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SUPREME COURT OF INDIA
13th August, 1963
S.K. DAS, ACTG. C.J.I.,K. SUBBA RAO, RAGHUBAR DAYAL, N. BAJAGOPALA AYYANGAR AND J.R. MUDHOLKAR, JJ.
South India Corporation (P) Ltd. (In all the Appeals), Appellant
Versus
Secretary, Board of Revenue, Trivandrum and another ( In all the Appeals) Respondents.
Civil Appeals Nos. 295 to 298 of 1962.
Advocates Appeared
Mr. M. K. Nambiar, Senior Advocate, (M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., with him), for Appellant (In all Appeals); Mr. V. P. Gopalan Nambiar, Advocate General, for the State of Kerala, Mr. Sardar Bahadur, Advocate, with him), for Respondents (In all Appeals.) 209
SALES TAX - Works contracts - Travancore-Cochin General Sales Tax Act (11 of 1125 M. E.) - Whether unconstitutional - Whether saved by Art. 277 of the Constitution - Whether agreement under Art. 278 of the Constitution could be entered into in respect of the tax - Whether the impugned Act continued in force under Art. 372 of the Constitution - Held, (i) the impugned Act was unconstitutional and void, (ii) Art. 277 of the Constitution could not be relied upon by the respondent, (iii) an agreement could be entered into under Art. 278 of the Constitution in respect of the tax, (iv) the impugned Act did not continue in force under Art. 372 of the Constitution.
Fact of the Case:
The appellant, a private limited company, carried on business in iron, hardware, electrical goods, timber, coir engineering contracts etc. In the course of its business, the company acted as engineering contractor for the State and Central Government departments and also for private parties. The Sales Tax Officer, Special Circle, Ernakulam, assessed the Company to sales tax under the Travancore-Cochin General Sales Tax Act, 1125 M. E. for the assessment year 1952-53 in respect of "works contracts." The Company filed a revision petition before the 1st respondent, but it was rejected. The 2nd respondent assessed the Company to sales tax by his orders dated 7-1-1960, 4-1-1960 and 31-3-1960 for the assessment years 1956-57, 1957-58 and 1958-59 in respect of "works contracts." The appellant filed four petitions in the High Court of Kerala under Arts. 226 and 227 of the Constitution for quashing the said orders of assessment. The main contention advanced on behalf of the appellant-Company before the High Court was that, after the Constitution came into force the relevant Sales Tax Acts imposing sales tax on "works contracts" were unconstitutional and, therefore, void. The High court rejected the contention and dismissed the petitions with costs. Hence the appeals.
Finding of the Court:
The impugned Act was unconstitutional and void; Art. 277 of the Constitution could not be relied upon by the respondent; an agreement could be entered into under Art. 278 of the Constitution in respect of the tax; the impugned Act did not continue in force under Art. 372 of the Constitution.
Issues: Whether the impugned Act was unconstitutional; Whether Art. 277 of the Constitution could be relied upon by the respondent; Whether an agreement could be entered into under Art. 278 of the Constitution in respect of the tax; Whether the impugned Act continued in force under Art. 372 of the Constitution.
Ratio Decidendi: 1. The impugned Act was unconstitutional and void, as it imposed a tax on "works contracts" which was a federal subject and, therefore, beyond the legislative competence of the State Legislature under the Constitution. 2. Art. 277 of the Constitution could not be relied upon by the respondent, as the tax in question was not lawfully levied by the State immediately before the commencement of the Constitution. 3. An agreement could be entered into under Art. 278 of the Constitution in respect of the tax, as the said article empowered the Union and a B State to enter into an agreement with respect to levy and collection of any tax leviable by the Government of India in such State and for the distribution of the proceeds thereof and also in respect of the grant of any financial assistance by the Government of India to such State if it incurred any loss of revenue derived by it from any source. 4. The impugned Act did not continue in force under Art. 372 of the Constitution, as the said article was subject to the other provisions of the Constitution, including Art. 277 and Art. 278.
Final Decision: The said orders of assessment are set aside and the appeals are allowed with cost here and in the High Court One set of hearing fee.
Judgment
SUBBA RAO, J. These four companion appeals arise out of a common judgment of the High Court of Kerala dismissing the four petitions filed by the appellant seeking to quash the orders of assessment made by the Sales Tax authorities imposing sales tax in respect of "works contracts".
2. The undisputed facts may briefly be stated. The appellant is a private limited company incorporated under the Indian companies Act. The principal office of the Company is at Mattancherry. It carries on business in iron, hardware, electrical goods, timber, coir engineering contracts etc. In the course of its business, the company acted as engineering contractor for the State and Central Government departments and also for private parties. On March 17, 1959, the Sales Tax Officer, Special Circle, Ernakulam, assessed the Company to sales tax under the Travancore-Cochin General Sales Tax Act, 1125 M. E. for the assessment year 1952-53 in respect of "works contracts." The Company filed a revision petition before the 1st respondent, but it was rejected. Likewise the 2nd respondent assessed the Company to sales tax by his orders dated 7-1-1960, 4-1-1960 and 31-3-1960 for the assessment years 1956-57, 1957-58 and 1958-59 in respect of "works contracts". The appellant filed four petitions in the High Court of Kerala under Arts. 226 and 227 of the Constitution for quashing the said orders of assessment. The main contention advanced on behalf of the appellant-Company before the High Court was that, after the Constitution came into force the relevant Sales Tax Acts imposing sales tax on "works contracts" were unconstitutional and, therefore, void. The High court rejected the contention and dismissed the petitions with costs. Hence the appeals.
3. Before adverting to the rival contentions it would be convenient at the outset to give briefly the historical background of the sales tax legislation in Kerala.
4. Originally, Travancore and Cochin were two separate sovereign States having plenary powers of taxation. In the Cochin State, the Cochin General Sales Tax Act 15 of 1121 M. E. and in the Travancore State the Travancore General Sales Tax Act 18 of 1124 M. E. imposed tax on "works contracts." As a result of the merger of the two States, the United State of Travancore-Cochin was formed with a common Legislature. The said Legislature enacted the Travancore-Chochin General Sales Tax Act 11 of 1125 M. E. (1950), hereinafter called the Act. The said Legislature also had plenary powers of taxation and, therefore, it validly imposed sales tax on "works contracts". The Act was published in the Gazette on January 17, 1950, but S. 1 (3) thereof provided that it would come into force on such date as the Government might, by notification in the Gazette, appoint. The requisite notification was issued by the Government on May 30,1950. Rules were framed under powers conferred by S. 24 of the Act prescribing the mode, interalia, for ascertaining the amounts for which goods were sold in relation to "works contracts" Rule 4 (3) provided that,
"For the purposes of sub-rule (1), the amount for which goods are sold by a dealer shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue from time to time for different areas, representing the usual proportion in such areas of the cost of labour to the cost of materials used in carrying out such contract; subject to the following maximum percentages :--
xx xx xx"
But, it is stated that the Board of Revenue did not fix the percentage for deduction from the amount payable to the dealer for carrying out a works contract. This fact was not denied in the High Court, but before us an application is made to produce the Travancore-Cochin Gazette to establish that such a percentage was fixed. The Rules also were notified on may 30. 1950. The earlier Acts of Travancore and Cochin
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