The contractual liability of a former State is binding on a succeeding sovereign State only if it recognises that contractual liability.

Headnote:
CUSTOMS DUTY - Contractual liability of former State - Recognition by successor State - Rajasthan (Regulation of Customs Duties) Ordinance, 1949 (Rajasthan Ordinance 16 of 1949), Ss. 3, 4, 6 - Constitution of India, Arts. 246, 295, 306.
Fact of the Case:

The appellant, Bansidhar Premsukhdas, brought a suit against the State of Rajasthan for the recovery of Rs. 86,646-3-0, being the excess amount of customs duty paid to the State Government. The appellant had purchased plots in a Mandi established by the former State of Bharatpur, which offered a concession of 25% reduction in customs duty on goods imported into or exported from the Mandi. After the merger of Bharatpur State into the State of Rajasthan, the Rajasthan Government issued a notification abolishing all free Mandies and Zones, including the Mandi in question, and consequently, the customs duty concession was also withdrawn. The appellant contended that the concession granted in the Bharatpur notification was a term of the contract of sale of the plots and that the Rajasthan State, as the successor State, was bound by it.
Finding of the Court:

The Supreme Court held that the concession granted in the Bharatpur notification was not a term of the contract of sale of the plots. Even if it was assumed to be a term of the contract, the contractual liability was superseded by the enactment of the Rajasthan (Regulation of Customs Duties) Ordinance, 1949, which repealed all existing customs laws and introduced a new law imposing duty on export and import into Rajasthan State as a whole. The Court further held that the Rajasthan Government's notification revoking the tax concessions was not in violation of Article 306 of the Constitution, as the appellant's claim was not based on any provision of Bharatpur law but upon a contractual liability of Bharatpur State.
Issues: 1. Whether the concession granted in the Bharatpur notification was a term of the contract of sale of the plots? 2. Whether the Rajasthan State, as the successor State, was bound by the contractual liability of the former State of Bharatpur? 3. Whether the Rajasthan (Regulation of Customs Duties) Ordinance, 1949 superseded the contractual liability? 4. Whether the Rajasthan Government's notification revoking the tax concessions was in violation of Article 306 of the Constitution?
Ratio Decidendi: 1. The concession granted in the Bharatpur notification was not a term of the contract of sale of the plots, as it was not an integral part of the contract and did not relate specifically to the sale of the plots. 2. The Rajasthan State, as the successor State, was not bound by the contractual liability of the former State of Bharatpur, as there was no recognition of the contractual right by the succeeding State of Rajasthan. 3. The Rajasthan (Regulation of Customs Duties) Ordinance, 1949 superseded the contractual liability, as it repealed all existing customs laws and introduced a new law imposing duty on export and import into Rajasthan State as a whole. 4. The Rajasthan Government's notification revoking the tax concessions was not in violation of Article 306 of the Constitution, as the appellant's claim was not based on any provision of Bharatpur law but upon a contractual liability of Bharatpur State.
Final Decision: The Supreme Court dismissed the appeal, holding that the judgment of the High Court was right.

Judgment

RAMASWAMI, J. : This appeal is brought by certificate against the judgment and decree of the Rajasthan High Court, dated January 29, 1963.

2. The appellant firm Bansidhar Premsukhdas brought a suit which is the subject-matter of this appeal against the State of Rajasthan on March 31, 1953 for the recovery of Rs. 86,646-3-0 in the Court of District Judge, Bharatpur. The case of the appellant was that the former State of Bharatpur with a view to increase the trade and commerce in the said State decided to establish a Mandi at Bharatpur where at the material time a T. B. Hospital was located. It decided to sell plots for certain fixed amounts and, therefore, issued a notification on May 18, 1948 offering the plots by public advertisement for sale on certain terms and conditions. The notification-Ex. 4-was published in Bharatpur Rajpatra and one of the concessions proposed to be granted was embodied in Cl. 3 of the notification which stated :

"If any commodity is imported from outside into the Mandi and is sold for consumption within the State, or if any commodity received in the Mandi from within the State and is exported in both cases, a reduction of 25 per cent in the customs duty prevailing at the time of the import and export of such commodities will be allowed. This concession shall not be available in case of vegetable Ghee."

The notification contained other terms and conditions relating to auction sale such as the prices for different kinds of plots available and the maximum number of plots which a person could purchase. A committee for supervising the auction was also formed and the notification laid down the procedure for the sale of plots and certain other conditions such as deposit of one-fourth sale money at the time of auction, etc. The appellant purchased plots Nos. 8 and 9 for Rs. 4,600 at a public auction and two sale-deeds (sanad nilam) were issued to the appellant on October 10 1946. The Government of Bharatpur and after its merger, the Government of United State of Matsya and thereafter the present Rajasthan State carried out the promise contained in Cl. 3 of the Bharatpur notification and allowed reduction of 25 per cent in the customs duty, but on January 16, 1951 the Rajasthan Government issued notification No. F. 4 (18) SR/49 which reads as follows :

"Now, therefore, Government of Rajasthan is hereby pleased to direct that with an immediate effect all free Mandies and Zones including the area comprising the former Kishangarh State and the Bhim District of the former Rajasthan State shall be abolished and that in consequence all the Customs concession hitherto enjoyed by or applicable to these Mandies or Zones shall cease to have force and duties of customs shall be levied and collected in such Mandies or Zones in accordance with the revised tariff amended from time to time."

The appellant and other traders thereupon made representation to the Rajasthan Government on January 29, 1951 and pending the disposal of the representation the Customs authorities agreed to keep the amount of 25 per cent by way of Amanat . The State of Rajasthan ultimately decided on May 25, 1951 that the reduction in the customs duty could not be conceded. On March 31, 1953 the appellant filed the present suit in the Court of the District Judge of Bharatpur for the recovery of the excess amount of customs duty paid to the Rajasthan Government. The main defence of the State Government was that item No. 3 of the Bharatpur notification was a matter of concession and could not be claimed as of right and the Rajasthan State as successor State was not bound by the contracts of the former State and the applicability of the concessions had also become impracticable on the formation of Rajasthan. The District Judge of Bharatpur, by his judgment, dated March 31, 1956, held that item No. 3 of Bharatpur notification was a term of sale between the parties and the Rajasthan State was bound by it and the succeeding States have recognised the c

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