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PETITIONER: MITHAN LAL

       Vs.

RESPONDENT: THE STATE OF DELHI & ANOTHER(with connected petition)

DATE OF JUDGMENT: 07/04/1958

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA BOSE, VIVIAN DAS, SUDHI RANJAN (CJ) DAS, S.K. SARKAR, A.K.

CITATION:  1958 AIR  682            1959 SCR  445

ACT: Sales Tax--Building contracts-Tax on supply of materials  in construction  works-Competence of  Parliament-Delegation  of authority to extend taxation law-Notification by Govenrment- Validity--Bengal Finance (Sales Tax) Act, 1941 (Ben.  VI  of 1941),  SS.  2,  4-Part C States (Laws) Act,  1950  (XXX  of 1950), S. 2 Constitution of India, Arts. 246(4), 248(2).

HEADNOTE: The petitioners were building contractors carrying  on busi- ness in Delhi, which under the Constitution of India  became a Part C State.  In exercise of the power conferred by  Art. 246(4)  of the Constitution,, Parliament enacted the Part  C States  (Laws)  Act,  1950, by virtue  of  which  the  Chief Commissioner  of Delhi issued a notification  extending  the operation  of tile Bengal Finance (Sales Tax) Act, 1941,  to Delhi.   Acting under the provisions of this Act, the  sales tax  officer imposed tax oil the petitioners in  respect  of materials  supplied in execution of the building  contracts. After  paying it for some years the  petitioners  challenged the  validity of the assessment on the grounds, inter  alia, that (1) as there was no sale of materials used in execution of  a building contract, a tax thereon was  not  authorised, and (2) in any event, the provisions of the Act under  which tile  sales  tax  officer  sought  to  levy  the  tax   were unconstitutional and invalid Held,  (1)  It is within tile competence  of  Parliament  to impose  a  tax  on  the  supply  of  materials  in  building contracts and to impose it under the name of sales tax,  and as  Parliament has the power to legislate for Part C  States tile imposition of the tax on the, petitioners is valid. State  of Madras v. Gannot Dunkerley and Co. (Madras)  Ltd., [1939] S.C.R- 379, held inapplicable. (2)  Section 2 of the Part C States (Laws) Act is not repug- nant  to Art. 248(2) on the ground that it conferred on  the Government  authority  to extend a taxation law  to  Part  C States.  When a notification is issued under s. 2 of the Act by the appropriate Government extending the law of a Part  A State to a Part C State, the provisions of the law which  is

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extended become incorporated by reference,in the Act itself, and  therefore a tax;imposed thereunder is a tax imposed  by Parliament. (3)  Section   2   Of,,   the  Act,  is  not   bad   as   an unconstitutional delegation of legislative powers. 57 446 In re The Delhi Laws Act, 1912, [1951] S.C.R. 747, followed. (4)  The expression "enactment which is in force in a Part A State  "  in s. 2 of the Act must be  construed  as  meaning ",statute  which  is  in operation in a part A  State  "  as distinct from a statute which had been repealed, and  cannot be interpreted as having reference to individual sections or provisions of a statute. (5)  The  notification in question whether it is  viewed  as one extending a subsisting statute to Delhi or as  extending it which modifications so far as the impugned provisions are concerned, is intra vires s. 2.

JUDGMENT: ORIGINAL JURTSDTCTION: Petitions Nos. 15 & 16 of 1955. Petitions under Article 32 of the Constitution of India, for enforcement of Fundamental Rights. Radhey Lal Aggarwal, for the petitioners. C.   K.  Daphtary,  Solicitor-Genneral of India  and  R.  H. Dhebar, for the respondents. T.   M.   Sen,   for  the  States  of  Madras   and   Mysore (Interveners). G.   C.  Mathur  and  C.  P. Lal, for the  State  of  U.  P. (Intervener). Sardai, Bahadur, for the State of Kerala  (Intervener). Ratnaparkhi, A. G., for M/s.  Raipur Provincial  Engineering Co. (Intervener). 1958.  April 7. The Judgment of the Court was delivered by VENKATARAMA   AIYAR   J.-The   petitioners   are    building contractors  carrying  on business in Delhi, and  they  have filed  the  present  applications  under  Art.  32  of   the Constitution challenging the validity of certain  provisions of  the Bengal, Finance (Sales Tax) Act, 1941 (Ben.   VI  of 1941),  which had been extended to the State of Delhi  by  a notification dated April 28, The  impugned provisions of the Act may ’now be referred  to Section  2(d)  of the Act defines "goods as  including  "all materials,  articles and commodities, whether or not  to  be used in the construction fitting                         447 out,  improvement or repair of immovable property  Sale"  is defined in s. 2 (g) as including " any transfer of  property in  goods  for cash or deferred payment  or  other  valuable consideration,  including  a transfer of property  in  goods involved       in       the       execution       of       a contract.................................    Section    2(b) defines  "  contract  as  meaning,  omitting  what  is   not relevant, "  any  agreement  for carrying out  for  cash  or  deferred payment  or other valuable  consideration-the  construction, fitting  out, improvement or repair of any  building,  road, bridge or other immovable property." "Sale price" is defined in  s. 2(h)(ii) as meaning valuable consideration  for  "the carrying  out of any contract, less such portion as  may  be prescribed of such amount, representing the usual proportion of  the  cost  of labour to the cost of  materials  used  in carrying  out  such contract " Turnover" is  defined  in  s.

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2(i), and is as follows: "   Turnover  " used in relation to any  period  mean,,  the aggregate  of  the  sale-prices  or  parts  of  sale  prices receivable,  or if a dealer so elects, actually received  by the  dealer during such period after deducting the  amounts, if  any,  refunded  by the dealer in respect  of  any  goods returned by the purchaser within such period." Section   4,  which  is  the  charging  section,   provides, that....................  every dealer whose gross  turnover during  the year immediately preceding the  commencement  of this Act exceeded the taxable quantum shall be liable to pay tax  under this Act on all sales effected after the date  so notified." The  Bengal Finance (Sales Tax) Act, 1941, was a law  passed by  the  Legislature of the Province of Bengal  and  applied only to sales effected within that Province, and, after  the partition of the Country, to sales effected within the State of  West Bengal.  Under the Government of India  Act,  1935, Delhi  was a Chief Commissioner’s Province  administered  by the Governor General, and under the Constitution, it  became a  Part C State, and Art. 239 vested its  administration  in the President acting through a Chief Commissioner 448 or  a  Lieutenant-Governor as he might  think  fit.  Article 246(4)  which  is  material  for  the  present  purposes  as follows: Parliament has power to make laws With respect to any matter for any part of the territory of India not included in  Part A or Part B of the First Schedule notwithstanding that  such matter is a matter enumerated in the State List." In    exercise    of   the   power   conferred    by    this Article,Parliament enacted the Part C States (Laws) Act  No. XXX of 1950, and s. 2 thereof is as follows: "The Central Government may, by notification in the Official Gazette’,  extend to any Part C State (other than Coorg  and the  Andaman  and Nicobar Islands) or to any  part  of  such State, with such restrictions and modifications as it thinks fit,  any enactment which is in force in a Part A  State  at the date of the Notification............." On April 28, 1951, the Chief Commissioner of Delhi issued  a notification  under this section extending the operation  of the  Bengal Finance (Sales Tax) Act, 1941, to Delhi as  from November 1, 1951.  Acting under the provisions of this  Act, the  Sales Tax Officer, Karolbagh, Delhi issued on June  12, 1952,  notices  to  the petitioners calling  upon  them,  to submit returns of their receipts from building contracts and to deposit the taxes due thereon.  In compliance with  these notices,  the petitioners were sending quarterly returns  of their taxable turnover and assessment orders were also  made in respect of their annual turnover for the. years 1951-1952 and 1952-1953, and the amounts due thereunder had also  been paid.   For  the year 1953-1954, the quarterly  returns  had been  submitted  and  the tax  due  thereon  deposited,  and proceedings  were  pending for assessment of  tax  for  that year.   This  was the position when the  Madras  High  Court pronounced its, decision in Gannon Dunkerley & Co. v.  State of  Madras  (1), that the provisions of the  Madras  General Sales Tax Act, 1939, imposing tax on the supply of materials in  construction  works were ultra vires the powers  of  the Provincial Legislature under Entry 48 (1)  [1954] 5 S.T.C. 216. 449 in  List  II,  Sch.  VII to the  Government  of  India  Act, 1935. Basing themselves on this judgment, the petitioners who  had

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been  acting so far on the view that the provisions  of  the Bengal  Finance  (Sales  Tax) Act,  1941,  imposing  tax  on construction contracts were valid and had been paying tax in that  belief, filed Civil Writs Nos. 244-D and, 247 of  1954 in  the Punjab High Court challenging the validity of  those provisions on the ground that there was no sale of materials used  in  execution of a building contract, and that  a  tax thereon  was not authorised by Entry 48.   They  accordingly prayed (a) for a writ of certiorari quashing the assesssment for  the  years 1951-1952 and 1952-1953, (b) for a  writ  of prohibition restraining proceedings for assessment of  sales tax  for  the year 1953-1954 or realisation of any  tax  for that  year,  and (c) for a writ of  mandamus  directing  the respondents   to  forbear  in  future  from  assessing   the petitioners  to  sales tax under  the  impugned  provisions. Both  these petitions were summarily dismissed by  the  High Court on October 18, 1954, and the orders of dismissal,  not having  been  challenged  in  appropriate  proceedings  have become final. Now, the present attempt of the petitioners is to reopen the question  which had been answered against them by  the  High Court  of’ Punjab by resort to proceedings under Art. 32  of the  Constitution.  It is therefore not surprising that  the learned  Solicitor  General appearing  for  the  respondents should  have  taken  preliminary  objections  of  a  serious character  to  the maintainability of these  petitions.   He contended that the petitioners having filed petitions  under Art.  226  claiming  the very reliefs which  they  have  now prayed for and on he very grounds now put forward, and those petitions  having been dismissed and no appeals having  been filed against the orders of dismissal, they had no right  to invoke  the  jurisdiction of this Court under  Art.  32  for obtaining  the same reliefs.  He further contended that  the claim  of the petitioners that the assessments in  question, being 450 unauthorised,   constituted  an  interference   with   their fundamental  right to carry on business under Art 19  (1)(g) could  not be maintained inasmuch as assessment  proceedings had "been completed and the tax realised He also argued that even if the petitioners were right in their contention  that the  assessments were unauthorised, their remedy was to  sue for refund of the taxes paid, and that the applications  for writ  of certiorari to quash the orders of  assessment  were misconceived.   It was further contended that  the  payments having been made, by the petitioners voluntarily-it might be under  a misconception of their rights they had no right  to claim   refund  of  the  amounts  even  by  action.    These contentions raise questions of considerable importance;  but it  is  unnecessary to express our opinion thereon,  as  the petitioners  also pray for a writ of mandamus directing  the respondents  to forbear from imposing sales tax  in  future, and  it will be more satisfactory to decide the case on  the merits. The  contention of the petitioners based on the decision  of the Madras High Court in Gannon Dunkerley & Co. v. State  of Madras (4) is that the State Legislatures acting under Entry 48  have  no competence to enact laws imposing  tax  on  the supply of materials in execution of works contract, as there is  no  sale  of those materials  by  the  contractor.   The decision  in Gannon Dunkerley & Co. v., State of Madras  (1) was taken on appeal to this Court in Civil Appeal No. 210 of 1956,  and  by our judgment, The State of Madras  v.  Gannon Dunkerley  &  Co., (Madras) Ltd.(2) pronounced on  April  1, 1958,  we  have  affirmed it, and if  the  present  case  is

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governed by ’that judgment, the petitioners would clearly be entitled  to  succeed.  But it is contended by  the  learned Solicitor-General  that that decision has no application  to the present petitions’ because the impugned law was  enacted not  by  a  State  Legislature  in  exercise  of  the  power conferred by Entry 54 in List II but by Parliament by virtue of the authority granted by Art. 246(4) of the Constitution, (1) [1954] 5 S.T.C. 216   (2)[1959] S.C.R. 379. 451 and  that it was within the competence of Parliament  acting under,  that  Article,  to impose a tax  on  the  supply  of materials  in building contracts, even though there  was  no sale of those materials within Entry 54. In our opinion,. this contention is well-founded.  Art. 246, Cls.,  (2),  and  (3), of the  Constitution  confer  on  the Legislatures,  of the States mentioned in Parts A and B  the power,  to make laws with respect to the matters  enumerated in Lists II and III of Sch.  VII, and one of those.  matters is  Tax on the sale of goods ", Entry 54 in List II.  It  is with reference to the corresponding Entry in the  Government of  India Act, 1935, Entry 48 in List II, that we have  held in The State of Madras v. Gannon Dunkerley & Co., Madras Ltd (1)  that the power to tax sale of goods conferred  by  that Entry  has reference only to sales as defined in the  Indian sale  of  Goods Act, 1930.  But here, we are  concerned  not with a law of a State, mentioned in Part A or Part But  with that  of  a  State  in  Part C.  Under  Art.  246(4)  it  is Parliament  that  has  the power to  legislate  for  Part  C States,  and that power is untrammelled by  the  limitations prescribed  by Art. 246, Cls. (.2) and (3), and Entry 54  of List II , and is plenary and absolute, subject-only to  such restrictions as are imposed by the Constitution,and there is none  such which is, material to the present  question.   It would therefore be competent to Parliament to impose tax  on the supply of materials in building contracts and to  impose it  under the name of., sales tax, as has been done  by  the Parliament  of  the  Commonwealth of  Australia  or  by  the Legislatures  of the American States.  The decision  in  The State  of Madras v. Gannon Dunkerley Co., Madras Ltd.  which was given on a statute passed by the Provincial Legislature. under  the Government of India Act, 1935, has  therefore  no application to the present case. It  is  argued that though Parliament his’ the  power  under Art.264(4)  to   make  a law imposing  tax  on  construct  a contracts that power is subject to the limitation  contained in Art., 248, that under that Article it is Parliament  that has the exclusive power (1) [1959] S.C.R.379 452 to  enact laws in respect of matters not enumerated  in  the Lists,  including  taxation,  and that such  a  power  could properly  be exercised only by Parliament itself imposing  a tax and not by its extending the operation of a taxation law passed by the Legislature of a State ; and that s. 2 of  the Part  C  States (Laws) Act must be held to be bad  as  being repugnant  to  Art. 48(2) in so far as it conferred  on  the Government  authority  to extend a taxation law  to  Part  C States.  This argument proceeds on a misapprehension of  the true  scope of Art. 248.  That Article has reference to  the distribution  of legislative powers between the  Centre  and the States mentioned in Parts A and 13 under the three Lists in Sch.  VII, and it provides that in respect of matters not enumerated in the Lists including taxation, it is Parliament that has power to enact laws.  It has no application to Part C States, for which the governing provision is Art.  246(4).

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Moreover,  when a notification is issued by the  appropriate Government  extending the law of a Part A State to a Part  C State, the law so extended derives its force in the State to which  it is extended from s. 2 of the Part C States  (Laws) Act  enacted  by Parliament.  The result of  a  notification issued under that section is than, the provisions of the law which  is extended become incorporated by reference, in  the Act itself, and therefore a tax imposed thereunder is a  tax imposed  by Parliament.  There is thus no substance in  this contention. It is next contended for the petitioners that even  assuming that Parliament was competent to impose a tax on the  supply of  materials in a building contract and that could be  done by  a notification extending the law of a Part A State,  the notification  dated  April  28, 1951, is, in so  far  as  it relates  to  the  impugned  provisions,  in  excess  of  the authority conferred by s. 2, because that section limits the authority of the central Government to extend laws of Part A States  to  Part C States, to " any enactment  which  is  in force  "  at  the  date of the  notification,  and,  as  the impugned  provisions of the Bengal Finance (Sales Tax)  Act, 1941, were ultra vires Entry 48 under which the Legislature 453 of the Province of Bengal derived its power to impose  sales tax, they were not " in force " in the State of West  Bengal at the date of the notification, and could not therefore  be extended   to  the  State  of  Delhi.   According   to   the petitioners, " enactment in force" in s. 2 must be construed as  meaning  provisions  of a statute which  are  valid  and enforceable.   We are unable to agree with this  contention. Though  the  language  of s. 2 might, in  the  abstract,  be susceptible  of the construction which the petitioners  seek to put upon it, in the context that is not, in our  opinion, its true meaning.  What is intended by that section is  that with  reference to different topics of legislation on  which the several States in Part A had enacted different statutes, the  authority acting under s. 2 should have the  discretion to extend that statute in any of the Part A States which  is best suited to the conditions in the particular Part C State to  which  it  is to be extended,  and  that,  further,  the authority  should have the power to extend it with  suitable it restrictions and modifications ". It could not have  been intended by this section that the authority concerned should take upon itself to examine, the vires of each and every one of the provisions in the statute, and then extend only  such of  them  as  it considers to be valid.  In  our  view,  the expression " enactment which is in force in a Part A State " must be construed as meaning " statute which is in operation in a Part A State" as distinct from a statute which had been repealed and it cannot be interpreted as having reference to individual sections or provisions of a statute. But even if we accept the narrow construction contended  for by  the petitioners, that would not make any  difference  in the  result,  as  the authority conferred by  s.  2  on  the Government to extend the enactments in force in Part A State includes   a   power  to  do  so   with   restrictions   and modifications,  and  it  was within the  competence  of  the Government  acting on this provision to incorporate  on  its own authority the impugned provisions by way of modification of  the  Bengal Finance (Sales Tax) Act, 1941.  It  is  said that, 58 454 the notification does not, as a fact, purport to modify  the Bengal Act, but merely extends the whole of it on a mistaken

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notion that it is all valid.  But that does  not affect  the position.  The notification intends that all the  provisions of the Bengal Finance (Sales Tax) Act, 1941, should  operate in  the State of Delhi, and if that could be effectuated  by recourse being had to any of the powers of the  Legislature, that should be done and the legislation upheld as  referable to that power. Ut res magis valeat quam pereat. It is lastly urged that s. 2 of the Part C States (Laws) Act is  bad for the reason that it confers on the  Government  a power to modify laws passed by State Legislatures, and  that it  is an unconstitutional delegation of legislative  powers to authorise an outside authority to modify a law enacted by a  Legislature  on what are essentially matters  of  policy. Now, it should be noted that in re The Delhi Laws Act,  1912 etc.  (1) one of the questions referred for the  opinion  of this Court related to the vires of this very provision,  and the answer of the majority of this Court was that the  first portion  of the section, which is what is material  for  the present discussion, was valid.  Counsel for the petitioners, however,  relies on the decision of this Court in  Rajnarain Singh v. The Chairman, Patna Administration Committee, Patna and  another  (2),  wherein it was held  than  an  executive authority could be authorised by a statute to modify  either existing  or future laws but not in any  essential  feature, and that a modification which involved a change of policy of the Act would be bad.  It is argued that it is a question of policy  whether  taxes should be imposed on  the  supply  of materials  in building contracts, and that,  therefore,  the power  conferred by s. 2 on the Government to extend  a  law with  modifications  cannot be exercised so as to  modify  a provision  of  the Bengal Finance. (Sales  Tax)  Act,  1941, relating  to that matter.  The answer to this contention  is that  the  modification  made  by  the  Central  Government, assuming  that is its true character, does not  involve  any change  of policy underlying the Bengal Finance (Sales  Tax) Act,  1941.   Indeed, the modification gives effect  to  the policy of that (1) [1951] S.C.R. 747. (2) [1955] 1 S.C.R. 290. 455 enactment  which was to bring construction contracts  within the  ambit  of the taxation powers of the State,  and  which failed  only for want of legislative authority.  Whether  we view the notification as one extending a subsisting  statute to Delhi or as extending it with modifications so far as the impugned provisions are concerned, it is intra vires S. 2. failed, the petitions are dismissed with costs. Petitions dismissed.