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IN THE NAGPUR HIGH COURT
M. Hidayatullah, Sinha, JJ.
PANDIT BANARSI DAS
Versus
STATE OF MADHYA PRADESH AND OTHERS
Miscellaneous Petition No. 245 of 1954
Decided On: Decided On : 30-11-1954
SALES TAX - Levy on supply of building materials used in execution of building contracts - Whether within Entry 48 of List II of Seventh Schedule to Government of India Act, 1935 - Whether definition of "sale price" in C.P. and Berar Sales Tax Act, 1947, and rule 4 of C.P. and Berar Sales Rules, 1947, ultra vires - Whether withdrawal of exemption granted to sales to Government by Act XVI of 1949 by notification ultra vires.
Fact of the Case:
The petitioners, contractors, challenged the assessment of sales tax on the supply of building materials used in the execution of building contracts for the Public Works Department, the M.E.S. and private parties. The impugned Act, the Central Provinces and Berar Sales Tax Act, 1947, defined "sale" as "any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods made in the course of the execution of a contract". The petitioners contended that there was no transfer of property in the materials as such, that they were not goods in the strict sense, that there was no sale for a price and that the materials formed part of immovable property before payment was made. They also contended that the definition of "sale price" in the Act and rule 4 of the Rules, which allowed the deduction of a pre-determined proportion of the contract charges from the total consideration for the contract, was ultra vires.
Finding of the Court:
The Court held that the impugned Act was within the powers of the Legislature conferred by Entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935, as it authorized the imposition of a tax on the sale of goods in all its aspects and forms. The Court further held that the definition of "sale price" in the Act and rule 4 of the Rules was ultra vires as it involved taxation on an artificial basis having no relevance to the price of the goods sold or supplied by a builder.
Issues: 1. Whether the impugned Act was within the powers of the Legislature conferred by Entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935? 2. Whether the definition of "sale price" in the Act and rule 4 of the Rules was ultra vires?
Ratio Decidendi: 1. The power to levy the tax can only be determined by a fair consideration of the ambit of the entry by which the power is conferred. If the pitch and substance of the Act come within that ambit, the power is there, otherwise not. 2. The definition of "sale price" in the Act and rule 4 of the Rules was ultra vires as it involved taxation on an artificial basis having no relevance to the price of the goods sold or supplied by a builder.
Final Decision: The Court held that the impugned Act was within the powers of the Legislature conferred by Entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935, but the definition of "sale price" in the Act and rule 4 of the Rules was ultra vires. The Court ordered that the writs of mandamus nisi issued be made absolute against the respondents and that the respondents must pay the costs of the petitioners.
HIDAYATULLAH, J. - This order shall also govern Miscellaneous Petitions Nos. 279 and 308 of 1954.
2. Petition No. 245 is by the Madhya Pradesh Contractors' Association through its Secretary. Petition No. 279 is by the Jabalpur Contractors' Association, the President and Secretary (who are contractors) and the legal adviser (who is not) of the said association. Petition No. 308 is by a contractor.
3. By these petitions the assessment of sales tax on the supply of building materials used in the execution of building contracts for the Public Works Department, the M.E.S. and private parties is challenged. The petitioners execute the works after their tenders for the finished work according to approved plans and pre-determined quantities and quality are accepted. They supply the materials which go into the finished work. Payment, on their averments, is for the completed work but during its progress a portion of the amounts of the current bills is paid.
4. The petitioners submit that there is no transfer of property in the materials as such, that they are not goods in the strict sense, that there is no sale for a price and that the materials form part of immovable property before payment is made. The petitioners contend that the Central Provinces and Berar Sales Tax Act, 1947 (hereinafter called the impugned Act) purports to tax the building materials treating the supply thereof as a sale and it was thus beyond the powers of the Legislature conferred by the Entry No. 48 - taxes on the sale of goods - in the second list of the Seventh Schedule of the Constitution Act, 1935. A detailed reference to the provisions of the impugned Act involved in this connection will be made hereafter.
5. The petitioners submit that all sales to Government were exempted by the Central Provinces and Berar Sales Tax (Amendment) Act, 1949 (XVI of 1949) but this exemption was withdrawn by a mere notification (No. 1503-1349-VIII, dated 18th September, 1950). They contend that this action amounts to legislation by the State Government and is ultra vires. They finally contend that the fixation of the price of the materials sought to be taxed under the Act is arbitrary.
6. According to the petitioners, they are compelled on pain of prosecution and penalty to make returns of such transactions and since there is no equally efficacious remedy under the impugned Act and the demand is an invasion of their fundamental rights, they ask for an appropriate writ against the respondents. For the interpretation of Entry No. 48 they reply primarily upon Sales Tax Officer v. Budh Prakash Jai Prakash ([1954] 5 S.T.C. 193; A.I.R. 1954 S.C. 459); for the proposition that legislative competence under the entry could not comprehend the supply of building material reference is made to Gannon Dunkerley & Co. v. State of Madras ([1954] 5 S.T.C. 216) and finally for the right to ask for a writ in the given circumstances the decision in Himmatlal v. State of Madhya Pradesh ([1954] 5 S.T.C. 115; A.I.R. 1954 S.C. 403) is invoked.
7. The respondents (the taxing authority) join issue on all these points and raise many preliminary objections. They contend (a) that an association cannot move for a writ; (b) that petitions Nos. 279 and 368 are bad for multifariousness and also because all dealers belonging to the Association have not jointed; (c) that a declaratory opinion on the vires of legislation cannot be given; and (d) that since appropriate remedies are available in the impugned Act, no writ can issue, particularly to Revenue.
8. We heard these three petitions and particularly that of Banarsidas to whose petition, as conceded, the first two objections do not apply. The existence of remedies under the impugned Act did not prevent the issue of a writ to the Sales Tax Authorities when certain provisions of the impugned Act were found to be ultra vires : See Himmatlal v. State of Madhya Pradesh ([1954] 5 S.T.C. 115; A.I.R. 1954 S.C. 403). The same considerations must apply here if a
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