1. Challenge to the validity of sales tax on materials used in construction works under the Central Provinces and Berar Sales Act, 1947. (Para 1 , 2 , 3 )
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1958 Supreme(SC) 46
SUPREME COURT OF INDIA
3rd April, 1958.
S.R. DAS, C.J.I., T.L. VENKATARAMA AYYAR, S.K. DAS, A.K. SARKAR AND VIVIAN BOSE, JJ.
(1) Pandit Banarsi Das Bhanot (in C. A. No. 253 of 55); (2) Jabalpur Contractors Association and others (in C. A. No. 254 of 55); (3) M.P. Contractors Association (in C. A. No. 55 of 55). Appellants
Versus
(1) The State of M.P. and others (in C. As. Nos. 253 and 254 of 55); (2) The Sales Tax Officer, Nagpur and others (in C. A. No. 255 of 55), Respondents.
1. The State of Madhya Pradesh (in C. A. No. 255 of 55); (2) The State of Bombay (in C. As. Nos. 253 and 254 of 55); (3) Advocate-General for the State of Punjab (in C. A No. 255 of 55). Interveners.
Civil Appeals Nos. 253 to 255 of 1955.
Advocates appeared
Mr. N. C. Chatterjee, Senior Advocate, (Mr. G. C. Mathur, Advocate, with him), for Appellant (In C. A. No. 253 of 55); Mr. G. C. Mathur, Advocate, for Appellants (In C. As. Nos. 254 and 255 of 55); Mr. B. Sen, Senior Advocate, M/s. S. B. Sen and I. N. Shroff, Advocates, with him), for Respondents (In C. As. Nos. 253 and 254 of 55) and Intervener No. 1 (In C. A. No. 255 of 55); Mr. C. K. Daphtary Solicitor-General of India, (Mr. R. H. Dhebar, Advocate, with him), for Respondents (In C. A. No. 255 of 55) and Intervener No. 2 (In C. As. Nos. 253 and 254 of 55); Mr. N. S. Bindra, Senior Advocate, (Mr. T. M. Sen, Advocate, with him), for Intervener Nos. 3 (In C. A. No. 255 of 55).
Advocates:
B.SEN, C.K.DAFTARY, G.C.MATHUR, I.M.SHROFF, N.C.CHATTERJI, N.S.BINDRA, R.H.Dhebar, S.B.SEN, T.M.SEN
B.SEN, C.K.DAFTARY, G.C.MATHUR, I.M.SHROFF, N.C.CHATTERJI, N.S.BINDRA, R.H.Dhebar, S.B.SEN, T.M.SEN
In an indivisible works contract, the supply of materials is not a "sale of goods" taxable under sales tax laws. However, divisible contracts containing a separate agreement for the sale of materials are taxable. Delegation of tax exemption powers to the executive is constitutionally permissible.
Headnote:(A) Sales Tax Act - Sections 2(b), 2(g), 2(h), 4(a), 6(1), 6(2) - Government of India Act, 1935 - Entry 48, List II, Schedule VII - Sale of Goods Act, 1930 - Tax on materials used in construction works - Whether supply of materials in a works contract constitutes a "sale of goods" - Held: The expression "sale of goods" has the same meaning as in the Sale of Goods Act, 1930. In a building contract which is one and indivisible, there is no sale of materials as such, and it is ultra vires the powers of the Provincial Legislature to impose tax on the supply of materials. However, if the agreement is a combination of an agreement to sell and an agreement to work, the part constituting a contract for the sale of goods is taxable. (Paras 7, 12)
(B) Delegation of Legislative Power - Power to amend schedule relating to exemptions - Whether notification withdrawing exemption is an unconstitutional delegation of legislative authority - Held: 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 or rates of charge. The power to amend the exemption schedule is in consonance with accepted legislative practice and is not unconstitutional. (Paras 7, 10, 11)
Facts of the case:
Contractors challenged the validity of provisions of a sales tax act imposing tax on materials used in construction works. One appellant further challenged a government notification that withdrew a previously granted tax exemption for goods sold to the state government, arguing that the power to modify or alter legislative enactments had been unconstitutionally delegated to the executive.
Findings of Court:
The court found that the provisions imposing tax on construction works were ultra vires the powers of the Provincial Legislature, except in cases where the contract is a combination of distinct agreements for the sale of materials and for work. The notification withdrawing the tax exemption was held to be valid and within the authority conferred by the statute, as the exemption was conditional and subject to modification.
Issues: (1) Whether the supply of materials in works contracts constitutes a "sale of goods" under the relevant entry of the Government of India Act, 1935; (2) Whether the delegation of power to the executive to amend tax exemption schedules is unconstitutional.
Ratio Decidendi: The expression "sale of goods" must be construed as per the Sale of Goods Act, 1930; thus, an indivisible works contract does not involve a sale of materials. Regarding delegation, the executive can be authorized to determine operational details of taxation laws, and an exemption granted by statute is conditional and subject to modification by the executive if the statute provides such power.
Result: Appeals allowed.
Legal Category Hierarchy
Table of Contents
2. Whether taxing materials in works contracts is ultra vires Entry 48, List II, and whether delegating power to amend tax exemptions is unconstitutional. (Para 3 , 6 )
3. The court found that works contracts are generally indivisible and not sales of materials, while delegation of tax exemption details to the executive is permissible. (Para 2 , 7 , 8 , 9 , 10 , 11 )
4. In a building contract, there is no sale of materials as such; taxing such supply is ultra vires the Provincial Legislature's power under Entry 48. (Para 7 )
5. Appeals allowed; respondents restrained from imposing sales tax on construction works, except where contracts are combinations of distinct sale and work agreements. (Para 12 )
6. Can a Provincial Legislature impose sales tax on the supply of materials in a works contract under Entry 48, List II?
No, because the expression sale of goods in Entry 48 has the same meaning as in the Sale of Goods Act, 1930. In a building contract, there is no sale of materials as such, making such a tax ultra vires. (Para 7 )
7. When can sales tax be imposed on materials used in a construction contract?
Tax can be imposed if the agreement is, on its true construction, a combination of a distinct agreement to sell materials and a separate agreement for work and labour. (Para 7 , 12 )
8. Is it unconstitutional for the legislature to delegate power to the executive to amend schedules relating to tax exemptions?
No, it is in consonance with accepted legislative practice to leave details of taxation laws, such as the selection of exempt persons or goods, to the executive. (Para 2 , 8 , 9 , 10 , 11 )
Judgment
T. L. 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 Act No. XXI of 1947, hereinafter referred to as the Act, imposing sales-tax on materials used in construction works.
2. It will be convenient to refer to these provisions at this 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 affixed to a building or other immovable property." Section 2 (c) of the Act defines "dealer" as including a person who carried 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.
3. 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 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 in 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 II, 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. II to the Act as enacted by Act XVI of 1949, and that the notification of the Government dated 18-9-1950 withdrawing that exemption was unconstitutional and vo
