A LARGER BENCH: The court directed that the papers be placed before the learned Chief Justice for constituting a larger Bench to decide the questions arising in the batch of matters.
The court also requested early constitution of the larger Bench due to urgency, particularly because matters involving the interpretation and constitutionality of provisions introduced by the Excise and Customs Laws (Amendment) Act, 1991 had been tagged along with these cases. The order, as provided, does not set out broader legal implications beyond facilitating adjudication by a larger Bench.
Order
1. By an order dated 14-8-1985, a Division Bench comprising Hon'ble Mr Justice P.N Bhagwati and Hon'ble Mr Justice Ranganath Misra ordered this group of matters to be placed before a Bench of seven Judges as in their view the decision of the Constitution Bench comprising five Judges in the case of STO v. Kanhaiya Lal Mukundlal Saraf 1959 SCR 1350, AIR 1959 SC 135 required reconsideration. Subsequent to this order, certain other matters also came on to be tagged on with this batch of appeals. While making that order it appears that the attention of the Division Bench was not drawn to a seven-Judge Bench decision in the State of Kerala v. Aluminium Industries Ltd. (1965) 16 STC 689
2. Mr F.S Nariman, the learned counsel who opened the submissions on behalf of the appellants/petitioners, stated that the decision in Kanhaiya Lal case 1959 SCR 1350, AIR 1959 SC 135 has been “expressly approved” on both the points in the case of State of Kerala (1965) 16 STC 689. He placed emphasis on the following observation:
“There is no doubt in view of the decision of this Court in STO v. Kanhaiya Lal 1959 SCR 1350, AIR 1959 SC 135 that money paid under a mistake of law comes within the word ‘mistake’ in Section 72 of the Contract Act and there is no question of estoppel when the mistake of law is common to both the parties, which was the case here inasmuch as the respondent did not raise the question relating to Article 286 of the Constitution and the Sales Tax Officer had no occasion to consider it. In such a case where tax is levied by mistake of law it is ordinarily the duty of the State subject to any provision in the law relating to sales tax (and no such provision has been brought to our notice) to refund the tax. If refund is not made, remedy through court is open ….”
This being the position and in view of the observations extracted above, we feel it desirable that the matters be placed for decision before a larger Bench so that if the aforesaid observations are held to be approving the ratio in Kanhaiya Lal case 1959 SCR 1350, AIR 1959 SC 135 that Bench may not have any difficulty in dealing with contentions which may arise therefrom in these matters in relation to the decision in Kanhaiya Lal case 1959 SCR 1350, AIR 1959 SC 135.
3. We, therefore, in the above circumstances, direct that the papers be placed before the learned Chief Justice for constituting a larger Bench to decide the questions which arise in this batch of matters. Having regard to the urgency of the matters we would request the learned Chief Justice to constitute a larger Bench as early as possible, more so because those matters wherein the interpretation and constitutionality of the provisions introduced by the Excise and Customs Laws (Amendment) Act, 1991 arise, also have been tagged along with these cases.
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