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PETITIONER: PANDIT BANARSI DAS BHANOT

       Vs.

RESPONDENT: THE STATE OF MADHYA PRADESH& OTHERS(and connected appeals)

DATE OF JUDGMENT: 03/04/1958

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  909            1959 SCR  427

ACT: Sales  Tax-Building  contracts-Tax on supply  of  materials- Validity--Statute Providing for exemption from taxation, but also   enabling  Government  to  amend  such  exemption   by notification--Constitutionality-Central Provinces and  Berar Sales Tax Act, 1947 (C.P. & Berar 21 Of 1947), SS. 2,  4(a), 6(1)(2).

HEADNOTE: section  4(a) of the Central Provinces and Berar  Sales  Tax Act;  1947,  provided  that  every  dealer  whose   turnover exceeded  certain  limits  shall be liable  to  pay  tax  in accordance  with  the  provisions of the Act  on  all  sales effected after the commencement 428 of the Act ; and by S. 2(g) Of the Act, " sale ... means any transfer of property in goods . . . including a transfer  of property  in  goods  made in course of the  execution  of  a contract......  Under s. 6(1) of the Act no tax was  payable on the sale of goods specified in Sch. 11 to the Act and  s. 6(2)  enabled the State Government by notification to  amend the  schedule.  Item 33 in Sch. 11 as amended by Act XVl  of 1949  and as adapted by the Adaptation Order of 195o, was  " Goods  sold to or by the State Government ". In exercise  of the  power conferred by s. 6(2) of the Act,  the  Government issued  a notification on September 18, 1950, amending  item 33  by  substituting  the words " Goods sold  by  the  State Government ". The   appellant,   a  contractor  doing  business   in   the construction  of  buildings and roads for the  Military  and Public  Works  Department in the State  of  Madhya  Pradesh, challenged   the  validity  of  the  assessment  which   the respondent  proposed  to  make on the  appellant  under  the provisions of the Central Provinces and Berar Sales Tax Act, 1947, on the grounds (1) that the Provincial Legislature had no  authority  under Entry 48 Of List II, Sch.  VII  of  the Government of India Act, 1935, to impose a tax on the supply of  materials in works contracts and that the provisions  of that Central Provinces and Berar Sales Tax Act which  sought

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to  impose  a tax thereon treating it as a sale  were  ultra vires, and (2) that he was entitled to exemption under  item 33 in Sch. 11, to tile Act and that the notification of  the Government  dated  September  18,  1950,  withdrawing   that exemption was bad as being an unconstitutional delegation of legislative authority : Held,  that the expression "sales of goods" in Entry 48  has the  same meaning which it had in the Indian Sale  of  Goods Act,  1930, that in a building contract there is no sale  of materials as such, and that it is therefore ultra vires  the powers  of the Provincial Legislature to impose tax  on  the supply of materials. The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [1959] S.C.R. 379, followed. Per Das C. J., Venkatarama Aiyar, S. K. Das and A. K. Sarkar JJ-It  is not unconstitutional for the legislature to  leave it  to  the executive to determine details relating  to  the working  of taxation laws, such as the selection of  persons on  whom the tax is to be laid, the rates at which it is  to be charged in respect of different classes of goods, and the like.   The  power conferred on the State Government  by  s. 6(2) of the Act to amend the Schedule relating to  exemption is  in  consonance with the  accepted  legislative  practice relating to the topic, and is not unconstitutional. Sub-sections (1) and (2) of s. 6 together form integral part of  a  single  enactment the object of  which  is  to  grant exemption from taxation in respect of such goods and to such extent  as may from time to time be determined by the  State Government, and an                      429 exemption  granted under s. 6(1) is conditional and  subject to any notification that might be issued under s. 6(2).  The notification  dated September 18, 1950, is  therefore  intra vires.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals-Nos.253 to  255 of 1955. Appeals  from  the judgment and decree  dated  November  30, 1954,  of the former Nagpur High Court in  Misc.   Petitions Nos. 245, 279 and 308 of 1954. N.   C. Chatterjee and G. C. Mathur, for the appellant in C. A. No. 253 of 1955. G.   C. Mathur, for the appellant in C. A. Nos. 254 and  255 of 1955. B.   Sen, S. B. Sen and 1. N. Shroff, for the respondents in C.  A. Nos. 253 and 254 of 1950 and for the State of  Madhya Pradesh (Intervener). C.   K. Daphtary, Solicitor-General of India and R.    H. Dhebar, for the respondents in C. A. No. 255 of 1955 and for the State of Bombay (Intervener). N.   S.  Bindra  and  T. M. Sen, for  the  State  of  Punjab (Intervener). 1958.  April 3. The judgment of S. R. Das C. J., Venkatarama Aiyar,  S.  K.  Das and A. K. Sarkar JJ.  was  delivered  by Venkatarama Aiyar J. Bose J. delivered a separate judgment. VENKATARAMA AIYAR J.-These are appeals against the  judgment of  the High Court of Nagpur in writ applications  filed  by the appellants impugning the validity of certain  provisions of  the Central Provinces and Berar Sales Tax Act, 1947  (C. P. & Berar 21 of 1947), hereinafter referred to as the  Act, imposing sales tax on materials used in construction works. It  will be convenient to refer to these provisions at  this

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stage.   Section  2(b) of the Act defines "  contract  "  as including  "  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  or  the installation or repair of any machinery 430 affixed to a building or other immovable property ". Section 2(c) of the Act defines " dealer " as including a person who carries on the business of supplying goods.  In s. 2 (d),  " goods  " are defined as including " all materials,  articles and   commodities  whether  or  not  to  be  used   in   the construction,   fitting  out,  improvement  or   repair   of immovable property ". Section 2(g) defines sale " as follows: "  " Sale " with all its grammatical variations and  cognate expressions means any transfer of property in goods for cash or   deferred  payment  or  other  valuable   consideration, including a transfer of property in goods made in course  of the  execution  of  a  contract,  but  does  not  include  a mortgage,  hypothecation,  charge or pledge;  and  the  word ’purchase’ shall be construed accordingly.  " Section 2(h) defines " sale price " as including the  amount payable  to  a  dealer as  valuable  consideration  for  the carrying   out   of  any  contract,   less   such   portion, representing  the  proportion of the cost of labour  to  the cost  of materials, used in carrying out such  contract,  as may  be prescribed.  " Turnover " is defined in s.  2(j)  as including the aggregate amount of the sale price received or receivable by a dealer in respect of the supply of goods  in the  carrying out of any contract.  The charging section  is s.  4(a),  and  it  provides  that  dealers  whose  turnover exceeded  certain  limits  shall be liable  to  pay  tax  in accordance  with  the  provisions of the Act  on  all  sales effected  after the commencement of the Act.  Rule 4 of  the Sales  Tax Rules, 1947, provides that " in  calculating  the sale price for the purpose of sub-cl. (ii) of cl. (h) of  s. 2,  a  dealer may be permitted to deduct  from  the  amounts payable to him as valuable consideration for carrying out  a contract,  a  sum not exceeding such percentages as  may  be fixed by the Commissioner for different areas subject to the following maximum percentages ", and then follows a scale of percentages to be allowed in respect of different classes of contracts. Acting  on  these provisions,  the  authorities  constituted under  the Act called upon the contractors within the  State to furnish returns in respect of their receipts                   431 from  contract works for the purpose of assessment of  sales tax,  to  which the appellants replied  by  instituting  the proceedings,  out of which the present appeals  arise.   The appellant  in Civil Appeal No. 253 of 1955 is  a  contractor doing  business in the construction of buildings  and  roads for the Military and Public Works Department in the State of Madhya  Pradesh,  and  he  filed  M.  P.  No.  245  of  1954 challenging  the  validity  of  the  assessment  which   the respondents proposed to make, on two grounds.  He  contended firstly that the Provincial Legislature had authority  under Entry  48 of List 11, Sch.  VII of the Government  of  India Act,  1935,  to impose tax only on sale of goods,  that  the supply of materials in works contracts was not a sale within that Entry, and that the provisions of the Act, which sought to  impose  a  tax  thereon treating  it  as  a  sale,  were therefore ultra vires; and secondly that he was entitled  to exemption under item 33 in Sch. 11 to the Act as enacted  by

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Act XVI of 1949, and that the notification of the Government dated  September  18, 1950, withdrawing that  exemption  was unconstitutional  and void.  To appreciate this  contention, it  is  necessary to refer to s. 6 of the Act, which  is  as follows: 6  (1) " No tax shall be payable under this Act on the  sale of  goods  specified in the second column  of  Schedule  11, subject to the conditions and exceptions, if any, set out in the corresponding entry in the third column thereof. (2)  The State Government may, after giving by  notification not  less than one month’s notice of their intention  so  to do,  by  a notification after the expiry of  the  period  of notice  mentioned  in the first  notification  amend  either Schedule, and thereupon such Schedule shall be deemed to  be amended accordingly." Item 33 in Sch. 11 as originally enacted was " Goods sold by the  Crown  ".  This  was amended by  Act  XVI  of  1949  by substituting  for the above words " Goods sold to or by  the Crown  ". By an Adaptation Order of 1950, the  words  "State Government" were substituted for "Crown", and item 33 became "Goods sold to or by the State Government " In exercise of 432 the power conferred by s. 6 (2) of the Act, the State issued a  notification on September 18, 1950, amending item  33  by substituting  for the words " Goods sold to or by the  State Government " the words " Goods sold by the State  Government ".  The  resultant position is that the  appellant  who  was entitled  to exemption under Act XVI of 1949 in  respect  of goods  sold  to the Government could no longer claim  it  by reason  of the notification aforesaid.  Now, the  ground  of his  attack  was that it was not open to the  Government  in exercise of the authority delegated to it under s. 6 (2)  of the Act to modify or alter what the Legislature had enacted. The appellant accordingly claimed that the proceedings which the respondents proposed to take for assessment of sales tax were incompetent, and prayed that an appropriate writ  might be issued restraining them from proceeding with the same. In  Civil  Appeal No. 254 of 1955, the  appellants  are  the Jabalpur  Contractors’  Association, which is  a  registered body  and certain contractors, and they filed M. P. No.  279 of 1954 questioning the validity of the proposed  assessment on  the  same  grounds as in M. P. No.  245  of  1954.   The appellant  in  Civil Appeal No. 255 of 1955, is  the  Madhya Pradesh  Contractors’ Association, Nagpur, which is again  a registered  body,  and  it  filed M. P.  No.  305  of  1954, challenging  the legality of the proceedings for  assessment on the same grounds as in M. P. No. 245 of 1954. All these three petitions were heard together, and by  their judgment  dated November 30, 1954, the learned  Judges  held that  the expression " sale of goods" in Entry 48  was  wide enough  to  coverall transactions in which property  in  the moveables  passed from one person to another for money,  and that,  accordingly, in a building contract there was a  sale within Entry 48 of the materials used therein, and that  the provisions of the Act imposing tax thereon were valid.   But the  learned Judges also held that the tax could  be  levied only  on the actual value of the materials to be  determined on an enquiry into the matter, and that the definition of  " price " in s. 2 (h) (ii) and r. 4 framed pursuant thereto were ultra vires 433 in that they laid down artificial rules for fixing the  same by  deducting  certain  percentages from out  of  the  total receipts on account of labour.  As regards the  notification dated  September 18, 1950, the learned Judges held  that  it

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was  within the authority conferred by the statute  and  was valid.   In the result, the impugned provisions of  the  Act were held to be valid except as to the definition of " price "  in s. 2 (h) (ii) and r. 4 of the Sales Tax  Rules,  1947. It is against this judgment that the above appeals have been preferred  on a certificate granted by the High Court  under Art. 132(1) of the Constitution. Two contentions have been urged in support of the appeals  : (1)  that  the Provincial Legislature has  no  authority  in exercise of its power under Entry 48 to impose a tax on  the supply of materials in works contracts as such supply cannot be  said to be also of those materials within that  Entry  ; and  (2) that the notification dated September 18, 1950,  is bad  as  being an constitutional delegation  of  legislative authority. As  regards  the  first  contention,  the  question  is  now concluded  by  the decision of this Court in  The  State  of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. (1) in  which it  has been held that the expression " sale of goods  "  in Entry  48  has the same meaning which it has in  the  Indian Sale  of Goods Act, 1930, that in a building contract  there is  no sale of materials as such, and that it  is  therefore ultra  vires  the powers of the  Provincial  Legislature  to impose tax on the supply of materials.  Mr. B. Sen appearing for the respondents has argued that even if the expression " sale of goods " in Entry 48 is construed in the sense  which it  has  in  the Sale of Goods Act, that  might  render  the impugned  provisions of the Act ultra vires only in  respect of  a building contract which is one and  indivisible,  that there might be contracts which might consist of two distinct agreements,  one for the sale of materials and another,  for work  and  labour,  and that in such a  case,  it  would  be competent  to  the  State  to impose  tax  on  the  sale  of materials even construing that word in its (1)  [1959] S.C.R. 379. 55 434 narrow sense, and that these are matters which must be  left to  be  investigated by the appropriate  authorities.   That undoubtedly is the correct legal position as observed in The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. (1), and  accordingly,  when a question arises as  to  whether  a particular works contract could be charged to sales tax,  it will  be  for  the authorities under the  Act  to  determine whether   the  agreement  in  question  is,  on   its   true construction,  a combination of an agreement to sell and  an agreement  to work, and if they come to the conclusion  that such is its character, then it will be open to them to  pro- ceed  against  that part of it which is a contract  for  the sale of goods, and impose tax thereon. (2)  We  have  next  to consider  the  contention  that  the notification   dated   September  18,  1950,   is   bad   as constituting  an unconstitutional delegation of  legislative power.  In the view which we have expressed above that there is  in  a works contract no sale of materials  as  such,  it might  seem  academic  to enter into a  discussion  of  this question  ; but as there may be building contracts in  which it  is  possible  to spell out agreements for  the  sale  of materials as distinct from contracts for work and labour, it becomes  necessary  to express our  decision  thereon.   Mr. Chatterjee  appearing for the appellant in Civil Appeal  No. 253  of 1955 contends that the notification in  question  is ultra  vires  because  it  is a  matter  of  policy  whether exemption  should  be granted under the Act or  not,  and  a decision  on that question must be taken only by the  Legis-

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lature,  and  cannot  be left to  the  determination  of  an outside  authority.  While a power to execute a law, it  was argued,  could be delegated to the executive, the  power  to make  it  must be exercised by the Legislature  itself,  and reliance was placed on the observations in Hampton J R & Co. v.  United States (2), Panama Refining Co. v. Ryan (3),  and Schechter v. United States (4), as supporting this position. It  was  also  contended that the grant of  a  power  to  an outside authority to (1) [1959] S.C.R. 379. (2) 276 U. S. 394; 72 L. Ed. 624, 629. (3)  293 U.S. 388; 79 L. Ed. 446, 458. (4)  295 U.S. 495; 79 L. Ed. 1570. 435 repeal  or  modify a provision in a statute  passed  by  the legislature was unconstitutional, and that, in  consequence, the  impugned notification was bad in that, in  reversal  of the  policy laid down by the legislature in Act XVI of  1949 that  sales  to  Government  should  be  excluded  from  the operation  of the Act, it withdrew the exemption  which  had been  granted  thereunder, and the observations  in  re  The Delhi Laws Act, 1912 etc. (1), and the decision in Rajnarain Singh v. The Chairman, Patna Administration Committee, Patna and  another  (2), were strongly relied on  as  establishing this  contention.  Mr. N. C. Chatterjee particularly  relied on  the  following  observations of Bose J.  at  p.  301  in Rajnarain Singh’s case (2) : "  In our opinion, the majority view was that  an  executive authority  can  be authorised to modify either  existing  or future laws but not in any essential feature.  Exactly  what constitutes  an  essential feature cannot be  enunciated  in general  terms, and there was some divergence of view  about this  in  the former case, but this much is clear  from  the opinions  set  out  above; it cannot  include  a  change  of policy." On  these  observations,  the  point  for  determination  is whether  the  impugned notification relates to what  may  be said  to be an essential feature of the law, and whether  it involves  any  change of policy.  Now, the  authorities  are clear that it is not unconstitutional for the legislature to leave  it to the executive to determine details relating  to the  working  of  taxation laws, such as  the  selection  of persons on whom the tax is to be laid, the rates at which it is  to be charged in respect of different classes of  goods, and the like. In  Powell  v. Appollo Candle Company Limited  the  question arose as to whether s. 133 of the Customs Regulation Act  of 1879  of  New  South Wales which conferred a  power  on  the Governor to impose tax on certain articles of import was  an unconstitutional  delegation  of  legislative  powers.    In holding that it was not, the Privy Council observed: "It is argued that the tax in question has been (1)  [1951] S.C.R. 747, 787, 982, 984- (3)  (1885) 10 A.C. 282. (2) [1955] 1 S.C.R. 290. 436 imposed by the Governor and not by the Legislature who alone had  power  to impose it.  But the duties levied  under  the Order-in-Council  are really levied by the authority of  the Act  under which the Order is issued.  The  Legislature  has not  parted with its perfect control over the Governor,  and has  the power, of course, at any moment, of withdrawing  or altering  the  power which they have entrusted to  him.   In these circumstances, their Lordships are of opinion that the judgment of the Supreme Court was wrong in declaring Section

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133  of the Customs Regulation Act of 1879 to be beyond  the power of the Legislature." In  Syed  Mohamed  & Co. v. The State  of  Madras  (1),  the question was as to the vires of rules 4 and 16 framed  under the  Madras General Sales Tax Act.  Section 5 (vi)  of  that Act had left it to the rule-making authority to determine at which  single  point in the series of  sales  by  successive dealers  the  tax should be levied,  and  pursuant  thereto, rules  4 and 16 had provided that it was the  purchaser  who was  liable to pay the tax in respect of sales of hides  and skins.  The validity of the rules was attacked on the ground that  it  was  only the legislature that  "as  competent  to decide  who  shall be taxed, and that the  determination  of that  question  by  the rule-making  authorities  was  ultra vires.  The Madras High Court rejected this conntetion,  and held  on a review of the authorities that the delegation  of authority   under   s.  5  (vi)  war,   within   permissible constitutional limits. In Hampton J. R. & Co. v. United States (2), which was cited on  behalf of the appellant, the question arose  whether  s. 315(b)  of the Tariff Act, 1922, under which  the  President had  been empowered to make such increases and decreases  in the  rates of duty as were found necessary for carrying  out the policies declared in the statute was an unconstitutional delegation,  and the decision was that such  delegation  was not unconstitutional.  We are therefore of the opinion  that the  power conferred on the State Government by s.  6(2)  to amend  the schedule relating to exemption is  in  consonance with  the  accepted  legislative practice  relating  to  the topic, and is not unconstitutional. (1) (1952) 3 S.T.C. 367 (2) 276 U.S. 394 ; 72 L. Ed. 624, 629. 437 The  contention  of the appellant that the  notification  in question  is  ultra  vires must, in  our  opinion,  fail  on another ground.  The basic assumption on which the  argument of  the  appellant proceeds is that the power to  amend  the schedule conferred on the Government under s. 6(2) is wholly independent  of the grant of exemption under s. 6(1) of  the Act,  and that, in consequence, while an exemption under  s. 6(1)  would  stand, an amendment thereof by  a  notification under  s. 6(2) might be bad.  But that, in our  opinion,  is not the correct interpretation of the section.  The two sub- sections together form integral parts of a single enactment, the  object of which is to grant exemption from taxation  in respect of such goods and to such extent as may from time to time  be determined by the State Government.  Section  6(1), therefore, cannot have an operation independent of s.  6(2), and an exemption granted thereunder is conditional and  sub- ject to any modification that might be issued under s. 6(2). In  this view, the impugned notification is intra vires  and not open to challenge. But  on our finding on the first question that the  impugned provisions  of  the Act are ultra vires the  powers  of  the Provincial  Legislature  under Entry 48 in List  11  in  the seventh  Schedule,  we should set aside the  orders  of  the Court  below, and direct that the respondents be  restrained from  enforcing the provisions of the Central Provinces  and Berar Sales Tax Act, 1947, in so far as they seek to  impose a  tax  on  construction works.  It should  be  made  clear, however,  in  accordance with what we have  already  stated, that  the prohibition against imposition of tax is  only  in respect  of contracts which are single and  indivisible  and not  of  contracts  which  are  a  combination  of  distinct contracts  for  sale  of materials and for  work,  and  that

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nothing  that  we have said in this judgment shall  bar  the sales  tax authorities from deciding "whether  a  particular contract falls within one category or the other and imposing a  tax  on  the agreement of sale of  materials,  where  the contract  belongs to the latter category.  The parties  will bear their own costs throughout, 438 BOSE  J.-I  agree  except that I prefer not  to  express  an opinion  about  the validity of the power conferred  on  the State  Government  by s. 6(2) of the Central  Provinces  and Berar Sales Tax Act, 1947, to amend the schedule in the  way in which it has been amended here.  I would leave that  open for future decision.                Appeals allowed.