Appeal No 203 of 1964
Appeal from the judgment and decree dated January 29 1963 of the Rajasthan High Court in Civil Regular First Appeal No 29 of 1956
Sarjoo Prasad and T Satyanarayana for appellant
R Ganapapathy Iyer and BRGK Achar for the respondent
The Judgment of the Court was delivered by Ramaswami J
This appeal is brought by certificate against the judgment and decree of the Rajasthan High Court dated January 29 1963
The appellant firm Bansidhar Premsukhdas brought a suit which is the subject matter of this appeal against the State of Rajasthan on March 31 1953 for the recovery of Rs 866463 in the Court of District Judge Bharatpur
The case of the appellant was that the former State of Bharatpur with a view to increase the trade and commerce in the said State decided to establish a Mandi at Bharatpur where at the material time a TB Hospital was located It decided to sell plots for certain fixed amounts and therefore issued a notification on May 18 1946 offering the plots by public advertisement for sale on certain terms and conditions
The notifification exhibit
4 was published in Bharatpur Rajpatra and one of the concessions proposed to be granted was embodied in cl 3 of the notification which stated If any commodity is imported from outside into the Mandi and is sold for consumption within the State or if any commodity received in the Mandi from within the State and is exported in both cases a reduction of 25 in the customs duty prevailing at the time of the import and export of such commodities will be allowed
This concession shall not be available in case of vegetable Ghee
 The notification contained other terms and conditions relating to auction sale such as the prices for different kinds of plots available and the maximum number of plots which a person could purchase
A committee for supervising the auction was also formed and the notification laid down the procedure for the sale of plots and certain other conditions such as deposit of one fourth sale money at the 83 time of auction etc
The appellant purchased plots Nos 8 and 9 for Rs 4600 at a public auction and two sale deeds sanad nilam were issued to the appellant on October 10 1946
The Government of Bharatpur and after its merger the Government of United State of Matsya and thereafter the present Rajasthan State carried out the promise contained in cl 3 of the Bharatpur notification and allowed reduction of 25 per cent in the customs duty but on January 16 1951 the Rajasthan Government issued notification No F418 SR49 which reads as follows Now therefore Government of Rajasthan is hereby pleased to direct that with an immediate effect all free Mandies and Zones including the area comprising the former Kishangarh State and the Bhim District of the former Rajasthan State shall be abolished and that in consequence all the Customs concession hitherto enjoyed by or applicable to these Mandies or Zones shall cease to have force and duties of customs shall be levied and collected in such Mandies or Zones in accordance with the revised tariff amended from time to time
 The appellant and other traders thereupon made representation to the Rajasthan Government on January 29 1951 and pending the disposal of the representation the Customs authorities agreed to keep the amount of 25 per cent by way of Amanat 
The State of Rajasthan ultimately decided on May 25 1951 that the reduction in the customs duty could not be conceded
On March 31 1953 the appellant filed the present suit in the Court of the District Judge of Bharatpur for the recovery of the excess amount of customs duty paid to the Rajasthan Government
The main defence of the State Government was that item No 3 of the Bharatpur notification was a matter of concession and could not be claimed as of right and the Rajasthan State as successor State was not bound by the contracts of the former State and the applicability of the concessions had also become impracticable on the formation of Rajasthan
The District Judge of Bharatpur by his judgment dated March 31 1956 held that item No 3 of Bharatpur notification was a term of sale between the parties and the Rajasthan State was bound by it and the succeeding States have recognised the concessions granted to the appellant and therefore the suit of the appellant should be decreed
The State of Rajasthan took the matter in appeal to the Rajasthan Nigh Court which allowed the appeal and dismissed the suit holding that item No 3 of the Bharatpur notification was not a part of the contract of sale and even if it was held to be a part of the contract the successor State of Rajasthan did not recognise it and was not therefore bound by it
84 The first question involved in this appeal is whether cl 3 of the Bharatpur notification exhibit 4 was a term of the contract of sale between the appellant and the State of Bharatpur
It Was argued on behalf of the appellant that exhibit 4 which is the notification dated May 18 1946 regarding the sale of plots by the Bharatpur State was an offer of purchase of plots on terms and conditions made in that notification
It was contended that the offer was made to the public as a whole and after it was accepted by the appellant a valid contract came into existence
The opposite view point was presented on behalf of the respondent
It was submitted that the concession granted in cl 3 did not relate to nor did it form a part of the contract of sale of the plots of the Mandi
It was pointed out that the concession of 25 per cent reduction in customs duty will not merely enure to the benefit of the purchaser of the plots but also enure to the benefit of the person trading in the shop
The benefits were generally offered for trade and business in the Mandi and cannot be considered as an offer of benefit only to the prospective purchasers of the plots
The commodities for which the concession was granted might be in the hands of purchasers and builders of plots their tenants and licensees or other dealers
It was therefore not possible to hold that the State Government offered the tax concessions as a reciprocal promise in connection with the contracts of sale with the appellant and the latter had no justification for treating the benefits offered as consideration in return for the purchase of the plots and the construction of shop buildings
It is also pointed out by learned Counsel on behalf of the respondent that there are certain conditions in the Bharatpur notification exhibit 4 which can
not in the nature of things be treated as terms of the sale
Reference was made in this connection to cls
5 6 7 10 and 11
In our opinion there is much force in the argument advanced on behalf of the respondent but it is not necessary to express any concluded opinion on this aspect of the case
We shall assume in favour of the appellant that cl 3 of the Bharatpur notification exhibit 4 was a term of the contract of sale of plots 8 and 9 of the Mandi
Even upon that assumption the suit of the appellant must fail for we shall presently show that there was no recognition of the contractual right by the succeeding State of Rajasthan and in the absence of such recognition the contract between the former State of Bharatpur and the appellant cannot be legally enforced
We shall proceed therefore to consider the next question namely whether the term of the contract was binding upon the successor State of Rajasthan on the assumption that cl 3 of the Bharatpur notification exhibit 4 was an integral term of the contract between the appellant and the Government of Bharatpur State
It is not correct to say as a matter of law that the successor State automatically inherits the rights and obligations of the merged State
There is no question of suborgation the successor State is not 85 subrogated ipso jure to the contracts with the merged State
The true legal position is that the contract of the predecessor State terminates with the change of sovereignty unless the contract is ratified by the succeeding sovereign State
It is now well established in law that the contractual liability of a former State is binding on a succeeding sovereign State only if it recognises that contractual liability
The season is that the taking over of sovereign powers by a State in respect of territory which was not till then a part of it is an act of State and the municipal courts recognised by the new sovereign have the power and jurisdiction to investigate and ascertain only such rights as the new sovereign has chosen to recognise or acknowledge and such recognition may be express or may be implied from circumstances
In other words accession of one State to another is an act of State and the subjects of the former State may claim protection of only such rights as the new sovereign recognises as enforceable by the subjects of the former State in his municipal courts
In The Secretary of State in Council of India vs Kamachee Boye Saheba1 the jurisdiction of the courts in India to adjudicate upon the validity of the seizure by the East India Company of the territory of Rajah of Tanjore as an escheat on the ground that the dignity of the Raj was extinct for want of a male heir and that the property of the late Rajah lapsed to the British Government fell to be determined
The Judicial Committee held that as the seizure was made by the British Government acting as a sovereign power through its delegate the East India Company it was an act of State and the Municipal Court had no jurisdiction to inquire into the propriety of the action
At page 529 of the Report Lord Kingsdown observed The transactions of independent States between each other are governed by other laws than those which Municipal Courts administer Such Courts have neither the means of deciding what is right nor the power of enforcing any decision which they may make
 In another case Vajesingji Joravarsingji vs Secretary of State for India in Council1 the Judicial Committee observed as follows  when a territory is acquired by a sovereign State for the first time that is an act of State It matters not how the acquisition has been brought about
It may be by conquest it may be by cession following on treaty it may be by occupation of territory hitherto unoccupied by a recognized ruler
In all cases the result is the same
Any inhabitant of the territory can make good in the municipal courts established by the new sovereign only such rights as that sovereign has through his officers recognised
Such rights as he had under the rule of precedes 1 Moore s IA 476
2 51 I A 357
86 sors avail him nothing
Nay more even if in a treaty of cession it is stipulated that certain inhabitants should enjoy certain rights that does not give a title to those inhabitants to enforce these stipulations in the municipal courts
The right to enforce remains only with the high contracting parties
 In Secretary of State vs Sardar Rustom Khan and Others1 a question arose whether the rights of a grantee of certain proprietary rights in lands from the then Khan of Kalat ceased to be enforceable since the agreement between the Khan and the Agent to the Governor General in Baluchistan under which the Khan had granted to the British Government a perpetual lease of a part of the Kalat territory at a quit rent and had ceded in perpetuity with full and exclusive revenue civil and criminal jurisdiction and all other forms of administration
In delivering the opinion of the Judicial Committee Lord Atkin observed as follows In this case the Government of India had the right to recognise or not recognise the existing titles to land
In the case of the lands in suit they decided not to recognize them and it follows that the plaintiffs have no recourse against the Government in the Municipal Courts
 The principle that cession of territory by one State to another is an act of State and the subjects of the former State may enforce only those rights which the new sovereign recognises has been accepted by this Court in Ms Dalmia Dadri Cement Co Ltd vs The Commissioner of Income tax2
The State of Saurashtra vs Jamadar Mohamat Abdulla and others1
Maharaja Shree Umaid Mills Ltd vs Union of India 4 and State of Gujarat vs Vora Fiddali Badruddin Mithibarwala5
On behalf of the appellant it was contended that there was an implied recognition by the Rajasthan State of the contractual liability since the exemptions were continued upto January 13 1951 and were revoked with effect from that date by the notification No F418SR49
We are unable to accept this argument as correct
Before the process of integration began each Covenanting State was a separate geographical unit for customs purposes and had its own customs laws and barrier
After the formation of the Matsya Union on March 18 1948 there was a promulgation of the Matsya Customs Ordinance by the Raj Pramukh on September 21 1948
The United State of Rajasthan was constituted on May 15 1949 when there was merger of Matsya Union in the United State of Rajasthan
On August 9 1949 the Raj Pramukh promulgated the Rajasthan Regulation of Customs Duties Ordinance 1 68 IA 100
2 1959 SCR 729
3 4 1963 Supp 2 SCR 515
5  87 No 16 of 1949
Section 3 of this Ordinance abolished duties on the transport of goods within the territory of Rajasthan
Sectio n Section 3 reads as follows 3
No duty leviable on internal transport With effect from such date as may be notified by the Government in the Rajasthan Gazette no duties of Customs shall be levied and collected in respect of any goods transported within Rajasthan notwithstanding anything to the contrary in any law or rule instrument of usage having the force of law in any part of Rajasthan and any such law rule instrument or usage shall be deemed to be repealed to that extent Provided that the Government may by notification in the Rajasthan Gazette a Impose a duty of customs on the transport of goods from or to any part of Rajasthan to or from such other part thereof at such rate or rates and with effect from such date as may be specified in the notification or b direct that in respect of the transport of goods of such description and from or to such part of Rajasthan as may be specified in the notification a sum of money equal to the amount of the duty leviable on the export on such goods shall be deposited with the appropriate Customs Officer of the place from where the goods are intended to be transported
 section 4 is the charging section with regard to import and export duties
Section 41 states 4
Duties on export and import 1 Until a revised tariff is introduced under sub section 2 Customs duties on the export or on the import of goods shall be levied and collected in accordance with the tariff for the time being in force in the place from or into which goods leviable with a duty of Customs have been exported or imported as the case may be
 sub section 2 of section 4 provides The Government may by notification in the Rajasthan Gazette issue a revised tariff specifying the goods or class of goods in respect of which and the rate at which duties of Customs shall be levied and collected with effect from such date as may be specified in the notification on the export or on the import of such goods or class of goods eventually on August 15 1949 a uniform revised tariff was made applicable to the whole of Rajasthan
Section 6 provided that the existing law in force of the covenanting States shall regulate the GI 8 88 collection of such duties and other ancillary duties in relation thereto unless altered modified or repealed by a competent legislative authority of Rajasthan and thus saved existing law with regard to the procedure and ancillary matters
It is manifest on examination of the provisions of this Ordinance that there was a repeal of all Customs laws of the Covenanting States in so far as they provided for the levy and collection of duties in the particular territorial limits of the Covenanting States and the Ordinance introduced a new law imposing duty on export and import into Rajasthan State as a whole
Further after the issue of a revised tariff the old tariffs under the various laws of the Covenanting States also stood repealed
There is no express provision in the Ordinance saving the previous contractual rights with regard to customs duty
In the absence of any such express provision it must be held that all existing contracts were repudiated and cancelled
The enjoyment of the concession by the appellant after the formation of the Rajasthan State is clearly referable to the law under which customs concessions could be granted and recognised
This is borne out by the notification dated January 16 1951 which appeared in the Rajasthan Raj Patra which itself refers to sections 10 and 33 of the Matsya Customs Ordinance No 14 of 1948 by which customs concessions were revoked
We are therefore of the opinion that the High Court has rightly taken the view upon an analysis of the evidence adduced in the case that there was no recognition of the contractual liability by the succeeding State of Rajasthan
We shall however assume in faboure of the appellant that the State of Rajasthan recognised the contractual right of the appellant with regard to the exemption of tax
Even upon that assumption the suit of the appellant must fail for the contractual liability must be taken to have been superseded by the enactment of the Rajasthan Regulation of Customs Duties Ordinance No 16 of 1949 promulgated by the Raj Pramukh on August 91949
Before we deal with this question it is desirable to indicate the constitutional developments which resulted in the inclusion of the former Bharatpur State into the Part B State of Rajasthan which came into existence on January 26 1950
The former Bharatpur State remained a separate entity till March 18 1948 though it had acceded to the Dominion of India after August 15 1947 with respect to three subjects namely communications defence and external affairs
In 1948 however the process of merger in Rajasthan began and the first merger that took place was of the former States of Alwar Bharatpur Dholpur and Karauli which formed the Matsya Union as from March 18 1948 by a Covenant entered on February 28 1948
After the formation of the Matsya Union the Raj Pramukh promulgated the Matsya Customs Ordinance 1948 on September 21 1948
Section 2 of that Ordinance repealed the levy of 89 customs duty in force in all the Covenanting States and applied the provisions of the new Ordinance to the whole of the United State of Matsya
Section 10 of the Ordinance provided for the charge of customs duty on goods or class of goods to be notified in the State Gazette from time to time
Section 33 of the Ordinance similarly granted power to the State Government to exempt any goods or class of goods imported or exported from the United State of Matsya from payment of customs duty leviable thereon
Then came another union of certain other Rulers in Rajasthan in March 1948 by which these Rulers united under the Ruler of Udaipur to form what later came to be known as the Former State of Rajasthan
In March 1949 the United State of Rajasthan was formed by Covenant entered into by fourteen Rulers of Rajasthan including those who had formed the Former State of Rajasthan and this State came into existence from April 7 1949
There was a merger of the Matsya Union in the State of Rajasthan on May 15 1949 and thus the former Bharatpur State came to be included in the United State of Rajasthan through the Matsya Union
As we have already stated the Raj Pramukh promulgated the Rajasthan Regulation of Customs Duties Ordinance No 16 of 1949 on August 9 1949
It is well established that Parliament or State Legislatures are competent to enact a law altering the terms and conditions of a previous contract or of a grant under which the liability of the Government of India or of the State Governments arises
The legislative competence of Parliament or of the State Legislatures can only be circumscribed by express prohibition contained in the Constitution itself and unless and until there is any provision in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally there is no fetter of imitation on the plenary powers which the Legislature is endowed with for legislating on the topics enumerated in the relevant Lists
this view is borne out by the decision of the Judicial Committee in Thakur Jagannath Baksh Singh vs The United Provinces1 in which a similar complaint was made by the taluqdars of Oudh against the United Provinces Tenancy Act UP Act 17 of 1939
It was held by the Judicial Committee that the Crown cannot deprive itself of its legislative authority by the mere fact that in the exercise of its prerogative it makes a grant of land within the territory over which such legislative authority exists and no court can annul the enactment of a legislative body acting within the legitimate scope of its sovereign competence
If therefore it be found that the subject matter of a Crown grant is within the competence of a Provincial legislature nothing can prevent that legislature from legislating about it unless the Constitution Act itself expressly prohibits legislation on the subject either absolutely or conditionally
accordingly in the absence of any such express prohibition the 1 1946 FCR III I 8a 90 United Provinces Tenancy Act 1939 which in consolidating and amending the law relating to agricultural tenancies and other matters connected therewith in Agra and Oudh dealt with matters within the exclusive legislative competence of the Provincial legislature under item 21 of List 11 of the 7th Sch
to the Government of India Act 1935 was intra vires the Provincial legislature notwithstanding that admittedly some of its provisions cut down the absolute rights claimed by the appellant taluqdar to be comprised in the grant of his estate as evidenced by the sanad granted by the Crown to his predecessor
The same principle has been reiterated by this Court in Maharaj Umeg Singh and others vs The State of Bombay and others1
It was pointed out that in view of article 246 of the Constitution no curtailment of legislative competence can be spelt out of the terms of clause 5 of the Letters of Guarantee given by the Dominion Government to the Rulers of States subsequent to the agreements of Merger which guaranteed inter alia the continuance of Jagirs in the merged States 
This principle also underlies the recent decision of this Court in Maharaja Shree Umaid Mills Ltd vs Union of India2 in which it was pointed out that there is nothing in article 295 of the Constitution which prohibits Parliament from enacting a law altering the terms
and conditions of a contract or of a grant under which the liability of the Government of India arises
It was further held that there was nothing in article 295 prohibiting Parliament from enacting a law as to excise duty or income tax in territories which became Part B States and which were formerly Indian States and such a prohibition cannot be read into article 295 by virtue of some contract that might have been made by the then Ruler of an Indian State with any person
As we have already indicated there is nothing in the provisions of the Rajasthan Regulation of Customs Duties Ordinance No 16 of 1949 which preserves the alleged contractual rights of the appel lant and in the absence of any express language in the Ordinance preserving such alleged contractual rights it must be held that the general law enacted in the Ordinance supersedes the previous contract of the appellant with the State of Bharatpur
Lastly it was argued on behalf of the appellant that the notification dated January 16 1951 revoking the tax concessions was in violation of article 306 of the Constitution which provides as follows Notwithstanding anything in the foregoing provisions of this Part or in any other provisions of this Constitution any State specified in Part B of the First Schedule which before the commencement of this Consti tution was levying any tax or duty on the import of goods into the State from other States or on the export of goods 1 1963 Supp 2 SCR 515 91 from the State to other States may if an agreement in that behalf has been entered into between the Government of India and the Government of that State continue to levy and collect such tax or duty subject to the terms of such agreement and for such period not exceeding ten years from the commencement of this Constitution as may be specified in the agreement
The argument is based on the assumption that the appellant was enjoying concessions under section 40 of the Customs Circular No 15 and continued to enjoy the concessions in the State of Matsya under section 34 of the Matsya Customs Ordinance No 14 of 1948 and subsequently in the State of Rajasthan under section 6 of the Rajasthan Regulation of Customs Duties Ordinance No 16 of 1949
It is the admitted position that the agreement entered between the Government of India and the United State of Rajasthan on February 25 1950 incorporated certain recommendations of the Federal Finance Enquiry Committee Report 1948 49
The agreement having been executed and the condition under article 306 having been satisfied in this case the continuance of the customs duty is in conformity with the provisions of this Article
In any case the claim of the appellant is not based on any provision of Bharatpur law but upon a contractual liability of Bharatpur State and to a case of this description the provisions of article 306 cannot be attracted
For the reasons expressed we hold that the judgment of the High Court is right and this appeal must be dismissed with costs
Appeal dismissed


Summary:
The former State of Bharatpur sold some plots for establishing a Mandi and the appellant was one of the purchasers
Under the terms of the sale a person trading in the Mandi would get a reduction of 25  in the customs duty payable if the commodities were imported into or exported out of the State through the Mandi
The Government of Bharatpur and after its merger the Government of the United State of Matsya and thereafter the present Rajasthan State respondent herein allowed the reduction to the appellant who was also a trader
In 1951 the respondent revoked the concession
The appellant filed a suit for the recovery of the excess amount of customs duty paid on the basis that there was a valid contractual liability to grant the concession
The suit was dismissed by the High Court on appeal
In appeal to this Court HELDi The appellant s suit must fail because there was no recognition of the contractual right to the succeeding State of Rajasthan
The contractual liability of a former State is binding on a succeeding sovereign State only if it recognises that contractual liability
The enjoyment of the concession by the appellant after the formation of the Rajasthan State did not show any implied recognition of the contractual liability by the respondent because the concession is referable to section 33 of the Matsya Customs Ordinance of 1948 under which the concession could be granted and recognised
85B 88C D Case law referred to
ii Even upon the assumption that there was an implied re cognition by the respondent of the contractual liability the suit must fail for the contractual liability must be taken to have been super
seded by the enactment of the Rajasthan Regulation of Customs Duties Ordinance No 16 of 1949
88 E F
Parliament and State Legislatures are subject to any prohibition in the Constitution competent to enact laws altering the terms and conditions of a previous contract or of a grant under which the liability of the Government of India or of the State Governments arises
There is nothing in the provisions of the Ordinance which preserves the alleged contractual rights of the appellant and in the absence of any express language in the Ordinance preserving such rights
it must be held that the general law enacted in the Ordinance supersedes the previous contract of the appellant with the State of Bharatpur
90 D F Maharaj Umeg Singh vs The State of Bombay
1955 2 SCR 164 and Maharaja Shree Umaid Mills Ltd vs Union of lndia 1963 Supp 2 SCR 515 followed
82 iiiThe levy of Customs duty is in conformity with article 306 of the Constitution
91 D