Case: State of Kerala &amp; Others Vs. M/s. South India Corporation Private Limited

2. The respondent, a private limited company having its principal place of business at Mattancherry originally in the State of Cochin but now in the State of Kerala, was assessed by the Sales-tax Officers, Special Circle, Mattancherry, to sales-tax for the years 1960-61 and 1961-62 on turnovers which included "works contracts" executed by the respondent. Before the taxing authorities the contention raised by the respondent was that the turnover on these contracts could not be subject to sales tax. Tax Revision Cases 22 and 23 of 1966 were filed in the High Court under Section 41 of the Kerala General Sales Tax Act, 1963 to revise the decision of the Tribunal. These were heard by the High Court along with the Original Petition No. 1046 of 1966. Civil Appeal No. 175 of 1969 relates to the assessment for the year 1959-60 by which a turnover of Rs. 6,09,954-98 relating to works contracts was included. The Tribunal upheld the levy of sales tax on works contracts relating to the period 26th January 1960 to March 31, 1960 and remanded the case. The respondent thereupon filed O. P. No. 1723 of 1965. A single Judge of the High Court quashed the impugned order and this was confirmed in Writ Appeal No. 243 of 1967. The State, the Kerala Sales-tax Appellate Tribunal and the Inspecting Assistant Commissioner of Agricultural Income-tax and Sales-tax, Ernakulam have come up in appeals to this Court and the common respondent is the company.

Reasoning: 8. The impost of sales tax on works contracts though beyond the competence of the States would be within that of Parliament by virtue of item 97 of List I of Seventh Schedule and Article 248 of the Constitution. It would therefore follow that if there was no other law touching this point, sales tax on works contracts which were being lawfully levied by the Governments of the States of Travancore and Cochin before 25th January, 1950 would continue to be levied and to be applied to the same purposes until provision to the contrary was made by Parliament by Law. The fact that the Sales Tax Acts of the former States of Travancore and Cochin were repealed but identical provisions were re-enacted in the later Acts would not take the case out of Article 277. All that the said article requires is that there should be a continuity in the levy of taxes and so long as the character of the taxes did not change they would be saved by the saidanswer must clearly be in the negative because the essential condition for the validity of the imposition is the continuity of the levy and once there is a break in its operation it ceases to be effective and it cannot matter that no provision to the contrary as envisaged by Article 277 was made by Parliament.It is clear that Article 277 and particularly Article 278 were engrafted in the Constitution with the immediate object of maintaining the financial viability of the new States for such time as the Parliament thought proper. So far as the State of Kerala was concerned the need for financial assistance was met by the agreement between the President of India and the Raj Pramukh of Travancore. That agreement itself shows that there was liberal assistance for the first five years which was to be tapered off in another five years time. It would not be wrong to observe that it was contemplated that after ten years the State of Kerala would be able to find its own feet and do without any special assistance from the Centre. One of the objects of the said agreement was to recoup the State of Kerala for the loss of revenue which that State used to derive from inter alia, the sales tax on works contracts being a tax which was leviable under the Constitution by the Government of India alone. The agreement came to an end in 1960 and with it the financial assistance rendered in terms thereof. The agreement broke the continuity of the levy of sales tax on works contracts and there is nothing in Article 277 to resuscitate it.