n No 128 of 1957
Petition under Article 32 of the Constitution of India for enforcement of Fundamental Rights
Gopal Singh for the petitioner
N section Bindra and T M Sen for the respondents
April 7
The Judgment of the Court was delivered by VENKATARAMA AIYAR J
This is a petition under article 32 of the Constitution and the question that is raised therein for our decision is as to the validity of certain provisions of the East Punjab General Sales Tax Act 1948 East Pb
XLVI of 1948 hereinafter referred to as the Act imposing a tax oil the supply of materials in construction works treating it as a sale
It will be convenient at this stage to refer to the relevant provisions of the Act
Section 2c defines contract  as meaning  Any agreement for carrying out for cash or deferred payment or other valuable considerationi the construction fitting out improvement or repair of any building road bridge or other immovable property or ii the installation or repair of any machinery affixed to a building or other immovable property    Dealer  is defined in section 2d as any person engaged in the business of selling or supplying goods
Section 2h defines  sale  as meaning  any transfer 440 of property in goods for cash or deferred payment or other valuable consideration including a transfer of property in goods involved in the execution of a contract    Turnover  is defined in section 2j as including  the carrying out of any contract less such portion as may be prescribed of such amount representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract 
Section 41 enacts that   every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on all sales effected after the coming into force of this Act
 Section 5 provides that the tax shall be levied every year on the taxable turnover of a dealer at such rates as the Provincial Government may by notification direct
Rule 28 prescribes the mode of computing the taxable consideration with reference to contracts as provided in sub cl
ii of el
i of section 2
The petitioners are a firm of building contractors
In December 1956 they entered into a contract with the Military Engineering Services Department of the Government for the construction of certain buildings known as  Married accommodation  at Ambala Cantonment and received a sum of Rs 32000 on January 31 1957 as advance
On February 14 1957 the assessing authority Jullundur District issued a notice intimating the petitioners that as they had failed to apply for registration under section 7 of the Act assessment would be made under section 18 sub section
2 for the periods commencing from April 1 1955 onwards and calling upon them to produce their account books and attend the hearing on February 16 1957
Thereupon the petitioners filed the present petition under article 32 of the Constitution challenging the legality of the assessment proceedings the main ground of attack being 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 law of those 441 materials and that the provisions of the Act which sought to do it were ultra vires
This question is now concluded by the decision of this Court in The State of Madras V Gannon Dunkerley  Co Madras Ltd 1 wherein it has been held that the expression  sale of goods in Entry 48 has the same import which it bears in the Indian  that in a building contract there is no sale of materials as such and that accordingly the Provincial Legislature had no power to impose a tax thereon under Entry 48
In this view we have now to consider the contention advanced by Mr Bindra for the respondents that the building contract entered into by the petitioners with the Government was not an agreement simpliciter for the construction of works but that on its true construction it comprised a distinct agreement for the sale of materials
If that can be established it is not disputed that the respondents would have a right to tax the transaction even apart from the impugned provisions
The question is whether the contract of the petitioners with the Government for construction was one and indivisible or whether it was a combination of an agreement for sale of materials and an agreement for work and labour
The evidence placed before us leaves us in no doubt as to the true character of the contract
The tenders which where called for and received were for executing works for a lump sum and in his acceptance of the tender of the petitioners dated December 15 1956 the Deputy Chief Engineer stated   The above tender was accepted by me on behalf of the President of India for a lump sum of Rs 974961
 How this amount is made up is given in Annexure E to the reply statement
It will be seen therefrom that the petitioners were to construct nine blocks and the amounts are worked out treating each of the blocks as one unit and the figures are totalled up
It is impossible on this evidence to hold that there was any agreement for sale of the materials as such by the petitioners to the Government
1  56 442 For the respondents reliance was placed on the rules appearing in the printed General Conditions of Contracts issued by the Government
Rule 33 which was particularly relied on provides  All stores and materials brought to the Site shall become and remain the property of Government and shall not be removed off the Site without the prior written approval of the G E
But whenever the works are finally completed the contractor shall at his own expense forthwith remove from the Site all surplus stores and materials originally supplied by him and upon such removal the same shall retest in and become the property of the Contractor
 It is argued that the true effect of this provision vesting the materials in the Government is that those materials must be taken to have been sold to it
That this is not the true meaning of the rule will be clear when regard is had to other provisions in the rules
Thus the materials which are used in the construction must be approved by the authorities as of the right quality and they could be condemned even after the construction is completed if they are not according to contract or of inferior quality in which case the contractor has to remove them and rebuild with proper materials
Terms such as these and those in r 33 quoted above are usually inserted in building contracts with the object of ensuring that materials of the right sort are used in the construction and not with the intention of purchasing them
If r 33 is to be construed as operating by way of sale of materials to the Government when they are brought on the site it must follow that the surplus materials remaining after the completion of the work must be held to have been resold by the Government to the contractor and that is not contended for
In Tripp vs Armitage 1 a builder who had been engaged to construct a hotel became insolvent and dispute arose between the assignees in bankruptcy and the proprietors of the hotel as to the title to certain wooden sash frames which had been delivered by the insolvent on the premises of the hotel and had been 1    16O3
443 approved by the clerk and returned to the insolvent for the purpose of being affixed
The contention on behalf of the proprietors was that the goods having been approved by their surveyor they must be held to have been appropriated to the contract and the property therein passed to them
In negativing this contention Parke B observed  It is said that the approbation of the surveyor is sufficient to constitute an acceptance by the defendants but that approbation is not given eo animo at all it is only to ascertain that they are such materials as are suitable for the purpose and notwithstanding that approval it is only when they have been put up and fixed to the house in performance of the larger contract that they are to be paid for In Reid vs Macbeth  Gray1 the facts were similar
The dispute related to certain plates which had been prepared by contractors to be fitted in a ship
These plates had been passed by the surveyor and were marked with the number of the vessel and with marks showing the position which each plate was to occupy in the vessel
The ship owners laid claim to these plates on the ground that by reason of the approval by their surveyor and by the markings the property therein must be held to have passed to them and that accordingly the assignees in bankruptcy of the contractors could not claim them
That contention war negatived by the House of Lords who hold that the facts relied on did not establish a contract of sale of the materials apart from the contract to construct the ship and that the title to the materials did not as such pass to the shipowners
The position is the same in the present case
Rule 33 has not the effect of converting what is a lump sum contract for construction of buildings into a contract for the sale of materials used therein
It must therefore be held following the decision in The State of Madras vs Gannon Dunkerley  Co Madras Ltd 2 that there has been no sale of the materials used by the petitioners in their constructions and that no tax could be levied thereon
1 2  444 Counsel for the petitioners raised two other contentions but they are unsubstantial and may be shortly disposed of
One was that in the definition of  turnover  in section 2 j el
ii which is what is applicable to the present case there is no reference to sale of goods and that accordingly even if Entry 48 in List II is to be interpreted in a wide sense the provision as actually enacted does not in fact tax the supply of materials in works contracts treating it as a sale
But the charging section is section 4 1 which makes it clear that the tax is on the gross turnover in respect of sales effected after the coming into force of the Act and the obvious intention is to include the supply of materials in works contracts within the category of taxable turnover
It was next contended that the definition of  dealer in section 2 d required that the person should be engaged in the business of selling or supplying goods that the petitioners who were building contractors were not engaged in the business of selling or supplying goods but of constructing buildings and that therefore they were not dealers within that definition and that as under section 4 the tax could be imposed only on a dealer the petitioners were not liable to be taxed
But if the supply of materials in construction works can be regarded as a sale then clearly building contractors are engaged in the sale of materials and they would be within the definition of  dealers  under the Act
There is no substance in this contention either
The petitioners however are entitled to succeed on the ground that the impugned provisions are not within the authority conferred by Entry 48 and a writ of prohibition should accordingly issue restraining the respondents from taking proceedings for assessment of tax in respect of materials supplied by the petitioners in construction contracts
We direct the parties to bear their own costs Petition allowed


Summary:
The Central Provinces and Berar Regulation of Manufac ture of Bidis Agricultural Purposes Act LXIV of 1948 a law which was in force at the commencement of the Constitu tion of India provided that the Deputy Commissioner may by notification fix a period to be an agricultural season with respect to such villages as may be specified therein and that the Deputy Commissioner may by general order which shall extend to such villages as he may specify prohibit the manufacture of bidis during the agricultural season
 The Act provided further that no person residing in a village specified in such order shall during the agricultur al season engage himself in the manufacture of bidis and no manufacturer shall during the said season employ any person for the manufacture of bidis An order was issued by the Deputy Commissioner under the provisions of the Act forbid ding all persons residing in certain villages from engaging in the manufacture of bidis during a particular season
A manufacturer of bidis and an employee in a bidi factory residing in one of the said villages applied under article 32 of the Constitution for a writ of mandamus alleging that since the Act prohibited the petitioners from exercising their fundamental right to carry on their trade or business which was guaranteed to them by cl
1 g of article 19 of the Constitution the Act was void Held i that the object of the statute namely to provide measures for the supply of adequate labour for agricultural purposes in bidi manufacturing areas of the Province could well have been achieved by legislation re straining the employment of agricultural labour in the manufacture of bidis during the agriculrural season without prohibiting altogether the manufacture of bidis
As the provisions of the Act had no reasonable relation 760 to the object in view the Act was not a law imposing reasonable restrictions within the meaning of cl
6 of Art 19 and was therefore void
ii The law even to the extent that it could be said to authorize the imposition of restrictions in regard to agri cultural labour cannot be held to be valid because the language employed was wide enough to cover restrictions both within and without the limits of constitutionally permissi ble legislative action affecting the right and so long as the possibility of its being applied for purposes not sanc tioned by the Constitution cannot be ruled out it must be held to be wholly void
The phrase reasonable restriction connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature beyond what is required in the interests of the public
The word reasonable implies intelligent care and deliberation that is the choice of a course which reason dictates
Legisla tion which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guarnteed in article 19 1 g and the social control permit ted by el
6 of article 19 it must be held to be wanting in that quality
Held also that the determination by the Legislature of what constitutes a reasonable restriction is not final and conclusive
The Supreme Court has power to consider whether the restrictions imposed by the Legislature are reasonable within the meaning of article 19 cl
6 and to declare the law void if in its opinion the restrictions are not reasonable