Civil Appeal No 509Nof 1975
From the Judgment and Order dated 2571973 of the Madhya Pradesh High Court in First Appeal No 118 of 1966
AK Ganguli and CN Sreekumar for the Appellant
RB Misra and SK Agnihotri for the Respondents
The Judgment of the Court was delivered by MM PUNCHHI J
This appeal by special leave is against a judgment and decree in reversal passed by a Division Bench of the High Court of Madhya Pradesh at Jabalpur
One has straightaway to come to grips with some basic facts of the case alongside the historic backdrop influenc ing their course
The property in dispute is a medium sized house bearing No 4941 Partap Sagar Ward known as Gulab Rai Wala House in the city of Chhatarpur
In the plaint filed by the District Collector Chattarpur dated May 5 1962 it was valued at Rs40000 and its rental value barely as Rs11477 NP
In British days the State of Chattarpur like other such States was an independent State under the paramountcy of the British Crown
The British Crown was the suzerain power as acknowledged by the Indian States which owed a modified allegiance to it but none to the Government of India
On India having obtained independence the suzer ainty of the British Crown over the Indian States lapsed simultaneously because of section 7 of the Indian Independ ency Act 1947
It is a matter of history that immediately thereafter all but three of the Indian States acceded to the Dominion by executing Instrument of Accession
Chattarpur was one such State
The new Dominion of India was empowered to accept such like accessions by a suitable amendment in the Government of India Act 1935
The sovereignty of the acceding States was expressly recognised and safeguarded
The identical Instrument of Accession which each Ruler 45 signed was in the exercise of his sovereignty in and over his State and clause 8 provided Nothing in this Instrument affects the continuance of my sovereignty in and over this State or save as provided by or under this Instrument the exercise of any powers au thority and rights now enjoyed by me as Ruler of this State or the validity of any law at present in force in this State To put it differently the effect of the accession was to retain full autonomy and sovereignty to the Rulers in their respective States except on three subjects namely Defence External Affairs and Communications
These alone were trans ferred to the Central Government of the new Domimon
On March 13 1948 thirty five States in Bundelkhand and Baghelkhand regions agreed to unite themselves into one State which was to be called the United State of Vindhya Pradesh
Chattarpur being one such State in Bundelkhand area was a party thereto
The signing thirty five Rulers had brought about the new State into being purely as a domestic arrangement between themselves and not as a treaty with the Dominion of India
Obviously there was surrender of a frac tion of the sovereignty of each Ruler to the newly created State but there was no further surrender of sovereign powers to the Dominion of India beyond those already surrendered in 1947 relating to Defence External Affairs and Communica tions
Despite the readjustment the sum total of the sover ignties which had resided in each before the covenant then resided in the whole and its component parts none of it was lost to the Dominion of India
The articles of the covenant so far as they are rele vant for our purposes are articles VI and XI which are reproduced hereafter ARTICLE VI 1 The Ruler of each Covenanting State shall as soon as may be practicable and in any event not later than the 1st May 1948 make over the Administration of his State to the Raj Pramukh a all rights authority and jurisdiction belonging to the Ruler which appertain or are incidental to the Govern 46 ment of the Covenanting State shall vest in the United State and shall hereafter be exerciable only as provided by this Government or by the Constitution to be framed thereunder b all duties and obligations of the Ruler pertaining or incidental to the Government of Covenanting State shall devolve on the United State and shall be discharged by it c all the assets and liabilities of the Covenanting State shall be the assets and liabilities of the United State
XXX XXX XXX XXX ARTICLE XI 1 The Ruler of each Covenanting State shall be entitled to the full ownership use and enjoyment of all private properties as distinct from State Properties belonging to him on the date of his making over the Adminis tration of the State to the Raj Pramukh
2 He shall furnish to the Raj Pramukh before the 1st May 1948 an inventory of all the immovable properties securities and cash balances held by him as such private property
3 If any dispute arises as to whether any item of property is the private property of the Ruler or State Property it shall be referred to a Judicial Officer to be nominated by the Government of India and the decision of that person shall be final and binding on all parties con cerned Despite the distinction drawn in Article XI there was in reality no distinction between State property and the property privately owned by a Ruler since the Ruler was the owner of all the property in the State
For the purposes of arrangement of finance however such a distinction was practically being observed by all Rulers
The apparent effect of the covenant was that all the property in the State vested in the United State of Vindhya Pradesh except private property which was to remain with the Rulers
As is evident the Ruler was required 47 under Article XI to furnish to the Raj Pramukh before May 1 1948 an inventory of all immovable properties securities and cash balances held by him as such private property
Conceivably on a dispute arising as to whether any item of property was or was not the private property of the Ruler and hence state property it was required to be referred to a Judicial Officer to be nominated by the Government of India and the decision of that officer was to be final and binding on all parties concerned
Despite the stern language of Article XI requiring a Ruler to furnish the list of his private properties by May 1 1948 the covenant did not contain any clause or article providing penal consequences which would or were likely to follow in the event of a Ruler not furnishing the list of private properties before that date
Nothing is available in the covenant and none was pointed out to us that if a Ruler failed to furnish an inventory of his private properties before May 1 1948 he was debarred from furnishing it at a later stage and that failure of his part had the effect of divesting him of title to his private properties
The House in dispute was built by the then Ruler Mahara ja Sir Vishvanath Singh Ju Deo to accommodate Gulab Rai his Private Secretary and that is how it acquired its name as Gulab Rai Wala house
The parties were at variance about the subsequent user of the house whether it was for State pur poses or private purposes of the Ruler
The factual undenied positioin is that the Ruler of Chattarpur on July 5 1948 vide Exhibit D 13 5 submitted a list to the Raj Pramukh of the United State of Vindhya Pradesh of his private proper ties and in the said list the house in dispute namely Gulab Rai Wala house was shown as the private property of the Ruler by the then Maharaja Shri Bhawani Singh Ju Deo
In the following month on August 25 1948 the said Mahara ja Shri Bhawani Singh Ju Deo made a gift of the house in dispute in favour of his father in law Dewan Shanker Partap Singh now deceased and represented by his legal representa tives appellants
His gift has become the subject matter of dispute in the suit out of which this appeal has arisen for grounds to be taken note of later at an appropriate stage
By means of another agreement dated December 26 1949 between the Governor General of India and the Rulers of the States forming the United State of Vindhya Pradesh the covenant entered into on March 13 1948 was abrogated
The articles of this agreement in so far as they are relevant for our purposes read as under 48 ARTICLE I As from the first day of January 1950 the Covenant entered into in March 1948 by the Ruler of certain States in Bun delkhand and Baghelkhand for the formation of the United State of Vindhya Pradesh hereinafter referred to as the Covenant shall stand abrogated
ARTICLE II As from the aforesaid day the United State of Vindhya Pradesh shall cease to exist and all the property assets and liabilities of that State as well as its right duties and obligations shall be those of the Government of India
ARTICLE III The Ruler of each of the States specified in the Schedule to this agreement hereinafter referred to as the Covenanting States  hereby cedes to the Government of India with effect from the aforesaid day full and exclusive authority jurisdiction and powers for and in relation to the gover nance of that State and thereafter the Government of India shall be competent to exercise the said powers authority and jurisdiction in such manner and through such agency as it may think fit
XXX XX XX X XX ARTICLE VII 1 The Ruler of each Covenanting State shall be entitled to the full ownership use and enjoyment of all private proper ties as distinct from State Properties belonging to him on the date of his making over the Administration of the State to the Raj Pramukh in pursuance of the Covenant 2 If any dispute arises as to whether any item of property is the private property of the Ruler or State property it shall be referred to a judicial officer to be nominated by the Government of India and the decision of that officer shall be final and binding on all parties concerned   49 This Agreement of the year 1949 paved the way for the Cen tral Government appointing a Chief Commissioner as Head of the Administration of Vindhya Pradesh followed by the Parliament making it a Part C  State in the year 195 1 followed by the creation of the State of Madhya Pradesh in the year 1956 under the States Reorganisation Act
And such position continues till date
As is prominent under the covenant of March 13 1948 and as repeated in the agreement of December 26 1949 any dispute arising whether any item of property was the pri vate property of the Ruler or State property was to be referred to a Judicial Officer to be nominated by the Gov ernment of India and the decision of that officer was to be final and binding on all parties concerned
It appears however that a letter dated January 22 1950 copy whereof was Exhibit P 9 was sent by Shri NM Buch Secretary in the Ministry of States New Delhi to the Ruler suggesting that a Conference was held between him and the Ruler at Naugong from 16th to 18th September 1949 and some deci sions were taken with regard to the private properties of the Ruler and the list of such property as finally emerging was Exhibit P 10 attached with the letter Exhibit P 9
Item No 22 in that list being Gulab Rai Wala house was shown to be State property as per decision taken in the said Conference
From these documents the High Court when re solving the claims of the State and the donee has taken the view that originally the property in dispute was claimed by the ruler as his private property but on agreement it was decided that it be State property and further the legal effect thereof was that with effect from May 1 1948 the date of agreement of merger the property in dispute stood vested in the new Union
The second factor which weighed with the High Court to conclude in the aforesaid manner was that listing of properties whether State or private was open to objection and could be settled by a Judicial Officer to be nominated by the Government of India as per the articles aforereferred to and a raiseable dispute could otherwise be settled amicably mutually Mr Buch s letter being indicative of that
On that basis the gift deed dated August 25 1948 was held by the High Court to be ineffec tive the said property having already vested in the State with effect from a prior date on May 1 1948
And since after that date the Ruler was incompetent to effect a valid gift deed in favour of anyone the State s claim of posses sion and mesne profits was held irresistable
Undeniably the Dewan Shanker Partap Singh was in pos session of the house in dispute when the suit was instituted by the State of Madhya Pradesh on May 5 1962
The suit was filed almost 14 years of 50 the gift in his favour
The gift was challenged as null and void and ineffective for the reasons i the gift deed was written on an ordinary paper ii was unregistered iii was not signed by any witness iv did not bear the seal of the Maharaja v prior to the date of the gift the power of the Maharaja was transferred to Vindhya Pradesh Government and the said house was not his private property and vi the house in dispute was already declared to be the property of the Vindhya Pradesh Government as per terms of the cove nant between the ex Ruler of Chattarpur and the Government of India and the Civil Court was not competent to question the legality of the conditions of the said covenant
On that basis possession of the house was claimed from the donee Dewan Shanker Partap Singh as also arrears of rent from August 25 1949 onwards at the rate of Rs11477 NP totall ing Rs18866 before the trial court
The suit was contested by the defendant Shanker Partap Singh contending that i the gift of August 25 1948 was not void and inoperative and that there was no legal re quirement to use a particular kind of paper for executing a gift deed ii non registration thereof had no legal effect as the executant had admitted execution of the document iii the Transfer of Property act was not applicable at the relevant time iv the deed was signed by the Ruler and the absence of seal was of no consequence v the property was the private property of the Maharaja and vi finally the Ruler had every right to make such gift
Besides a number of other pleas were raised which are unnecessary to be dealt with for the present purposes
Similarly the pleas in the replication countering the pleas in the written state ment also need not require any attention for the present purposes for the way in which we propose to deal with this appeal
The trial Court framed a number of issues which attract ed voluminous evidence to be led by the parties
The Mahara ja of Chhatarpur was examined as defendant s witness and owned making of the gift in favour of his father in law
He admitted however that Shri Buch had met him in connection with the covenant but he denied that he had received any letter Exhibit P 9 from Shri Buch or the lists Exhibits P 10 to P 12 regarding his private and State properties were a part thereof
His evidence was suggestive of there being no agreement between him and Shri Buch to change the list of properties
The trial Court s clear findings were that the property in dispute was not that of the Maharaja but that of the defendant as it had been gifted to hun by the Maharaja on August 25 1948 and that the house was mistakenly shown later as State property 
In that view of the matter the trial 51 Court dismissed the suit
The appeal of the State of Madhya Pradesh was however allowed by the High Court on the view taken that the property in dispute had vested in the United States of Vindhya Pradesh on May 1 1948 and that thereaf ter no valid gift could be made by the Ruler in favour of the defendant
The High Court further held that whatever rights and powers the Ruler had as a sovereign ceased to exist after May 1 1948 and the said date was fixed not later than May 1 1948 and the gift deed made thereafter on August 25 1948 could not give the defendant a valid title to the property on that basis
With regard to damages the High Court took the view that the rate of Rs56 per mensem as at one time demanded initially by the State should be the basis for assessment of damages
In that view of the matter the suit of the State of Madhya Pradesh Government was decreed for possession but reducing the damages to Rs1673535 paise
And this has given rise to the present appeal
History of the covenant entered into by the Rulers and the final integration finds recognition in Virendra Singh and others vs State of Uttar Pradesh  The significant passage as available at page 4 19 of the report is worthy of reproduction here After this on 13th March 1948 thirty five States in Bundelkhand and Baghelkhand including Charkhari and Sarila agreed to unite themselves into one State which was to be called the United State of Vindhya Pradesh
In pursuance of this agreement each of the thirty five Rulers signed a covenant on 18th March 1948 which brought the new State into being
It is important to note that this was a purely domestic arrangement between themselves and not a treaty with the Dominion of India
Each Ruler necessarily surren dered a fraction of his sovereignty to the whole but there was no further surrender of sovereign powers to the Dominion of India beyond those already surrendered in 1947 namely Defence External Affairs and Communications
Despite the readjustment the sum total of the sovereignties which had resided in each before the covenant now resided in the whole and its camponentparts none of it was lost to the Dominion of India Emphasis supplied Only a fraction of sovereignty to the whole was surrendered by the Ruler not his total sovereignty
Though it was expected by Article XI of the covenant of the Ruler to submit a list of his private properties 52 before May 1 1948 his individual sovereign power did not stand taken away after May 1 1948
He was still sovereign as is our view to submit the list beyond that date and there was no penal clause in the covenant to penalise him for belated observance or to treat belated observance non est
It is the admitted case that factually the Ruler of Chattarpur had in his list of July 10 1948 shown the property in dispute to be his private property and this was followed by a gift of it in writing on August 25 1948 in favour of his father in law
It is in the assertion of his sovereign power that he gave his list on July 5 1948 Exhibit D 13 5 and it is in assertion of the same sover eign power as also individual that he made the gift of the house in dispute to his father in law
Support for such view is available in Virendra Singh s case supra from the following passage occurring at page 429 of the report   
The Rulers of Charkhari and Sarila retained at the moment of final cession whatever measure of sovereignty they had when paramountcy lapsed less the portion given to the Indian Dominion by their Instruments of Accession in 1947 they lost none of it during the interlude when they toyed with the experiment of integration
There was then redistribution of some of its aspects but the whole of whatever they possessed before the integration returned to each when the United State of Vindhya Pradesh was brought to an end and ceased to exist
Thereafter each acceded to the Dominion of India in his own right Emphasis supplied
It is thus plain that the Ruler of Chhatarpur lost none
of his sovereignty by integrating his State with other States except to the extent in which it was arranged or redistributed on some of its aspects
It is in exercise of that sovereign power that the Ruler in the manner indicated above had set apart the property in dispute as one of his private properties in the list submitted on July 5 1948
It is nobody s case that he could not submit such a list on July 5 1948
Further in exercise of his sovereign as also individual right over his private property that he trans ferred the house in dispute to his father in law on August 25 1948
In these circumstances the suggested Conference which took place later in September 1949 between him and Shri NM Buch Secretary in the Ministry of States New Delhi evident from letter Exhibit P 9 dated January 22 1950 and the lists Exhibits P 10 to P 12 appended there with is not of much significance
In the first place the Ruler denied when appearing as a witness in the trial as having received any such letter or the lists appended there with sug 53 gestive of the fact that he had reconverted the donated property to be a State property
In the second place but for the said letter purportedly issued at a time when the State of Chhatarpur had otherwise ceded to the Central Government vide agreement dated January 1 1950 there was no direct evidence forth coming for such conference
In the third place even if such Conference had taken place in September 1949 as suggested the minutes thereof cannot be treated as amounting to a divestiture of the gift made in favour of the father in law
Fourthly the Ruler had no sovereign power towards administering his State which had become part of the integrated United State in terms of Article VI of the covenant and during the integration he could not exercise such a sovereign power so as to take away the property of a private person and treat it as State property because the property in dispute having once vested in the defendant appellants could not be divested in the manner suggested
And lastly there was no raiseable ques tion or issue which the Ruler could while sitting with Shri Buch decide amicably without the aid of the Judicial Offi cer nominated by the Government entering upon such dispute because before integration he owned his State and its properties and there could legitimately not arise a dispute as to which was his private property or State property and thus its settlement by a mutual consent did not arise
Taking thus the totality of these circumstances in view we are driven to the conclusion that the High Court committed an error that the Ruler lost his sovereign right to ear mark the property in dispute as his private property after May 1 1948 or that the said property vested in the State with effect from that date or that the letter Exhibit P 9 of Shri NM Buch and the lists attached thereto had the effect of divesting the appellants of the title to the property in dispute in favour of the State with effect from that date
In that strain factual position having not been denied the validity of the gift dated August 25 1948 cannot be ques tioned on the grounds enumerated in the plaint due to exercise of sovereign power of the Ruler in the grant there of at that point of time
Once that is held the claim for damages too caves in
We hold it accordingly
For the view above taken we allow this appeal set aside the judgment and decree of the High Court and dismiss the suit of the State of Madhya Pradesh with costs
RNJ Appeal al lowed


Summary:
A common question of law having arisen for determination in these petitions filed under Article 32 of the Constitu tion they are disposed of by a Common Judgment though the petitioners dealers are different and carry on their busi ness in different states and have challenged the respective provisions of law by which their cases are governed
The petitioners in WP 80388 carry on the business of selling cinematographic Idms and other equipments like projector sound recording and reproducing equipments X Ray films etc
in the State of UP and in Delhi
The petition ers receive these goods from their manufacturers outside the State of UP
In UP there is a single point levy of Sales Tax
The State of Uttar Pradesh issued two notifications under section 4A of the Uttar Pradesh Sales Tax Act and under Section 85 of the Central Sales Tax Act exempting new units of manufacturers as defined in the Act in respect of the various goods for different periods ranging from 3 to 7 years from payment of Sales Tax
The petitioners by these petitions challenge the constitutional validity of these Notifications
They have also challenged the constitutional validity of section 4A of the Uttar Pradesh Sales Tax Act and sections 85 of the Central Sales Tax Act and the proceedings taken by the Respondent under section 5A of 732 the said Act
The case of the petitioners is that they are discriminated on account of these notifications as the manufacturers covered by these Notifications are entitled to sell the articles manufactured by them without liability to pay sales tax while the manufacturers in other states and non manufacturers of the same article selling the same goods in the State are liable to pay sales tax under the local Sales Tax Act as well as under the Central Sales Tax Act
Their contention therefore is that they became subject to gross discrimination and their business was crippled
In these premises the petitioners challenge the provisions as ultra vires the constitution being violative of the provi sions of Articles 301 to 305 of part III of the Constitution as also Articles 14 and 19 of the Constitution
The Respondents counter the assertion of the petition ers
According to them the contention put forward by the petitioners ignores the basic features of the Constitution and also the fact that the concept of economic unity may not necessarily be the same as it was at the time of the Consti tution making the state which was technically and economi cally weak in 1950 cannot be allowed to remain in the same state of affairs
The state has to give subsidy and grant exemptionsconcessions for the economic development of the state to new industries
It was urged that if all the states are economically strong or developed then only can economic unity as a whole be assured or strengthened
Dismissing the petitions this Court HELD Sales Tax Laws in all the States provide for exemp tion
Power to grant exemption is inherent in all taxing Legislations
Economic unity is a desired goal
Development on parity is one of the commitments of the Constitution
Directive Principles enshrined in Articles 38 and 39 must be harmonised with economic unity as well as economic develop ment of developed and under developed area
756H 757A B Taxes may sometime amount to restrictions but it is only such taxes as directly and immediately restrict trade that would fail within the mischief of article 301
740E See Atiabari Tea Co Ltd vs The State of Assam  Ors  and Automobile Transport Rajasthan Ltd vs The State of Rajasthan  Ors 1963 1 SCR 491
The taxes which do not directly and immediately restrict or 733 interfere with trade commerce and intercourse throughout the territory of India would therefore be excluded from the ambit of article 30 1 of the Constitution
It has to be borne in mind that sales tax has only an indirect effect on trade and commerce
747F In the instant case the general rate applicable to locally made goods is the same as that on imported goods
Even supposing without admitting that Sales Tax is covered by article 301 as a tax directly and immediately hampering the free flow of trade it does not follow that it fails within the exemption of article 304 and it would be hit by article 30 1
Still the general rate of tax which is to be compared under article 304a is at par and the same qua the locally made goods and the imported goods
751G H Concept of economic barrier must be adopted in a dynamic sense with changing conditions
What constitutes an economic barrier at one point of time often ceased to be so at anoth er point of time
It will be wrong to denude the people of the state of the right to grant exemptions which flow from the plenary powers of legislative heads in List III of the 7th Schedule of the Constitution
752A B Basically the concept of equality embodied in Articles 304a and 16 are the same
Article 14 enjoins upon the state to treat every person equal before the law while Article 304a enjoins upon the state not to discriminate with respect to imposition of tax on imported goods and the locally made goods
753C It is not that with changing times the meaning changes but changing times illustrate and illuminate the meaning of the expressions used
The connotation of the expressions used takes its shape and colour in evolving dynamic situa tions
757B C James vs Commonwealth of Australia at 613 Firm ATB Mehtab Majid  Co vs State of Madras  Anr   A Hajee Abdul Shakoor  Co vs State of Madras  at 225 State of Madras vs NK Nataraja Mudaliar  at 847 Andhra Sugars Ltd  Anr etc vs State of Andhra Pradesh  Ors   Bengal Immunity Co Ltd vs State of Bihar at 754 State of Madhya Pradesh vs Bhailal Bhai  Ors  at 268 9 Rattan Lal  Co  Anr
vs The Assessing Authority  Anr  at 557 India Cement  Ors
vs State of Andhra Pradesh  Ors
   Weston Electroniks  Anr
vs State of Gujarat  Ors 568 at 571 CAF Seeling Inc vs Charles H Baldwin at 1038 Smt
Ujjam Bai vs State of UP 1963 1 SCR 778 at 851 Coffee Board Bangalore vs Joint Commercial Tax Officer Madras  Anr
  at 156 V Guruviah Naidu  Sons vs State of Tamil Nadu  Anr  at 1070 Kathi Raning Rawat vs The State of Saurashtra   Kalyani Stores vs The State of Orissa  Ors   Bharat General  Tex tiles Industries Ltd vs State of Maharashtra 72 STC 354 H Anraj vs Government of Tamil Nadu  West Bengal Hosiery Assn
 Ors
vs State of Bihar  Anr
   State of U P  Ors
vs Babu Ram Upadhya  at 702 State of Tamil Nadu vs Hind Stone etc  at 757 State of Mysore vs H Sanjeeviah   Kailash Nath  Anr
vs State of UP  Ors
 AIR 1957 SC 790 at 791 State of UP  Ors
vs Renu sagar Power Co  Ors  at 100 Ms Narinder Chand Hem Raj  Ors
vs Lt Governor Administrator UT Himachal Pradesh  Ors at 751 and Associ ated Tanners Vizianagram APv
CTO Vizianagram Andhra Pradesh  Ors   reffered to