tion Civil No 1060 of 1987 etc
Under Article 32 of the Constitution of India K Parasaran Attorney General G Ramaswamy Additional Solicitor General NA Palkhiwala Kapil Sibal AK Gan guli AK Sen Shanti Bhushan Raja Ram Aggarwal Dr Shankar Ghosh 324 Tapas Ray Devi Pal B Sen GA Shah Ashwani Kumar Yogeshwar Prasad PA Choudhary Dr LM Singhvi SK Dholakia RN Sachthey AB Misra PS Poti RN Nara simha Murty NN Gooptu Advocate Generals RP Gupta section Krishan JB Dadachanji DN Mishra Mrs AK Verma Vijay Hansaria Sunil K Jain ATM Sampath PN Ramalin gam C Natarajan N Inbrajan MS Singh KK Gupta NB Sinha Sanjeev B Sinha Yogendra B Sinha Ms Madhu Kha tri Ms Bina Gupta KN Rai Ms Panaki Misra Harish Salve Ajay K Jain Pramod Dayal KM Vyayar Badar Durraj Ahmed Parijat Sinha JR Das PR Seetha
raman Ranjit Kumar A Sharan JD Jain CS Vaidyanathan BR Setia NN Keswani RN Keswani Pramod Dayal Dilip Tandon RB Mehrotra MC Dhingra M Qamaruddin Ashok Kumar Gupta MM Kashyap SB Upadhya RN Karanjawala Mrs Manik Karanjawala GS Vasisht SK Gambhir Amlan Ghosh AK Singla KK Khurana LK Pandey Mahabir Singh EC Agarwala Ms Pumima Bhatt Vineet Kumar KJ John Ms Naina Kapur Ms Hemantika Wahi Sarva Mittar PK Jain Ms A Subhashini BV Decra MN Shroff R Mohan RA Perumal RN Patil SK Agnihotri Ashok K Srivastava Manoj Swarup Pramod Swarup TVSN Chaff SK Dhingra AM Khanwilkar AS Bhasme Anip Sachthey PN Misra Ajay K Jha KR Nambiar PR Ramasesh HK Puff PR Mondal MP Jha Sushil Kumar Jain SR Grover MP Sharma SK Nandy D Goburdhan A Subba Rao K Swami US Prasad M Veerappa RK Mehta and Naresh K Sharma for the appearing parties
The Judgment of the Court was delivered by VENKATARAMIAH J
In this batch of Writ Petitions and Civil Appeals two questions arise for consideration
The first question relates to the constitutional validity of the Constitution Forty sixth Amendment Act 1982 hereinafter referred to as the 46th Amendment  by which the Legisla tures of the States were empowered to levy sales tax on certain transactions described in sub clauses a to f of clause 29 A of Article 366 of the Constitution and the second question is whether the power of the State Legisla ture to levy tax on the transfer of property in goods in volved in the execution of works contracts referred to in sub clause b of clause 29 A of Article 366 of the Con stitution is subject to the restrictions and conditions contained in Article 286 of the Constitution
An account of the history of the relevant constitutional and 325 statutory provisions and of judicial decisions having a beating on the said provisions has to be set out at this stage to appreciate the contentions of the parties
Prior to the commencement of the Constitution of India the power to levy sales tax had been conferred on the Provincial Legisla tures by Entry 48 of the List II of the Seventh Schedule to the Government of India Act 1935which read as Taxes on the sale of goods and on advertisements
In exercise of the said power some of the Provincial Legislatures had passed laws levying sales tax on the sale or purchase of certain commodities
There was no specific restriction or condition on the exercise of the said power under the Government of India Act 1935
The Provincial Legislatures exercised the power to levy sales tax acting on the principles of the territorial nexus that is to say they picked out one or more of the ingredients constituting a sale and made them the basis of the levy of sales tax under the legislation
Assam and Bengal made among other things the actual exist ence of the goods in the province at the time of the con tract of sale the test of taxability
In Bihar the produc tion or manufacture of the goods in the Province was made an additional ground
A net of the widest range perhaps was laid in Central Provinces and Berar where it was sufficient if the goods were actually found in the Province at any time after the contract of sale or purchase in respect thereof was made
Whether the territorial nexus put forward as the basis of the taxing power in each case would be sustained as sufficient was a matter of doubt not having been tested in a court of law
Such claims to taxing power led to multiple taxation of the same transaction by different Provinces and cumulation of the burden falling ultimately on the consuming public
By the time the Constituent Assembly took up for consideration the provisions relating to the power of the State Legislatures to levy sales tax the difficulties creat ed by the sales tax laws passed by the various Provinces and their effect on inter State trade and commerce had come to be felt throughout the country
In order to minimise the adverse effects of the sales tax laws passed by the Legisla tures of States the Constituent Assembly enacted Articles 236 301 and 304 of the Constitution
Introducing an amend ment to Article 264 A to the draft Constitution which ultimately became Article 286 of the Constitution of India Dr Ambedkar observed on the floor of the Constituent Assem bly thus Sir as everyone knows the sales tax has created a great deal of difficulty throughout India in the matter of freedom of trade and commerce
It has been found that the very many sales taxes which are levied by the various Provincial Governments either cut into goods which are the 326 subject matter of imports or exports or cut into what is called inter State trade or commerce
It is agreed that this kind of chaos ought not to be allowed and that while the provinces may be free to levy the sales tax there ought to be some regulations whereby the sales tax levied by the provinces would be confined within the legitimate limits which are intended to be covered by the sales tax
It is therefore felt that there ought to be some specific provisions laying down certain limitations on the power of the provinces to levy sales tax
The first thing that I would like to point out to the House is that there are certain provisions in this article  264A which are merely reproductions of the different parts of the Constitution
For instance in sub clause 1 of article 264A as proposed by me sub clause b is merely a reproduction of the article contained in the Constitution the entry in the Legislative List that taxation of imports and exports shall be the exclusive province of the Central Government
Conse quently so far as sub clause 1b is con cerned there cannot be any dispute that this is in any sense an invasion of the right of provinces to levy sales tax
Similarly sub clause 2 is merely a reproduction of Part XA which we recently passed dealing with provisions regarding inter State trade and commerce
Therefore so far as sub clause 2 is concerned there is really nothing new in it
It merely says that if any sales tax is imposed it shall not be in conflict with the provisions of Part XA
With regard to sub clause 3 it has also been agreed that there are certain com modities which are so essential for the life of the community throughout India that they should not be subject to sales tax by the province in which they are to be found
There fore it was felt that if there was any such article which was essential for the life of the community throughout India then it is necessary that before the province concerned levies any tax upon such a commodity the law made by the province should have the assent of the President so that it would be possible for the President and the Central Government to see that no hardship is created by the particular levy proposed by a particular province
327 The proviso to sub clause 2 is also important and the attention of the House might be drawn to it
It is quite true that some of the sales taxes which have been levied by the provinces do not quite conform to the provi sions contained in article 264 A
They proba bly go beyond the provisions
It is therefore felt that when the rule of law as embodied in the Constitution comes into force all laws which are inconsistent with the provisions of the Constitution shall stand abrogated
On the date of the inauguration of the Constitution this might create a certain amount of finan cial difficulty or embarrassment to the dif ferent provinces which have got such taxes and on the proceeds of which their finances to a large extent are based
It is therefore pro posed as an explanation to the general provi sions of the Constitution that notw ithstanding the inconsistency of any sales tax imposed by any province with the provisions of article 264A such a law will continue in operation until the 31st day of March 1951 that is to say we practically propose to give the provinces a few months more to make such adjustments as they can and must in order to bring their law into conformity with the provisions of this article
 Article 286 of the Constitution as it was originally enacted read as follows 286
Restrictions as to imposition of tax on the sale or purchase of goods 1 No law of a State shall impose or authorise the imposi tion of a tax on the sale or purchase of goods where such sale or purchase takes place a outside the State or b in the course of the import of the goods into or export of the goods out of the territory of India
Explanation For the purposes of sub clause a a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State notwithstanding the fact that under the gener al law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State
328 2 Except in so far as Parliament may by law otherwise provide no law of a State shall impose or authorise the imposi tion of a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter State trade or com merce
Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immedi ately before the commencement of this Consti tution shall notwithstanding that the imposi tion of such tax is contrary to the provisions of this clause continue to be levied until the thirty first day of March 1951
3 No law made by the Legislature of a State imposing or authorising the impo sition of a tax on the sale or purchase of any such goods as have been declared by Par liament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent
 Articles 301 and 304 of the Constitution which were incorporated in Part XIII of the Constitution read thus 301
Freedom of trade commerce and intercourse Subject to the other provisions of this Part trade commerce and intercourse throughout the territory of India shall be free 304
Restrictions on trade commerce and intercourse among States Notwithstanding anything in article 30 1 or article 303 the Legislature of a State may by law a impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject so however as not to discriminate between goods so imported and goods so manu factured or produced and b impose such reasonable restric tions on the freedom of trade commerce or intercourse with or without that State as may be required in the public interest 329 Provided that no Bill or amendment for the purpose of clause b shall be introduced or moved in the Legislature of a State without the previous sanction of the president
 The Power to levy sales tax was conferred on the Legislatures of States by the Constitu tion by Entry 54 of List II of the Seventh Schedule to the Constitution of India which as originally enacted read thus 54
Taxes on the sale or purchase of goods other than newspaper
 The power to levy tax on purchase of goods was expressely stated in Entry 54 even though it was implicit in the ex pression taxes on the sale which was found in Entry 40 of List II of the Seventh Schedule to the Government of India Act 1935
In exercise of the power conferred on it by Entry 54 of the State List the Legislature of Bombay passed an Act called the Bombay Sales Tax Act 1952 which imposed a gener al tax on every dealer whose turnover in respect of sales within the State of Bombay during the prescribed period exceeded Rs30000 and a special tax on every dealer whose turnover in respect of sales of special goods made within the State of Bombay exceeded Rs5000 during the prescribed period
The term sale  was defined as meaning any transfer of property in goods for cash or deferred payment or other veluable consideration and an Explanation to this defini tion provided that the sale of any goods which have actually been delivered in the State of Bombay as a direct result of such sale for the purpose of consumption in the said State shall be deemed for the purposes of the Act to have taken place in the said State irrespective of the fact that the property in the goods has by reason of such sale passed in another State
Rules 5 and 6 of the Bombay Sales Tax Rules 1952 which were brought into force on the same day on which sections 5 and 10 of the Bombay Sales Tax Act came into force provided for the deduction of the following sales in calculating the taxable turnover viz sales which took place a in the course of the import of the goods into or the export of the goods out of the territory of India and b in the course of inter State trade or commerce being the two kinds of sales referred to clauses 1b and 2 respectively of Article 286 of the Constitution
Rule 52i however required as a condition of the aforesaid deductions that the goods should be consigned by a railway shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post
In an application made under Article 226 of the Constitution challenging the validity of the said Act 330 and praying inter alia for a writ against the State of Bombay and the Collector of Sales Tax Bombay restraining them from enforcing the provisions of that Act the High Court of Bombay held that the definition of sale  in that Act was so wide as to include the three categories of sale exempted by Article 286 of the constitution from the imposi tion of tax by the States and thus not valid
On appeal to this Court the decision of the High Court of Bombay was reversed by the majority in the State of Bombay and Another vs The United Motors India Ltd and Others  Soon doubts came to be entertained about the correctness of the above decision and this Court got the opportunity to reconsider the correctness of the decision in the United Motors case Supra in the Bengal Immunity Company Limited vs The State of Bihar and Others 19552 SCR 503
In the case of the Bengal Immunity Company Ltd supra the majority held that the operative provisions of the several parts of Article 286 of the Constitution namely clause 1a clause 1b and clauses 2 and 3 were intended to deal with different topics and one could not have pro jected or read into another
The bans imposed by Article 286 of the Constitution on the taxing powers of the States were independent and separate and each one of them had to be got over before a State Legislature could impose tax on transac tions of sale or purchase of goods
The Explanation to Article 2861a determined by the legal fiction created therein the situs of the sale in the case of transactions coming within that category and once it was determined by the application of the Explanation that a transaction was outside the State it followed as a matter of course that the State with reference to which the transaction could thus be predicated to be outside it could never tax the transaction
After the judgment in the Bengal Immunity Company Ltd s supra case on the recommendations of the Taxation Enquiry Commission as regards the amendment of the constitutional provisions relating to sales tax Parliament passed the Constitution Sixth Amendment Act 1955 which received the assent of the President on 11th September 1956
By the said amendment the Constitution was amended in the following way
In List I of the Seventh Schedule to the Constitution Entry 92A was added
It reads as follows 92A Taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of Inter State trade or commerce In List II existing Entry 54 was substi tuted by the following entry 331 54
Taxes on the sale or purchase of goods other than newspapers subject to the provi sions of entry 92A of List Article 269 of the Constitution which enumerated the taxes that were to be levied and collected by the Government of India but were to be assigned to the States was amended by adding sub clause g  to clause 1 and clause 3 to it
After such amendment Arti cle 269 read thus 269
1 The following duties and taxes shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause 2 namely a duties in respect of succession to property other than agricultural land b estate duty in respect of proper ty other than agricultural land c terminal taxes on goods or pas sengers carried by railway sea or air d taxes on railway fares and freights e taxes other than stamp duties on transactions in stock exchanges and futures markets f taxes on the sale or purchase of newspapers and on advertisements published therein g taxes on the sale or purchase of goods other than newspapers where such sale or purchases takes place in the course of inter State trade or commerce
2 The net proceeds in any finan cial year of any such duty or tax except in so far as those proceeds represent proceeds attributable to States specified in Part C of the First Schedule shall not form part of the Consolidated Fund of India but shall be assigned to the States within which that duty or tax is leviable in that year and shall be 332 distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law
3 Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the course of Inter State trade or commerce  By the above amendment Parliament was empow ered to levy tax 
on the sale or purchase of goods other than newspapers where such sale or purchase took place in the course of Inter State trade or commerce and was also empowered to formulate by law principles for determining when a sale or purchase of goods took place in the course of Inter State trade or commerce
By the very same Sixth Amendment Article 286 of the Constitution was amended
The Explanation to clause 1 was omitted by that Amendment
Clauses 2 and 3 of Article 286 were substituted by two new clauses
After such amendment Article 286 of the Constitution read thus 286
Restrictions as to imposition of tax on the sale or purchase of goods 1 No law of a State shall impose or authorise the imposi tion of a tax on the sale or purchase of goods where such sale or purchase takes place a outside the State or b in the course of the import of the goods into or export of the goods out of the territory of India
2 Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause 1
3 Any law of a State shall in so far as it imposes or authorises the imposi tion of a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in Inter State trade or commerce be subject to such restrictions and conditions in regard to the system of levy rates and other incidents of the tax as Par liament may by law specify
 333 Pursuant to the power conferred on it Parliament enacted the which received the assent of the President on 21st December 1956
The said Act was passed to formulate principles for determining when a sale or purchase of goods took place in the course of Inter State trade or commerce of outside a State or in the course of import into or export from India to provide for the levy collection and distribution of taxes on sales of goods in the course of Inter State trade or commerce and to declare certain goods to be of special importance in Inter State trade or commerce and specify the restrictions and condi tions to which State laws imposing taxes on the sale
or purchase of such goods of special importance shall be sub ject
Section 6 of the explained when a sale or purchase of goods in the course of Inter State trade or commerce took place
Section 4 of the said Act explained when a sale or purchase of goods took place out side a State and Section 6 explained when a sale or purchase of goods took place in the course of import or export for purposes of that Act
Section 14 of the enumerated the goods which were considered to be of special importance in Inter State trade or commerce and section 15 of that Act set out restrictions and conditions in regard to tax on sale or purchase of declared goods within a State
Section 15 of the as it is in force today reads thus 15
Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State
Every sales tax law of State shall in so far as it imposes or authorises the imposition of a tax on the sale or pur chase of declared goods be subject to the following restrictions and conditions namely a the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof and such tax shall not be levied at more than one stage b where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of Inter State trade or commerce and tax has been paid under this Act in respect of the sale of such goods in the course of Inter State trade or commerce the tax levied under such law shall be 334 reimbursed to the person making such sale in the course of Inter State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State c where a tax has been levied under that law in respect of the sale or purchase inside the State of any paddy referred to in sub clause i of clause i of section 14 the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy d each of the pulses referred to in clause vi a of section 14 whether whole or separated and whether with or without husk shall be treated as a single commodity for the purposes of levy of tax under that law
 By the time the Constitution Sixth Amendment Act and the came into force controversy had arisen before some of the High Courts about the liabili ty of contractors who had undertaken to carry out works contracts to pay sales tax on the transfer of property in the goods involved in works contracts
In Gannon Dunkerley and Co Madras Ltd vs State of Madras AIR 1954 Mad
1130 the assessees were carrying on business as engineers and contractors
Their business con sisted mainly of execution of contracts for constructions of buildings bridges dams roads and structural contracts of all kinds
During the assessment year the return made by the assessees showed as many as 47 contracts most of which were building contracts which were executed by the assessees
From the total of the amount which the assessees received in respect of sanitary contracts and other contracts 20 and 30 respectively were deducted for labour and the balance was taken as the turnover of the assessees for the assess ment year in question
Sales tax was levied on the said balance treating it as taxable turnover under the Madras General Sales Tax Act 1939
The assessees questioned the levy of sales tax on the said amount treated as taxable turnover on the ground that there was no sale of goods as understood in India and therefore no sales tax could be levied on any portion of the amount which was received by the assessees from the persons for whose benefit they had constructed buildings
It was urged on behalf of the asses sees that there was no element or  sale of the materials in a building contract and 335 that such a contract was one entire and indivisible
Unless the contract was completed the builder was not entitled to the price fixed under the contract or ascertainable under the terms of the contract
The property in the materials passed to the owner of the land not by virtue of the deliv ery of the materials as goods under and in pursuance of an
agreement of sale which stipulated a price for the materi als
The property in the materials passed to the owner of the land because they were fixed in pursuance of the con tract to build and along with the corpus which ultimately resulted by the erection of the superstructure the materi als also passed to the owner of the land
It was urged that a contract to build was not a contract to sell goods used in the construction of a building
The High Court of Madras on a consideration of the submissions made before it came to the conclusion that the transactions in question were not contracts for sale of goods as defined under the provisions of the which was in force on the date on which the Constitution came into force and therefore the assessees were not liable to pay sales tax on the amounts received by them from the persons for whom they had constructed buildings etc
during the year of assessment
But a petition filed by the very same assessees for similar relief in the Gannon Dunkerley  Co Madras Private Ltd vs Sales Tax Officer Mattancheri AIR 1957 Kerala 146 was dismissed by the Kerala High Court affirming the imposi tion of sales tax on the turnover relating to construction works and upholding the rules providing for apportionment of the determination of the taxable turnover on a percentage basis
In Mohamed Khasim vs State of Mysore 1955 VI Sales Tax Cases 211 the Mysore High Court held that the provisions of the Mysore Sales Tax Act imposing sales tax on construction of buildings under works contract were valid and further upheld the determina tion of the taxable turnover on percentage basis
The compe tence of the State Legislature to levy sales tax on the supply of building materials for execution of building contracts came up for consideration before the Nagput High Court in Pandit Banarsi Das vs State of
Madhya Pradesh and Ors 1955 VI Sales Tax Cases 93
The assessees in the said case were Madhya Pradesh Contractors  Association and the Jabalpur Contractors  Association
They instituted a petition before the Nagpur High Court through their Presi dent and Secretary questioning the power of the State Legis lature to levy sales tax on the turnover consisting of the amounts received by the building contractors from the per sons for whom they had constructed buildings by supplying the required materials
They relied upon the decision of the High Court of Madras in Gannon Dunkerley s case supra
The Nagput High Court while I declining to follow the decision of the High Court of Madras was 336 of opinion that the State Legislature could pick out a sale from the composite transaction of a building contract which included transfer of property in materials and could make the portion attributable to the cost of such materials subject to payment of sales tax in exercise of its undoubted and plenary powers
Jubilee Engineering Co Ltd vs Sales Tax Officer Hyderabad City and Ors was a case decided by the High Court of Hyderabad
In that case that High Court held that in a works contract where a person undertook to build a particular building or to make a particular thing the materials involved in the building or making of the finished product could not be the subject matter of sale because there was no agreement to sell the materials nor was price of the goods fixed
It was also found that in such cases there was no passing of the title in those goods as such except as part of the building or the thing in which they were embedded
It accordingly held that the amount received by a building contractor from the person for whom he had constructed the building could not be taxed under the sales tax law of the State of Hyderabad
A similar question arose before the High Court of Rajasthan in Bhurar nal and Ors
vs State of Rajasthan AIR The High Court of Rajasthan held that the definition of dealer in the Rajasthan Sales Tax Act 1954 included not only those who sold goods but also those who supplied goods whether on commission or for remuneration or other wise and the said definition was very wide and included persons like the building contractors who in the course of their business as building contractors supplied goods to those who gave them contracts
Since the said supply was not gratis such building contractors should be held to be deal ers within the meaning of that expression in the Rajasthan Sales Tax Act
Ultimately the question whether the cost of the goods supplied by a building contractor in the course of the construction of building could be subjected to payment of sales tax was finally resolved by this Court in State of Madras vs Gannon Dunkerley  Co Madras Ltd which was an appeal filed against the decision of the High Court of Madras in Gannon Dunkerley  Co Madras Ltd vs The State of Madras supra
In this case this Court held that on a true interpretation the expression sale of goods meant an agreement between the parties for the sale of the very goods in which eventually property passed
In a building contract where the agreement between the parties was that the contractor should construct the building according to the specifications contained in the agreement and in consideration therefor received payment as provided therein there was neither a contract to sell the materials used in the construction nor the 337 property passed therein as movables
This Court further held that the expression sale of goods was at the time when the Government of India Act 1935 was enacted a term of well recognised legal import in the general law relating to sale of goods and in the legislative practice relating to that topic and should be interpreted in Entry 48 in List II in Schedule VII of the Government of India Act 1935 as having the same meaning as in the 
This Court further held that in a building contract which was one entire and indivisible there was no sale of goods and it was not within the competence of the Provincial Legisla ture under Entry 48 in List II in Schedule VII of the Gov ernment of India Act 1935 to impose a tax on the supply of the materials used in such a contract treating it as a sale
The above decision though it was rendered on the basis of the provisions in the Government of India Act 1935 is equally applicable to the provisions found in Entry 54 of List II of Schedule VII of the Constitution
In the above decision the decision of the Nagpur High Court the Rajas than High Court the Mysore High Court and the Kerala High Court referred to above were overruled and the decision of the Hyderabad High Court and the decision of the Madras High Court against which the above appeal had been filed were affirmed
By virtue of the above decision of this Court no sales tax could be levied on the amounts received under a works contract by a building contractor even though he had supplied goods for the construction of the buildings
In addition to the building contracts referred to above certain other kinds of transactions were also held to be not sales liable to payment of sales tax by this Court even though they involved transfer of property in goods
In Ms New India Sugar Mills Ltd vs Commissioner of Sales Tax Bihar 1963 Supp
2 SCR 459 this Court took the view that in the transfer of controlled commodities in pursuance of a direction under a control order the element of voli tion by the seller or mutual assent was absent and there fore there was no sale as defined in the 
However in Oil and Natural Gas Commission vs State of Bihar and Ors
  this Court had occasion to consider its earlier decisions with regard to the liabil ity of transfers of controlled commodities to be charged to sales tax
This Court held that where there were any statu tory compulsions the statute should be treated as supplying the consensus and furnishing the modality of the consensus
In Vishnu Agencies Pvt Ltd etc
vs Commercial Tax Offi cer  Ors
  the decision in Ms New India Sugar Mills s supra case was held to be not good law
Even after the decision in Vishnu Agencies s case supra there was a certain area of doubt about the liabili ty of transactions not 338 consensual in nature in which property in goods passed to exigibility to sales tax
Devices by way of leases of films had also been result ing in avoidance of sales tax
The main fight in regard to a film related to its exploitation and after exploitation for a certain period of time in most cases the film ceased to have any value
There were also reports received by the State Govern ments to whom revenues from sales tax had been assigned as to the large scale avoidance of central sales tax leviable on Inter State sales of goods through the device of consign ment of goods from one State to another
In Northern India Caterers India Ltd vs Lt Governor of Delhi  this Court held that there was no sale when food and drink were supplied to guests residing in the hotel and that supply of meals was essentially in the nature of a service provided to the guests and could not be identified as a transaction of sale
This Court declined to accept the position that the Revenue was entitled to split up the transaction into two parts one of service and the other of sale of foodstuffs and accordingly the proprietor of a restaurant who provided many services in addition to the supply of food was not liable to pay sales tax on the value of the goods supplied by him
The various problems which arose on account of the above decisions were referred to the Law Commission of India and its advice was sought as to the manner in which the types of transactions involved in the above decisions could be made exigible to sales tax
The Law Commission considered these matters in its 61st Report and recommended inter alia cer tain amendments to the Constitution if as a matter of administrative policy it was decided to levy sales tax on transactions of the nature mentioned above
There were also complaints from the States that there was a large scale leakage of sales tax revenue by the adoption of devices such as hire purchase system
In the year 1982 Parliament passed the 46th Amendment amending the Constitution in several respects in order to bring many of the transactions in which property in goods passed but were not considered as sales for the purpose of levy of sales tax within the scope of the power of the States to levy sales tax
By the 46th Amendment a new clause namely clause 29A was introduced in article 349 of the Constitution
Clause 30A of Article 366 of the Constitution reads thus 339 366 Definitions
In this Constitution unless the context otherwise requires the following expressions have the meaning hereby respectively assigned to them that is
to 29A tax on the sale or purchase of goods includes a a tax on the transfer otherwise than in pursuance of a contract of property in any goods for cash deferred payment or other valuable consideration b a tax on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract c a tax on the delivery of goods on hire purchase or any system of payment by instal ments d a tax on the transfer of the right to use any goods
for any purpose whether or not for a specified periodfor cash deferred payment or other valuable consideration e a tax on the supply of goods by any unin corporated association or body of persons to a member thereof for cash deferred payment or other valuable consideration f a tax on the supply by way of or as part
of any service or in any other manner whatso ever of goods being food or any other arti cle for human consumption or any drink wheth er or not intoxicating where such supply or service is for cash deferred payment or other valuable consideration and such transfer delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer delivery or supply and a purchase of those goods by the person to whom such transfer delivery or supply is made  A new entry was inserted in List I of the Seventh Schedule to the Constitution as Entry 92 F to enable the levy of tax on the consign ment of goods where such consignment took place in the course of InterState trade of commerce 340 92 F Taxes on the consignment of goods whether the consignment is to the person making it or to any other person where such consignment takes place in the course of Inter State trade or commerce
 Clause 1 of article 269 of mended by adding sub clause h thereto
Clause a of that article was amended to enable Parliament to formulate by law principles for determining when a consignment of goods took place in the course of Inter State trade or commerce
After the amendment the relevant portion of article 269 of the Constitution reads thus 269
Taxes levied and collected by the Union but assigned to the States 1 The following duties and taxes shall be levied and collected by the Government of India but shall be as signed to the States in the manner provided in clause 2 namely       h taxes on the consignment of goods whether the consignment is to the person making it or to any other person where such consignment takes place in the course of InterState trade or commerce     3 Parliament may by law formulate principles for determining when a sale or purchase of or consignment of goods takes place in the course of Inter State trade or commerce
 By the 46th amendment article 286 of the Constitution also was amended by substituting clause 3 thereof by a new clause
After the amendment clause 3 of article 286 reads thus 286
Restrictions as to imposition of tax on the sale or purchase of goods     3 Any law of a State shall in so far as it imposes or authorises the imposition of a a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter State trade or commerce or 341 b a tax on the sale or purchase of goods being a tax of the nature referred in sub clause b sub clause c or subclause d of clause 29 A of article 366 be subjected to such restrictions and condi tions in regard to the system of levy rates and other incidents of the tax as Parliament may by law specify
 The 46th amendment also validated laws levying tax and also collection by way of tax under such law subject to the conditions mentioned therein
On the passing of the 46th Amendment the State Govern ments after making necessary amendments in their laws com menced to levy sales tax on the turnover of the works con tracts entered into by the building contractors for con structing houses factories bridges etc
In some States taxable turnover was determined by deducting the money spent on labour engaged in connection with the execution of the works contracts from the amount received by the contractor for the execution of the works contracts
In some other States a certain fixed percentage of the total turnover was deducted from the total turnover as labour charges before arriving at the taxable turnover
Each State adopted its own method of determining taxable turnover either by flaming rules under its sales tax law or by issuing administrative directions
It is not necessary for purposes of this judg ment to refer in detail to the various patterns of law in force in the States and the rules or administrative instruc tions made or issued thereunder
It is sufficient to say that the methods adopted by the States for determining the taxable turnover relating to works contracts for purposes of levy of sales tax were such that sales tax had to be paid by the building contractors not merely on the value of materi als supplied by them in connection with the works contracts but also on the expenditure they had incurred in securing the services of architects and engineers who had supervised the execution of the works and also on the amount which they were entitled to receive for supervising the execution of the works
While levying sales tax on the price of the materials supplied for the construction of houses facto ries bridges etc
the sales tax authorities of the States did not take into account the conditions and restrictions imposed by Article 286 of the Constitution and the provi sions of the 
The assessing authorities did not make any attempt to ascertain whether the sales of the goods involved in a execution of works contract had taken place in favour of the person who had assigned the contract outside the State in which the works contract was being ex 342 ecuted or whether any part of the goods so used in a works contract had been imported from abroad on account of the person who had assigned the contract or whether any part of the goods such as iron and steel etc
which were declared goods had already suffered sales tax at an earlier point in the State and whether on such goods the tax which was being levied exceeded the limit prescribed by section 15 of the 
They did not also take into consideration whether the sale of the goods in question had been exempted under the sales tax laws of the State from payment of sales tax or whether it had already suffered payment of tax earlier where the sales tax law of the State had prescribed that the sale of such goods could be subject ed to the levy of sales tax at a single point
Aggrieved by the levy sales tax on the turnover relating to works con tracts in the above manner the petitioners and the appel lants have filed these petitions and appeals
The petitioners and the appellants have pressed before us in these cases only two points namely i that the 46th Amendment is unconstitutional because it has not been rati fied by the Legislatures of not less than one half of the States by resolutions passed to that effect by those Legis latures before the Bill which led to the amendment in ques tion was presented to the President for assent and ii that it was not open to the States to ignore the provisions contained in Article 286 of the Constitution and the provi sions of the while making as sessments under the sales tax laws passed by the Legisla tures of the States
By an order made by this Court on 20th of September 1988 notices were issued to the Attorney General for India and the Advocates General for the concerned States
The Attorney General and some of the Advocates General appeared before us in response to the notices issued to them and made their submissions
The first contention raised before us regarding the constitutionality of the 46th Amendment need not detain us long
This contention was based on the assumption that the Legislatures of not less than one half of the States which were in existence during the relevant period had not rati fied the Bill which ultimately became the 46th Amendment before the President gave his assent
It was argued that such ratification was necessary since the provisions con tained in the 46th Amendment had the effect of enlarging the scope of Entry 34 of List II of the Seventh Schedule to the Constitution by empowering the 343 Legislatures of States to levy Sales Tax on the turnover relating to the transactions referred to in sub clauses a to f of clause 29 A of Article 366 of the Constitution which they could not have done before the 46th Amendment
It was contended that irrespective of the fact whether the Amendment of an entry in any of the Lists of the Seventh Schedule to the Constitution had the effect of either cur tailing or enlarging the powers of Parliament or the Legis latures of States a Bill making revision for such Amendment had to be ratified by Legislatures
of not less than one half of the States by resolutions passed to that effect before such a Bill was presented to the President for assent in view of the express provisions contained in clause c of the proviso to Article 3682 of the Constitution
At the hearing of the above case the learned Attorney General for India produced before us the Memorandum dated the 31st January 1982 signed by the Secretary General of the Rajya Sabha which reads thus RAJYA SABHA SECRETARIAT PARLIAMENT HOUSE NEW DELHI
No RS
12181 B Dated the 31st January 1982 MEMORANDUM In pursuance of article 368 of the Constitution of India the assent copy of the Constitution Forty sixth Amendment Bill is presented to the President
This Bill has been passed by the Houses of Parliament and has been also ratified by the Legislatures of not less than one half of the States in accordance with the provision of the proviso to clause 2 of article 368 of the Constitution
Legis latures of the following States have passed resolutions ratifying the amendments 1
Haryana 2
Himachal Pradesh 3
Karnataka 4
Madhya Pradesh 5
Maharashtra 344 6
Manipur 7
Meghalaya 8
Orissa 9
Punjab 10
Rajasthan 11
Sikkim 12
Tamil Nadu A copy each of the letters received from these Legislatures is placed below
SdSUDAR SHAN AGARWAL Secretary General To The Secretary to the President Through the Secretary Ministry of Law The Attorney General has also produced before us the file containing the resolutions passed by the Legislatures of the 12 States referred to in the Memorandum set out above
We are satisfied that there has been due compliance of the provisions contained in the proviso to Article 3682 of the Constitution
We therefore reject the first conten tion
Before proceeding further we should observe that there would have been no occasion for an argument of this type being urged in Court if at the commencement of the Act it had been stated that the Bill in question had been pre sented to the President for his assent after it had been duly ratified by the required number of Legislatures of States
We hope that this suggestion will be followed by the Central Secretariat hereafter since we found that even the AttorneyGeneral was not quite sure till the case was taken up for heating that the Bill which had become the 46th Amendment had been duly ratified by the required number of States
We shall now proceed to consider the other contention of the petitioners and the appellants namely that the States were bound to comply with the provisions of Article 286 of the Constitution and the provisions of the  even while levying sales tax on the turnover relating to the transactions described in sub clause b of clause 29 A of Article 366 of the Constitution
The grounds urged on behalf of the petitioners and the appel lants may be sum 345 marised thus
The object of the 46th Amendment is to convert what is not a sale into a sale
A transfer of property in goods involved in the execution of a works contract which was held by this Court in the State of Madras vs Gannon Dunkerley  Co Madras Ltd supra to be not a sale is deemed by a fiction of law to be a sale and is made taxable as such
In no other respect does the 46th Amendment enlarge the power of the States to levy sales tax
Articles 269 286 366 29 A Entry 92A in List I of the Seventh Schedule and Entry 54 in List II of the Seventh Schedule to the Con stitution should be read together
Reading the above provi sions together the position which emerges may be summed up as follows The 46th Amendment has no beating on the loca tion of the sale
It does not deem an outside sale to be an inside sale
It does not confer on the States the power to tax sales outside the State
Therefore if in the process of executing a works contract a transfer of property in the goods takes place outside the State the State would have no power to levy sales tax on such a transfer
The 46th Amend ment does not deem an Inter State sale to be an inter State sale
It does not confer on the State the power to tax inter State sales
Therefore if in the process of executing a works contract a transfer of property in goods takes place in the course of inter State sale the state would have no power to levy sales tax on such a transfer
The 46th Amend ment does not confer on the State the power to levy sales tax on a sale in the course of import
Therefore if in the process of executing a works contract a transfer of proper ty in goods takes place in the course of import the State would have no power to levy sales tax on such transfer
The price of goods supplied by a person who has assigned the contract for the purpose of executing a works contract cannot be treated as a part of the taxable turnover
The restrictions and conditions contained in section 15 of the Central Sales tax Act 1956 on the power of the States to levy tax on the sale of declared goods apply equally and fully to transfer of property in goods under works con tracts even as they apply to ordinary sales
Therefore if there is a transfer of property in declared goods for example steel products in the process of execution of works contractthe State can levy tax only at 4 per cent and only at one stage
It is clear that the entire works contract is not deemed by the 46th Amendment to be a sale
Therefore only the price reasonably allocable to goods transferred under works contracts can be taxed and not the totality of the consideration paid for the works contract
If goods for example fuel and power are used in the process of executing a works contract but are consumed in the process the property in such goods cannot conceivably be transferred because the goods themselves cease to exist
Such goods cannot be the subject matter for the levy of sales tax 346 at all
These in brief are the contentions of the petition ers and the appellants
The above mentioned contentions of the petitioners and the appellants are met by the States thus
When a works contract is executed property does not pass as a movable property unless there is an express agreement stating that the properties in such movables will pass to the person who has assigned the contract as and when the goods are used in the constructions of the building
In the absence of any such agreement transfer of property in goods passes not as movables as such but by accretion and in an unidentifiable and indivisible manner
In all such cases it is not possible to disintegrate the contract into a contract for sale of goods and a contract for work and labour only
When a house or a factory or a bridge constructed by a building contrac tor is handed over to the person who had assigned the con tract what is handed over is a conglomerate of all the goods used in the construction of the building which was different from the specific goods used in the construction
Sub clause b of clause 29 A of Article 366 of the Con stitution has conferred on the Legislatures of States the power to levy tax on works contract which is independent of the power conferred on the Legislatures of States under Entry 54 of the State List
It is thus argued that it was not possible to break up the house factory or bridge etc
which is constructed by a building contractor into individu al items of goods and to tax the transfer of property in each of them in accordance with the provisions contained in Article 286 of the Constitution and the General Sales Tax Act 1956
It was further urged that in the case of a works contract there could not be a sale of goods which had taken place outside the State in which the work was executed there could not be any sale of the goods in the course of import into India there could not be any sale or purchase of goods which had taken place in the course of Inter State trade or commerce and there could not be a sale of any declared goods attracting section 15 of the Central Sales Act 1956 since a house a factory or a bridge was not one of those items specified as declared goods under section 14 of the said Act
It was next contended that since in no sales tax law in force in any part of India it was stated that the turnover relating to a works contract was subject to payment of sales tax at one point only
the question of considering whether the levy of sales tax relating to a works contract could be held to be bad on account of the fact that certain goods which had been used in the construc tion had suffered tax earlier did not arise
In other words it was urged that the goods involved in a works contract were different from the works contract
It was however argued that if any goods had been supplied 347 by the person for whose benefit a building factory or bridge was being constructed for the purpose of such con struction the value of those goods would not be included in the taxable turnover
Before proceeding further it is necessary to understand what sub clause b of clause 29 A of Article 366 of the Constitution means
Article 366
is the definition clause of the Constitution
It says that in the Constitution unless the context otherwise requires the expressions defined in that article have the meanings respectively assigned to them in that article
The expression goods  is defined in clause 12 of Article 366 of the Constitution as including all materials commodities and articles
It is true that in the State of Madras vs Gannon Dunkerley  Co Madras Ltd supra this Court held that a works contract was an indi visible contract and the turnover of the goods used in the execution of the works contract could not therefore become exigible to sales tax
It was in order to overcome the effect of the said decision Parliament amended Article 366 by introducing sub clause b of clause 29 A 
Sub clause b of clause 29 A states that tax on the sale or pur chase of goods  includes among other things a tax on the transfer of property in the goods whether as goods or in some other form involved in the execution of a works con tract
It does not say that a tax on the sale or purchase of goods included a tax on the amount paid for the execution of a works contract
It refers to a tax on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract
The emphasis is on the transfer of property in goods whether as goods or in some other form
The latter part of clause 29 A of Article 366 of the Constitution makes the position very clear
While referring to the transfer delivery or supply of any goods that takes place as per subclauses a to f of clause 29 A the latter part of clause 29 A Says that such  transfer delivery or supply Of any goods  shall be deemed to be a sale of those goods by the person making the transfer delivery or supply and a purchase of those goods by the person to whom such transfer delivery or supply is made
Hence a transfer of property in goods  under subclause
b of clause 29 A is deemed to be a sale of the goods involved in the execution of a works contract by the person making the transfer and a purchase of those goods by the person to whom such transfer is made
The object of the new definition introduced in clause 29 A of Article 366 of the Constitution is therefore to enlarge the scope of tax on sale or purchase of goods  wherever it occurs in the Constitution so that it may include within its scope the transfer delivery or supply of goods that may take place under any of the transactions referred to in sub clause a to f thereof wherever 348 such transfer delivery or supply becomes subject to levy of sales tax
So construed the expression tax on the sale or purchase of goods  in Entry 54 of the State List therefore includes a tax on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract also
The tax leviable by virtue of sub clause b of clause 29 A of Article 366 of the Constitu tion thus becomes subject tO the same discipline to which any levy under Entry 54 of the State List is made subject to under the
COnstitution
The position is the same when we look at Article 286 of the Constitution
Clause 1 of Article 286 says that no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place a out side the State or b in the course of the import of the goods into or export of the goods out of the territory of India
Here again we have to read the expression a Tax on the sale or purchase of goods found in Article 286 as in cluding the transfer of goods  referred to in sub clause b of clause 29 A of Article 366 which is deemed to be a sale of goods and the tax leviable thereon would be subject to the terms of clause 1 of Article 286
Similarly the re strictions mentioned in clause 2 of Article 286 of the Constitution which says that Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause 1 of Article 286 would also be attracted to a transfer of goods contemplated under Article 36629Ab
Similarly clause 3 of Article 286 is also applicable to a tax on a transfer of property referred to in sub clause b of clause 29 A of Article 366
Clause 3 of Article 286 consists of two parts
Sub clause a of clause 3 of Article 286 deals with a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter State or commerce which is generally applicable to all sales including the transfer supply or delivery of goods which are deemed to be sales under clause 29 A of Article 366 of the Constitution
If any declared goods which are referred to in section 14 of the are involved in such transfer supply or delivery which is referred to in clause 29 A of Article 366 the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in section 15 of the 
Clause b is an additional provision which empowers Parliament to impose any additional restrictions or conditions in regard to the levy of sales tax on transactions which will be deemed to be sales under sub clause b or sub clause e or sub clause d of clause 29 A of Article 366 of the Constitution
We do not find much substance in the contention urged on behalf of the States that since sub clause b of clause 3 of Article 286of the Constitution refers 349 only to the transactions referred to in sub clauses b c and d of clause 29 A of Article 386 the transactions referred to under those three sub clauses would not be subjected to any other restrictions set out in clause 1 or clause 2 or sub clause a of clause 3 of Article 286 of the Constitution
It may be that by virtue of sub clause b of clause 3 of Article 286 it is open to Parliament to impose some other restrictions or conditions which are not generally applicable to all kinds of sales
That however cannot take the other parts to Article 286 inapplicable to the transactions which are deemed to be sales under Article 36629A of the Constitution
We are of the view that all transfers deliveries and supplies of goods referred to in clause a to f of clause 29 A of Article 366 of the Constitution are subject to the restrictions and conditions mentioned in clause 1 clause 2 and sub clause a of clause 3 of Article 366 of the Constitution and the trans fers and deliveries that take place under sub clauses b c and d of clause 29 A of Article 366 of the Constitu tion are subject to an additional restriction mentioned in sub clause b of Article 2863 of the Constitution
It is useful to refer at this stage to the corresponding law in Australia
In Sydney Hydraulic and Central Engineer ing Co vs Blackwood  Son 8N SWR 10 the Supreme Court of South Sales held that the works contract entered into be tween the parties which came up for consideration in that case was one to do certain work and to supply certain mate rials and not an agreement for the sale or delivery of the goods
Accordingly no sales tax was payable thereon
In 1932 the Legislature intervened and amended the statute of 1930 by introducing a new provision section 34 in the following
terms For the purpose of this Act a person shall be deemed to have sold goods if in the performance of any contract not being a contract for the sale of goods under which he has received or is entitled to receive valuable consideration he supplies goods the property in which whether as goods or in some other form passes under the terms of the contract to some other person
 After the above amendment there arose a case in Austra lia regarding the liability of a contractor to pay sales tax on the transfer of goods involved in a works contrat name ly MR Hornibrook Pty Ltd vs Federal Commissoner of Taxation  The relevant facts involved in that case were these
MR Mornibrook 350 Pty Ltd was a builder and a contractor and in addition to manufacturing ironwork and goods for use in contracts undertaken manufactured items of plants for its own use
In the years 1934 and 1935 MR Hornibrook Pty Ltd con structed under contract for Hornibrook Highway Ltd at a price set out in the contract the Hornibrook Highway con necting Ganagate and Redcliffe aueensland
Part of the highway consisted of a bridge of 134 miles in length over an arm of Moreton Day
The bridge was build on reinforced concrete piles which were driven into the bed of the sea in series of three in line each set of three being connected by a headstock of reinforced concrete
The piles varied in length depending upon the depth to which they had to be driven into the bed of the sea
They were made of a mixture of cement crushed metal sand and water and reinforced with steel bars
The piles were constructed on the bank or  Moreton Day adjacent to the site of the bridge
The head stock was built in the same manner as the piles
So far as was known concrete piles of the class used in the construc tion of the bridge were not manufactured for sale anywhere in Australia nor were they an article of commerce in Aus tralia or anywhere else in the world
Such piles had not been standardized because the construction of each pile depended upon the particular load which it was to carry and the nature of the ground into which it was to be driven and therefore each pile in a job might be different from every other pile in it in length
When the sales tax authorities made an assessment in respect of the value of the piles MR Hornibrook Pty Ltd contended that the said piles had no sale value within the meaning of the Sales Tax As sessment Acts that the said piles were not a manufacture  or goods manufactured  within the meaning of the sales Tax Assessment Acts and that the said piles formed part Of a bridge and were built on the job and were not article of commerce and were nor procurable from any third person and were not of a class of goods manufactured for sale by any person and there fore the price of piles was not liable to payment of sales tax
Latham CJ with whom Justice Rich and Justice Starke agreed Justice McTiernan dissenting held as under Sec
34 of the Act referred to in part of above quoted was at the relevant time in the following form For the purposes of this Act a person shall be deemed to have sold goods if in the performance of any contract under which he has received or is entitled to receive valuable consideration he supplies goods the property in which whether as goods or in some other form passes under the terms of the contract to some other person  351 In my opinion the commissioner is right in his contention that this provision applies to the present case
The appellant company in the performance of a contract for building a bridge under which contract it was entitled to receive and doubtless has received valuable consideration has supplied goods namely reinforced concrete piles
Such piles are plainly manufactured articles
They are chattels
They were intended to be incorporat ed in a structure and were so incorporated
They lost their identity as goods in that structure
But this fact does not prevent the piles from being goods any more than it pre vents bricks or stones or nuts and bolts from being goods
The fact that the goods were specially manufactured and designed for a particular purpose cannot be held to deprive them of the character of goods
 Sub clause b of clause 29 A of Article 366 of the Constitution of India more or less has adopted the language used in section 34 of the Australian Act
Even after the decision of this Court in the State of Madras vs Gannon Dunkerley  Co Madras Ltd supra it was quite possible that where a contract entered into in connection with the construction of a building consisted of two parts namely one part relating to the sale of materi als used in the construction of the building by the contrac tor to the person who had assigned the contract and another part dealing with the supply of labour and services sales tax was leviable on the goods which were agreed to be sold under the first part
But sales tax could not be levied when the contract in question was a single and indivisible works contract
After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services
After the 46th Amendment it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above
It could not have been the contention of the revenue prior to the 46th Amendment that when the goods and materials had been supplied under a distinct and separate contract by the contractor for the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and condi tions incorporated in Article 286 of the Constitution
If that was the position can the States 352 contended after the 46th Amendment under which by a legal fiction the transfer of property in goods involved in a works contract was made liable to payment of sales tax that they are not governed by Article 286 while levying sales tax on sale of goods involved in a works contract They cannot do so
When the law creates a legal fiction such fiction should be carried to its logical end
There should not be any hesitation in giving full effect to it
If the power to tax a sale in an ordinary sense is subject to certain condi tions and restrictions imposed by the Constitution the power to tax a transaction which is deemed to be a sale under Article 36629 A of the Constitution should also be subject to the same restrictions and conditions
Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the con struction of a building passes to the owner of the land on which the building is constructed when the goods or materi als used are incorporated in the building
The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work
In Hudson s Building Con tracts 8th edition at page 362 it is stated thus The well known rule is that the property in all materials and fittings once incorporated in or affixed to a building will pass to the freeholder quicquid plantatur solo solo cedit
The employer under a building contract may not necessarily be the freeholder but may be a lessee or licensee or even have no interest in the land at all as in the case of a sub contract
But once the builder has affixed materials the property in them passes from him and at least as against him they become the absolute property of his employer whatever the latter s tenure of or title to the land
The builder has no fight to detach them from the soil or building even though the building owner may himself be entitled to sever them as against some other person eg as tenant s fixtures
Nor can the builder reclaim them if they have been subsequently severed from the soil by the building owner or anyone else
The principle was shortly and clearly stated by Blackburn J in Appleby vs Reyers 1867 LR 2 CP 651 at p 659 Materials worked by one into the property of another become part of that property
This is equally true whether it be fixed or movable property
Bricks built into a wall become part of the house thread stitched into a coat which is under repair or planks and nails and pitch worked into a ship under repair be 353 come part of the coat or the ship
 In Bmden and Watson Building Contracts and Practice 6th edition Pages 229 230 it is stated thus VESTING OF PROPERTY IN MATERIALS 1
BY AFFIXING MATERIALS ETC
TO THE FREEHOLD
Vesting of Materials when built into the work
As soon as materials of any de scription are built into a building or other erection they cease to be the property of the contractor and become that of the freeholder a
Illustration A burial company having erected a memorial stone removed and sold it because it was not paid for Held The proper remedy of the company was to sue for payment and they had no right to remove the stone b
And where the employer has only an interest less than a free hold he has the Same interest in the built in materials as he has in the land
Even if the employer detach them from the soil the property in them does not revert to the contractor and he acquires no right to remove them on the analogy of the law of landlord and tenant as to fixtures c
Illustration Where the yearly tenant of a house had at his own expense during his term hung bells but quitted the premises without remov ing them Held By remaining fixed to the freehold after the expiration of the term they became the property of the landlord C
Until however the materials are actually built into the work in the absence of some stipulation intended to pass the property in them when delivered on the site they remain the property of the contractor d
 354 In Benjamin s Sale of Goods 3rd Edition in para 43 at page 36 it is stated thus Chattel to be affixed to land or another chattel
Where work is to be done on the land of the employer or on a chattel belonging to him which involves the use or affixing of materials belonging to the person employed the contract will ordinarily be one for work and materials the property in the latter passing to the employer by accession and not under any contract of sale
Sometimes howev er there may instead be a sale of an article with an additional and subsidiary agreement to affix it
The property then passes before the article is affixed by virtue of the contract of sale itself or an appropriation made under it In view of the foregoing statements with regard to the passing of the property in goods which are involved in works contract and the legal fiction created by clause 29 A of Article 366 of the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract but a conglomerate that is the entire building that is actually constructed
After the 46th Amend ment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable property
We are surprised at the attitude of the States which have put forward the plea that on the passing of the 46th Amendment the Constitution had conferred on the States a larger freedom than what they had before in regard to their power to levy sales tax under Entry 54 of the State List
The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials
We do not accept the argument that sub clause b of Article 36629A should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof
As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the deemed sales and purchases of goods under clause 29A of Article 366 is to be found only in entry 54 and not outside it
We may recapitulate here the observations of the Consti tution Bench in the case of Bengal Immunity Company Ltd supra in which this Court has held that the operative 355 provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List
We therefore declare that sales tax laws passed by the Legislatures of States levying taxes on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub clause of Article 286 of the Constitution
We however make it clear that the cases argued before and considered by us relate to one specie of the genetic concept of workscon tracts 
The case book is full of the illustrations of the infinite variety of the manifestation of works contracts  Whatever might be the situational differences of individual cases the constitutional limitations on the taxing power of the state as are applicable to workscontracts  represented by Building Contracts in the context of the expanded concept of tax on the sale or purchase of goods as consti tutionally defined under Article 36629A would equally apply to other species of works contracts  with the requi site situational modifications
The Constitutional Amendment in Article 36629A read with the relevant taxation entries has enabled the state to exert its taxingpower in an important area of social and economic life of the community
In exerting this power particularly in relation to transfer of property in goods involved in the execution of works contracts  in building activity in so far as it affects the housing projects of the underprivileged and weaker sections of society the state might perhaps be pushing its taxation power to the peripheries of the social limits of that power and perhaps even of the constitutional limits of that power in dealing with unequals
In such class of cases Building Activity  really relates to a basic subsistential necessity
It would be wise and appropriate for the state to consider whether the requisite and appropriate classifications should not be made of such building activity attendant with such social purposes for appropriate separate treatment
These of course are matters for legislative concern and wisdom
Having interpreted the relevant provisions of the Constitution as stated above we feel that it is unneces sary to take up each and every writ petition referred to above to express our opinion on the validity of 356 the statutory provisions and rules which are questioned before us
The petitioners concerned are at liberty to approach the authorities under the Sales Tax Act or the High Court concerned for necessary relief
It is open to them to question the validity of the statutory provisions and the rules made thereunder before the High Courts concerned
When such petitions are filed the High Court will proceed to dispose of the cases in the light of this judgment
With these observations all the Writ Petitions are disposed of
The Civil Appeals filed against the orders of the High Courts however shall be placed before the appropriate bench heating tax matters to decide the other questions raised in them including the validity of any statutory provision or rule in the light of this judgment
These cases are accordingly disposed of
There is no order as to costs
Y Lal Petitions dis posed of


Summary:
The respondent firm was assessed to income tax for the assessment years 1947 48 1948 49 and 1949 50 under section 233
The Income tax Officer renewed the registration of the firm under section 26A of the Income tax Act and passed an order under section 236 allocating the shares of the various partners
The respondent preferred appeals against the orders of assessment to the Appellate Assistant Commissioner
Oil November 4 1950 the Appellate Assistant Commissioner partly accepted the appeals in respect of the assessment years 1947 48 and 1948 49 but the appeal in respect of the assessment year 1949 50 was still pending
Meanwhile after issuing notice to the parties and hearing them the Commissioner acting under section 33B1 passed an order on June 5 1952 cancelling the registration granted under section 26A on the ground that one of the partners of the firm was a minor and directed the Income tax Officer to make fresh assessments for the three years
The respondent preferred appeals to the Appellate Tribunal which were allowed
On the application of the appellant the Tribunal referred under section 661 of the Act three questions to the High Court of Bombay
In regard to the assessment years 1947 48 and 1948 49 the High Court held that the orders of the Income tax Officer granting registration had merged in the appellate orders of the Assistant Appellate Commissioner and the revisional power of the Commissioner under section 33B1 could not be exercised in respect of them
With regard to the renewal of registration for the year 1949 50 the High Court held that the Commissioner could not exercise his revisional power as the propriety of this order was open to consideration by the Appellate Assistant Commissioner in the respondent s appeal pending before him
The appellant obtained special leave and appealed Held that the Commissioner had the authority under section 33B1 to set aside the orders of registration made by the Income tax Officer
An order of the Income tax Officer granting registration was not appealable before the Appellate Assistant Commissioner
Such an order could be cancelled by the Commissioner in exercise of his revisional powers under section 33B1  but it could not be cancelled by the Appellate Assistant Commissioner even in the exercise of his appellate jurisdiction when dealing with an appeal by an assessee
The theory that the order of a tribunal merges in the order of the appellate authority did not apply to the order of registration passed by the Incometax Officer
Commissioner of Income tax Bombay North vs Tejaji Farasram Kharawala  referred to
Durgabati and Narmadabala Gupta vs Commissioner of Income tax  disapproved
But the Commissioner has no power while exercising his revisional jurisdiction under section 33B1 of the Act to set aside the assessment orders
The Commissioner in the present case did 715 not really intend to set aside the assessment orders but merely to direct the Income tax Officer to make suitable consequential amendments in regard to the machinery or procedure
to be adopted to recover the tax payable by the respondent
The registration or non registration of a firm does not at all affect the computation of taxable income it merely governs the procedure to be adopted in recovering the tax found due
Shapurji Pallonji vs Commissioner of Income tax Bombay  referred to