PANDIT BANARSI DAS BHANOT versus THE STATE OF MADHYA PRADESH & OTHERS

s;c.R. SUPREME COURT. REPORTS

To avoid misconception, it must be stated that the z958 above conclusion has ·reference ·to wo. rks contracts, . \ ~~~ef which· are entire· and''indivisible,\ aS the contracts of-MJdras the respQ~dehts JjaV,~ been held by th~' learned Judges v. o~ th~ Cqurt b~lo'\V' to , he. ~ The" se,veral forms which Gannon Dunkerley such , kinds· of contracts , can ,assume are set out in "" Co .• Hudson on Building Contracts; at<p. 165 .. It is pos-. (Madras) Ltd. sible that .the parties 1might enter inte> distinct and venkatarama separate ·contracts, 'one for the: transfer 'of materials Aiyar J. for money consideraticm, and the other for payment of remuneration for services and for work done. In such case; there, are really two agreements, though there is single instrument embodying them, and the power of the St.ate to separate the agreement to sell, from the agreement to do work and render service and to impose tax thereon \cannot be questioned, and will stand untouched by the present judgment. In the result, the appeal fails, and is dismissed with· costs.

Appeal dismissed. . ~., !I

PANDIT BAN ARSI DAS BRANOT.

April 3.

THE STATE OF MADHYA PRADESH

& OTHERS

(and connected appeals)

(S. R. DAS c. J., VENKATARAMA AIYAR, s. K. DAS,

· A. K. SARKAR and VIVIAN BOSE J J.)

. Sales Tax-Building contracts-Tax on supply of materials-V alidity-Statute providing for exemption from t11xation, but also enabling Government to a111end such exemption by notification-C onstitutionality-C entral Provinces and Berar Sales Tax Act, r947 (C.P. & Berar 2I of 1947), ss. 2, 4{a), 6(1)(2).

· Section 4(a) of the Central Provinces and Berar Sales Tax Act, 19~7, provided that every dealer whose turnover exceeded certain limits shall be liable to pay tax in accordance with the provisions of the A~t on all sales effected after the commencement

Pandit Banarsi Da.~ v.

The State of Madhya Pradesh

of the Act; and bys. 2(g) of the Act, "sale ... means any trans-fer of property in goods ... including transfer of property in goods made in course of the execution of contract .... " Under s. 6(1) of the Act no tax was payable on the·sale of goods specified in Sch. ][ to the Act ands. 6(2) enabled the State Government by notification to amend the Schedule. Item 33 in Sch. II as amended by Act XVi of 1949 and as adapted by the Adapta-tion Order of 1950, was " Goods sold to or by the State Govern-ment". In exercise of the power conferred bys. 6(2) of the Act, the Government issued notification on September .18, 19)'0, amending item 33 by snbstituting the words "Goods s_old by the State Government ".

The appellant, contractor doing business in the construction of buildings and roads for the Military and Public Works Depart-ment in the State of Madhya Pradesh, challenged the validity of the assessment which the respondent proposed to make on the appellant under the provisions of the Central Provinces and Berar Sales Tax Act, 1947, on the grounds (1) that the Provincial Legislature had no authority under Entry 48 of List II, Sch. VII of the Government of India Act, 1935, to impose tax tin the supply of materials in works contracts and that the provisions of that Central Provinces and Berar Sales Tax Act which sought to impose tax thereon treating it as sale were ultra vires, and (2) that he was entitled to exemption under item 33 in Sch. II, to the Act and that the notification of the Government dated September 18, r950, withdrawing that exemption was bad as being an un-constitutional delegation of legislative authority : ·

• Held, that the expression "sales of goods" in Entry 48 has the same meaning which it had in the Indian Sale of Goods Act, 1930, that in building contract there is no sale of materials as such, and that it is therefore ultra vires the powers of the Provin-cial Legislature to impose tax on the supply of materials.

The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [r959] S.C.R. 379, followed.

Per Das C. J., Venkatarama Aiyar, S. K. Das and A. K. Sar-k.;tr JJ.-It is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods, and the like. The power conferred on the State Goveinrnent by s. 6(2) of the Act to amend the Schedule relating to exe.mption is in consonance with the accepted legis-lative practice relating to the topic, and is not unconotitu-tional.

Sub-sections (r) and (2) of s. 6 together form integral part of single enactment the object of which is to grant exemption from taxation in respect of such goods and to such extent as may from time to time be determined by the State <{overnment, and an

S.C.R. SUPREME COURT REPORTS

exemption granted under s. 6(1) is conditional and subject to any notification tl~at might be issued under s. 6(2). The· notification d~ted September 18, 1950, is therefore intra vires.

Pandit Banarsi Das v.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 253 to 255 of 1955 ..

The State. of Madhya Pradesh

·Appeals from the judgment and decree dated November 30, 1954, of the former Nagpur High Court in Misc. Petitions Nos. 245, 279 and 308 of 1954. .

N .. G. Chatterjee and G. G. Mathur, for the appellant ih C. A. No. 253of1955.

· G~ G. Mathur, for the appellant in C. A. Kos. 254 and 255 of 1955. ·

B. Sen, S. B. Sen and I. N. Shroff, for the respon-dents in C. A. Nos. 253 and 254 of 1955 and for the Sta.te of Madhya Pradesh (Intervener).

G. K. Daphtary, Solicitor-General of India and R.H. Dhebar, for the respondents in C. A. No. 255 of 1955 and for the State of Bombay (Intervener).

N. S. Bindra and T. M. Sen, for the State of Punjab (Intervener).

1958. April 3, The judgment of S. R. Das c: J;, Venkatarama Aiyar, S. K. Das and A. K. Sarkar JJ. was delivered by Venkatarama Aiyar J. Bose J. delivered separate judgment.

VENKATARAMA AIYAR J.-These are appeals against the judgment of the High Court ofN agpur in writ applications filed by the appellants impugning the validity of certain provisions of the Central Provinces and Berar Sales Tax Act, 1947 (C. P. & Berar 21 of 194 7), hereinafter referred to as the Act, imposing sales tax on materials used in construction works.

Ver.katarama Aiyar J.

It will be convenient to refer to thes~ provisions at this stage. Section 2(b) of the Act defines "contract" as including " any agreement for carrying out for cash or deferred payment or other valuable consideration the ~onstruction, fitting out, improvement or repair of any building, road, bridge or other immovable pro-perty or the iustallation or repair of any machinery

Pan.ii! Banarsi Das v.

!_hf State .. ~f1• Af adhya Pradesh

V enkatarama Aiyar ].

affixed to building or other immovable property". Section 2(c} of the Act defines" dealer" as including person who carries on the business of supplying goods. In s. 2 (d), "goods" are defined as including "all materials, articles and commodities whether or not to he used in the construction, fitting out, improvement or repair of immovable property". Section 2(g) ,defines " sale " as follows : ' ,

""Sale" with all its grammatical variations and cognate expressions means any transfer of,property in goods for cash or deferred payment or other. valuaqle consideration, including transfer of property in goods made in course bf the execution of contract, but does not include mortgage, hypothecatfon, charge or pledge ; and the word ' purchase ' shall be construed accordingly. "

Section 2(h) defines " sale price " as including" .the amount payable to dealer as valuable consideration for the carrying out of any contract, less such portion, representing the proportion of the cost of labour to the cost of materials, used in carrying out such contract, as may be prescribed. " Turnover " is defined in s. 2(j) as including the aggregate amount of the sale price reooived or receivable by dealer in respect of the supply of goods in the carrying out of any contract. The charging section is s. 4(a), and it provides that dealers whose turnover exceeded certain limits shall be liable to pay tax in accordance with the provisions of the Act on all sales effected after the commencement of the Act. Hule 4 of the Sales Tax Hules, 1947, pro-vi;ies that " in calculating the sale price for the purpose of sub-cl. (ii) of cl. (h} of s. 2, dealer may be permitted to deduct from the amounts payable to him as valuable consideration for carrying out contract, sum not exci.eeding such percentages as may be fixed by the Commissioner for different areas subject to the following maximum percentages", and then follows a. scale of percentages to be allowed in respect of different classes of contracts.

Acting on these provisions, the authorities cornltitut-ed under the Act called upon the contractors within the State to furnish returns in respect tJf their receipts . . .

S.C.R. SUPREME COURT REPORTS

from contract works for the purpose of assessment of r958 sales tax, to which the appellants replied by instituting Pandit Banarsi the proceedings, out of w ich the present appeals arise. Das The appellant in Civil Appeal No. 253 of 1955 is v. contractor doing business in the construction of build-The state of ings and roads for the Military and Public Works Madhya Pradesh Department in the State of Madhya Pradesh, and he filed M. P. No. 245of1954 challenging the validity of Ve;:;:~•7a the assessment which the respondents ,proposed to make, on two grounds: He contended ~,rstly, that the Provincial Legislature had authority under Entry 48, of List II, Sch. VII of the Government of India Act, 1935, to impose tax only on sale of goods, that th'.e' supply of materials in works contracts was not sale within that Entry, and that the provisions of the Act, which sought to impose tax thereon treating it as sale, ·were therefore ultra vires; and secondly that he was entitled to exemption under item 33 in Sch. II to the Act as enacted by Act XVI of 1949, and that the notification of the Government dated September 18, 1950, withdrawing that exemption was unconstitu-tional and void. To appreciate this contention, it is necessary to refer to s. 6 of the Act, which is as follows:

6 (1) "No tax shall be payable under this Act on the sale of goods specified. in the second column of Schedule II, subject to the conditions and exceptions, if any, set out in the corresponding entry in the third column thereof.

(2) The State Government may, after giving by notification not less than one month's notice of their intention so to do, by notification after the expiry of the period of notice mentioned in the first notification amend either Schedule, and thereupon such. Schedule shall be deemed to be amended accordingly."

Item 33 in Sch. II as originally enacted was " Goods sold by the Crown". This was amended by Act XVI of 1949 by. substituting for the above words "Goods sold to or by the Crown ". By ,al). Aqa ptation Orc~er of 1950, the words "Sfate Government" were sub-stituted for "Crown", and item 33 became' "Goods sold to or by tlte State Go:vernment ". In exercise pf

Pandit Hanarsi Das v.

The State of

M {tdhya Pradesh Venkataranui A1'yar ].

the power conferred by s. 6 (2) of the Act, the State issued notification on September 18, 1950, amending item 33 by substituting for the words "Goods sold to or by the State Government" the words "Goods sold by the State Government". The resultant position is that the appellant who was entitled to exemption under Act XVI of 1949 in respect of goods sold to the Government could no longer claim it by reason <"Jf the notification aforesaid. Now, the ground of his attack was that it was not open•to the Government in exercise of the authority delegated to it under s. 6 (2) of the Act to modify or alter what the Legislature had enacted. The appellant accordingly claimed that the proceedings which the respondents proposed to take for assessment of sales tax were incompetent, and prayed that an appropriate writ might be issued restraining them from proceeding with the same. •

In Civil Appeal No. 254 of 1955, the appellants are the J·abalpur Contractors' Association, which is registered body and certain contractors, and they filed M. P. No. 279 of 1954 questioning the validity of the proposed assessment on the same grounds as in M. P. No. 245 of 1954. The appellant in Civil Appeal No. 25'5 of 1955, is the Madhya Pradesh Contractors' Association, Nagpur, which is again registered body, and it filed M. P. No. 305 of 1954, challenging the legality of the proceedings for assessment on the same grounds as in M. P. No. 245 of 1954.

All these three petitions were heard together, and by their judgment dated November 30, 1954, the laarned Judges held that the expression " sale of goods " in Entry 48 was wide enough to cover all transactions in which property in the moveables passed from one person to another for money, and that, accordiJ].gly, in building contract there was sale within Entry 48 of the materials used therein, and that the provisions of the Act imposing tax there-on were valid. But the learned Judges also held that the tax could be levied only on the actual value of the materials to be determined on an enquiry iitto the matter, and that the definition of " price " in s. 2 (h) (ii) andr. 4 framed pursuant thereto were ultra vires. • •

S.C.tt. SUPREME OOtJRT .REPORTS

in that they laid down artificial rules for fixing the same by deducting certain percentages from out of the total receipts on account of labour. As regards the notification dated September 18, 1950, the learned Judges held that it was within the authority conferred by the statute and was valid. In the result, the impugned provisions of the Act were held to be valid e"cept as to the definition of" price " in s. 2 (h) (ii) and r. 4 of the Sales Tax Rules, 1947. It is against this judgment that the abc1ve appeals have been preferred on certificate granted by the High Court under Art. 132(1) of the Constitution.

Pandit Banarsi Das v.

The State of Madhya Pradesh

V enkatarama Aiyar J.

Two contentions have been urged in support of the appeals : (1) that the Provincial Legidature has no authority in exercise of its power under Entry 48 to impose tax on the supply of materials in works contracts as such supply cannot be said to be also of those materials within that Entry ; and (2) that the notification dated September 18, 1950, is bad as being an constitutional delegation of legislative authority.

As regards the first contention, the question is now concluded by the decision of this Court in The State of Madras v. Gannon Dunkerley & Go. (Madras) Ltd. ([1 ]) in which it has been held that the expression "sale ·of goods'' in Entry 48 has the same meaning which it has in the Indian Sale of Goods Act, 1930, that in building contract there is no sale of materials as such, and that it is therefore ultra vires the powers of the Provincial Legislature to impose tax on the supply of materials. Mr. B. Sen appearing for the respondents has argued that even if the expression " sale of good~" in Entry 48 is construed in the sense which it has in the Sale of Goods Act, that might render the impugn-ed provisions of the Act ~tltra vires only in respect of building contract which is one and in~ivisible, that there might be contracts which might consist of two distinct agreements, one for the sale of materials and another, for work and labour, and that in such case, it would be competent to the State to impose tax on . the sarle of materials even construing that word in its

(r) [1959] S.C.R. 379.

Pandit Banarsi Das v.

The State of Madhya Pradesh

V enkatarama Aiyar j.

narrow sense, and that these are matters which must be left to be investigated by the appropriate autho-rities. That undoubtedly is the correct legal position as observed in The State of Madras v. Gannon Dun-kerley & Co. (Madras) Ltd. (1), and accordingly, when question arises as to whether particular works contract could be charged to sales tax, it will be for tl:e authorities under the Act to determine whether thti agreement in question is, on its true construction, combination of an agreement to llell and an agreement to work, and if they come to the conclusion that such is its character, then it will be open to them to pro-ceed against that part of it which is contract for the sale of goods, and impose tax thereon.

(2) We have next to consider the contention that the notification dated September 18, 1950, is b~d as constituting an unconstitutional delegation of legis-lative power. In the view which we have expressed above that there is in works contract no sale of materials as such, it might seem academic to enter into discussion of this question; but as there may be building contracts in which it is possible to spell out agreements for the sale of materials as distinct from co11tracts for work and labour, it becomes necessary to express our decision thereon. Mr. Chatterjee appear-ing for the appellant in Civil Appeal No. 253 of 1955 contends that the notification in question is ultra vires, because it is matter of policy whether exemption should be granted under the Act or not, and decision on that question must be taken only by the Legis-lature, and cannot be left to the determination of an outBide authority. While power to execute law, it '\Vas argued, could be delegated to the executive, the power to make it must be exercised by the Legislature itself, and reliJ1nce was placed on the observations in Harnpton JR & Co. v. United States ([2]), Panarna Refin-ing Co. v. Ryan('), and Schechter v. United States('), as supporting this position. It was also contended that the grant of power to an outside authority to

(1) [1959] S.C.R. 379. (2) 276 U.S. 394; 72 L. Ed. 624, 629. (3) 293 U.S. 388; 79 L. Ed. 446, 458.

(4) 295 U.S. 495; 79 L. Ed. 1570 .

S.C.R. SUPREME COURT REPORTS

repeal or modify provision in statute passed by the legislature was unconstitutional, and that, in ccm-sequence, the impugned notification was bad in that, in reversal of the policy laid down by the legislature in Act XVI of 1949 that saies to Government should be excluded from the operation of the Act, it withdrew the exemption which had been granted thereunder, and the observations in In re The Delhi Laws Act, 1912 etc. ([1]), and the decision in Rajnarain Singh v. The Chairman, Patna Administration Committee, Patna and another (2), were strongly relied on as establishing this contention. Mr. N. C. Chatterjee particularly relied on the following observations of Bose J. at p. 301 in Rajnarain Singh's case ([2]): · " In our opinion, the majority view was that an executive authority can be authorised to modify either existing or future laws but not in any essential feature. Exactly what constitutes an essential feature cannot be enunciated in general terms, and there was some divergence 'of view about this in the former case, but this much is clear from the opinions set out above; it cannot include change of policy."

On these observations, the point for determination is whether the impugned notification relates to what m11.y be said to be .an essential feature of the law, and whether it involves any change of policy. Now, the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is .to be charged in respect of different classes of goods, and the like.

In Powell v. Appollo Candle Company Limited ([3]), the ,question arose as to whether s. 133 of the Customs Regulation Act of 1879 of New South y.;r ales which conferred power on the Governor to impose tax on certain articles of import· was an unconstitutional delegation of legislative powers. In holding that it was not, the Privy Council observed:

"'[t is argued that the tax in question has been

' (1) [r951] S.C.R. 747, 787', 982, 984. · (2) (1955] I S.C.R 290. (3) (i885) IO A.C. '282. •

Pandit Banarsi Das v.

The State of

Madhya Pradesh

Venkatarama Aiyar ].

l'andit Banarsi Das

The State of l'vladhya Pradesh

V cnkatarama Aiyar j.

imposed by the Governor and not by the Legislature who alone had power to impose it. But the duties levi-ed under the Order-in-Council are really levied by the authority of the Act under which the Order is issued. The Legislature has not parted with its perfect control over the Governor, and has the power, of course, at any moment, of withdrawing or altering the power which thev have entrusted to him. In these circmti-stances, their Lordships are of opinion that the judg-ment of the Supreme Court was wrong in declaring Section 13:3 of the Customs Regulation Act of 1879 to be beyond the power of the Legislature."In Syed 111oharned & Go. v. 1'he State of Jlfadras ([1]), the question was as to the vires of rules 4 and 16 framed under the Madras General Sales Tax Act. Section 5 (vi) of that Act had left it to the rule-making authority to determine at which single point in the series of sales by successive dealers the tax should he levied, and pursuant thereto, rules 4,and 16 had pro-vided that it was the purchaser who was liable to pay the tax in respect of sales of hides and skins. The validity of the rules was attacked on the ground that it was only the legislature that "as comretent to decide who shall be taxed, and that the determination of that question by the rule-making authorities was ultra vires. The Madras High Court rejected this conntetion, and held on review of the authorities thatl'ne delegation of authority under s. 5 (vi) was within permissible constitutional limits.

In Harnpton J. R. & Go. v. United States('), which \\as cited on behalf of the appellant, the question arose whether s. 315(h) of the Tariff Act, 1922, under which the President had been empowered to make such increases and decreases in the rates of duty as were found ;1ecessary for carrying out the policies declared in the statute was an unconstitutional delega-tion, and the decision was that such delegation was not unconstitutional. 'Ve are therefore of the opinion that the power conferred on the State Government by s. 6(2) to amend the schedule relating to exemption is in consonance with the accepted legislative practice relating to the toP!c, and is not unconstitutional.

• (1) (1952) 3 S.T.C,367.

(2) '276 U.S. 39t; 72 L. Ed. 624, 629 .

S.C.R. SUPREME COURT REPORTS

The contention of the appellant that the notification r95B in question is ultra vires must, in our opinion, fail on Pandit Banarsi another ground. The basic assumption on which the Das argument of the appellant proceeds is that the power v. to amend the schedule conferred on the Government The State of under s. 6(2) is ·wholly independent of the grant of Madhya Pradesh exemption under s. 6(1) of the Act, and that, in con-Ven-;,.-;;,,ama sequence, while an exemption under s. 6(1) would Aiyar J . . stand, an amendment thereof by notification under s. 6(2) might be bad. • But that, in our opinion, is not the correct interpretation of the section. The two sub-sections together form integral parts of single . enactment, the object of which is to grant exemption from taxation in respect of such goods and to such extent as may from time to time be determined by the Sta~e Government. Section 6 (1), therefore, cannot have an operation independent of s. 6(2), and an exemption granted thereunder is conditional and sub-ject to any modification that might be issued under s. 6(2). In this view, the impugned notification is intra vires and not open to challenge.

·But on our finding on the first question that the impugned provisions of the Act are ultra vires the powers of the Provincial Legislature under Entry 45 in List II in the seventh Schedule, we should set aside the orders of the Court below, and direct that the respon-dents be restrained from enforcing the provisions of the Central Provinces and Berar Sales Tax Act, 1947, in so far as they seek to impose tax on construction works. It should be made clear, however, in accordance with what ·we have already stated, that the prohibiti.on against imposition of tax is only in respect of contracts which are single and indivisible and not of contracts which are combination of distinct contracts for sale of materials and for work, and that nQ.thing that we have said in this judgment shall bar the .sales tax authorities from deciding whether particular con-tract ·falls within one category or the other and imposing tax on the agreement of sale of materials, where the contract ·belongs to the latter category. The parties wil.l bear their own costs· throughout,

438 SUPREME COUitT REPORTS

BosE J.-I agree except that I prefer not to express Pandit Br1narsi an opinion about the validity of the power conferred na, on the State Government by s. 6(2) of the Central v. Provinces and Berar Sales Tax Act, 1947, to amend The State of the schedule in the way in which it has been amended Illadhya Pradesh here. I would leave that open for future decision. Bose ].

Appeals allowed.

FIItl\I OF M/S. PEAitE LAL HAitl SINGH

April 7,

THE STATE OF PUNJAB & ANOTHEit •

• (S. It. DAS C. J., VENKATARAMA AIYAR, s. K. DAS,

A. K. SARKAR and VIVIAN BosE JJ.)

Sales Tax-Building contracts-State's power of taxation on supply of materials in construction works-Whether building contract comprises distinct agreement for sale of materials-East Punjab General Sales Tax Act, z948 (East Punjab XLVI of z948), ss. ;<d)(j), 4(z)-Government of India Act, z935 (26 Geo. 5 Ch. 2), Sch. VII, List II, Entry 48.

The petitioners who were building contractors in the State of Punjab were assessed to tax by the sales tax authorities on the supply of materials in construction works treating it as sale, acting under the provisions of the East Punjab General Sales Tax Act, 1948. The petitioners challenged the legality of the assess-ment proceedings on the grounds, inter alia, that the legislature of the Province of Punjab had, under Entry 48 in List II of Sch. VII to the Government of India Act, 1935, no power to impose tax on the supply of materials in construction works as there was no sale in fact or in la\v of those materials, and that the provisions of the Act which sought to do it were ·ultra vires. 'fhe assessing authorities contended that on true construction of the building con~act entered into by petitioners with the Govern-ment it comprised distinct agreement for the sale of materials and particularly relied on r. 33 of the rules appearing in the printed General Conditions of Contracts issued by the Govern-ment:

Held, that there was no sale as such of the material~ used in the construction·s by the petitioners and that no tax could be levied thereon.