Judgment

S.C. AGRAWAL

(1) HAVING heard learned counsel in SLP(C) Nos. 3365-68 of 1992, we hereby grant special leave to appeal and proceed to dispose of the appeals.

(2) THESE appeals arising from the judgment of the Rajasthan High court dated 3/09/1991, and the connected writ petition filed under Article 32 of the Constitution raise questions relating to imposition of tax on the transfer of property in goods involved in the execution of works con tracts. The power to impose this tax became available to the State Legisla tures as a result of the amendments introduced in the Constitution by the Constitution (Forty-sixth Amendment) Act, 1982, hereinafter referred to as the Forty-sixth Amendment. The validity of the said amendment has been upheld by this court in Builders Association of India v. Union of India wherein this court has also considered the scope and ambit of the legislative power to impose the said tax.

(3) THE relevant historical background leading to the enactment of the Forty-sixth Amendment has been set out in detail in the Builders Association case. We would, therefore, only make a brief reference to the circumstances which led to the said amendment.

(4) UNDER Entry 48 in List II of Seventh Schedule to the government of India Act, 1935, the legislative power to impose "taxes on sale of goods and on advertisements" was conferred on the Provincial Legislatures. Under the Constitution, as adopted, the said taxing power was divided between Parliament and the State legislature. Under Entry 92 in List I of the Seventh Schedule to the Constitution, Parliament was empowered to impose "taxes on the sale or purchase of newspapers and on advertisements published therein" under Entry 54 in List II, the State Legislatures were empowered to impose "taxes on the sale or purchase of goods other than newspapers". With regard to imposition of sales tax on goods involved in execution of . works contracts, where the contract was single and indivisible, the question arose whether there is a sale of those materials within the meaning of that word in Entry 48 in List II of the Seventh Schedule to the government of India Act, 1935 and Entry 54 in List II of the Seventh Schedule to the Constitution. There was sharp cleavage of opinion among the High courts on that question. The High court of Madras, in Gannon Dunkerley & Co. (Madras) Ltd. v. State of Madras took the view that the expression sale of goods in Entry 48 in List II of the government of India Act, 1935 and Entry 54 in List II of the Constitution had the same meaning as it has in the Sale of Goods Act, 1930 and that construction works contracts were not contracts for sale of the materials used therein and that the contract, being entire and indivisible, could not be broken into a contract for sale of materials and a contract for payment for work done. On that view it was held that the provisions of the amendments introduced by the Amendment Act of 1947 in Madras General Sales Tax Act, 1939 whereby the definition of sale was enlarged to include "a transfer of property in goods involved in the execution of a works contract" and thereby impose sales tax on such transfers, were declared as ultra vires the powers of the Provincial Legislature. The same view was taken by the Hyderabad High court in Jubilee Engineering Co. Ltd. v. STO. The Kerala High court in Gannon Dunkerley & Co. (Madras) (P) Ltd. v. SALES TAX OFFICER and the Mysore High court in Mohamed Khasim v. State of Mysore took the contrary view and upheld the power of the State to impose sales tax on the turnover relating to construction works. The Nagpur High court in Pandit Banarsi Das v. State of M.P while declining to follow the decision of the Madras High court expressed the view that the State Legislature could pick out a sale from the composite transaction of a building contract which included transfer of property in materials and could make the portion attributable to the