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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAJAGOPALAN & THE HONOURABLE MR. JUSTICE SATYANARAYANA RAO
Gannon Dunkerley and Company (Madras) Limited - Appellant
Versus
State of Madras - Respondent
Case No : No
Decided On : 05 April 1954
The Madras General Sales Tax Amendment Act (XXV of 1947) was challenged on the grounds that it was beyond the legislative competency of the provincial Legislature as the works contracts executed by the assessee were not contracts of sale of goods and, therefore, the Provincial Legislature had no jurisdiction or power to enact the impugned provisions with a view to bring works contracts of such a nature into the net of taxation. The court held that the impugned provisions were ultra vires the Provincial Legislature as they had no power to tax transactions which are not sales of goods.
Fact of the Case:
The assessee, Messrs. Gannon Dunkerley & Co. (Madras) Ltd., a private limited company incorporated under the Indian Companies Act, carried on business as engineers and contractors. The company was assessed to sales tax on a turnover of Rs. 35, 08, 153-5-0 made up of the following items: (1) Turnover of works contracts Rs. 29, 51, 528 7 0, (2) Work-Spots sales Rs. 2, 21, 181 7 0, (3) Sales of sanitary wares Rs. 42, 434 0 0, (4) Turnover of canteens (estimated) Rs. 81, 000 0 0, (5) Foodgrains Rs. 1, 98, 929 0 3, (6) Sales tax Rs. 13, 080 6 9.
Finding of the Court:
The court held that the impugned provisions were ultra vires the Provincial Legislature as they had no power to tax transactions which are not sales of goods. The court further held that the supply of food-grains to the workmen by the assessee was not carried out with a view to earn profit and in fact no profit accrued. Therefore, the assessees were not liable to pay sales tax on the value of the food-grains which they have supplied to the workmen.
Issues: 1. Whether the impugned provisions of the Madras General Sales Tax Amendment Act (XXV of 1947) were ultra vires the Provincial Legislature? 2. Whether the assessee was liable to pay sales tax on the value of the food-grains which they have supplied to the workmen?
Ratio Decidendi: 1. The court held that the impugned provisions were ultra vires the Provincial Legislature as they had no power to tax transactions which are not sales of goods. The court relied on the following principles: (a) Laws, which impose a tax on sales, being tax laws are subject to strict construction. (b) The expression "sale of goods" had acquired a definite meaning in England under the Sale of Goods Act, 1893, and in India under the Sale of Goods Act, 1930, which was modelled on the English Act. (c) The transaction denoted by the expression "sale of goods" had a well-defined meaning under law as it existed before the Parliament enacted the Government of India Act, 1935, and even thereafter. (d) The power, therefore, of the Legislature and the field, which is open to the Legislature, could not extend to anything other than a transaction of sale, which is well-known to lawyers. 2. The court held that the supply of food-grains to the workmen by the assessee was not carried out with a view to earn profit and in fact no profit accrued. Therefore, the assessees were not liable to pay sales tax on the value of the food-grains which they have supplied to the workmen. The court relied on the following principles: (a) The word "business", employed in the definition of "dealer" in the Madras General Sales Tax Act is used in the sense of buying or selling goods with a view to earn profit. (b) In the present case, the supply of food-grains to the workmen by the assessees is not carried out with a view to earn profit and in fact no profit accrued.
Final Decision: The revision petition was allowed in respect of the two items (items 1 and 5) which were included in the turnover of the assessees during the assessment year, which the court directed must be deleted from the turnover. The assessees, who have succeeded, were entitled to their costs, which were fixed at Rs. 250.
SATYANARAYANA RAO, J.
This revision petition under Section 12B of the Madras General Sales Tax Act raises an important question regarding the constitutional validity of certain of the provisions of the Madras General Sales Tax Amendment Act (XXV of 1947) by which "works contracts" were included within the ambit of the Madras General Sales Tax Act and they are made subject to the levy of sales tax within the limitations provided in the said Act. The case was argued with considerable ability on both sides and all the available authorities bearing on the question, which the industry of counsel could discover, were placed before us.
The assessees, Messrs. Gannon Dunkerley & Co. (Madras) Ltd., are a private limited company incorporated under the Indian Companies Act and they carry on business as engineers and contractors. The head office of the company is at Madras but their work-spots are spared over several places in Sough India. Their business consists mainly of execution of contracts for construction of buildings, bridges, dams, roads and structural contracts of all kinds. The important customers of the company are the Central and State Governments but there are also some private parties. In addition to the said business, they also carry out sanitary engineering contracts and sell sanitary wares and other sundry goods. To facilitate the execution of their works, which are spread all over the State, and to provide amenities to the workmen, they also distribute to the workmen food-grains and debit the cost thereof against the wages, which they have to pay to them. They also run canteens for the supply of food-stuffs to their employees at their work-spots but they derive no profit either from the sale of the food-grains or food-stuffs. In the case of most of the contracts, the controlled commodities such as steel and cement are supplied by their employers, while the non-controlled materials and work and labour and technical skill for the construction work are provided by the company. In the case of contracts with the State and Central Governments, they sometimes act as their procuring agents, purchasing materials on their behalf according to their specifications and instructions. In the case of such contracts, the Governments concerned retain and exercise absolute control and dominion over such materials till the construction is completed and taken over. It is only after the construction is completed that final settlements are made under the contracts.In the accounting year 1949-50, the Deputy Commercial Tax Officer by his order dated 30th March, 1951, assessed them on a turnover of Rs. 35, 08, 153-5-0 made up of the following items :-
Rs. A. P.
1. Turnover of works contracts 29, 51, 528 7 0
2. Work-Spots sales 2, 21, 181 7 0
3. Sales of sanitary wares 42, 434 0 0
4. Turnover of canteens (estimated) 81, 000 0 0
5. Foodgrains 1, 98, 929 0 3
6. Sales tax 13, 080 6 9
--------------- 35, 08, 153 5 0 ---------------
The company admitted their liability to items 2 and 3 but disputed the rest. Of these disputed items, items 1 and 5 alone now survive and are the subject-matter of challenge in this revision petition. There was an appeal to the Commercial Tax Officer as provided under the Act, who modified the amount determined by the Deputy Commercial Tax Officer and, on further appeal to the Tribunal, there was further modification. But, as regards items 1 and 5, they were unsuccessful before the department and the Tribunal and, therefore, they have filed this revision petition.
The contention as regards item 1, turnover of works contracts, was that the amending Act of 1947 was beyond the legislative competency of the provincial Legislature as the works contracts executed by the assessees were not contracts of sale of goods and, therefore, the Provincial Legislature had no jurisdiction or power to enact the impugned provisions with a view to bring works contracts of such a nature into the net of taxation. As regards the 5th item, foodgrai
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