Case ID: 591

Judgment:
Appeals Nos.253 to 255 of 1955. Appeals from the judgment and decree dated November 30	 1954	 of the former Nagpur High Court in Misc. Petitions Nos. 245	 279 and 308 of 1954. N. C. Chatterjee and G. C. Mathur	 for the appellant in C. A. No. 253 of 1955. G. C. Mathur	 for the appellant in C. A. Nos. 254 and 255 of 1955. B. Sen	 section B. Sen and 1. N. Shroff	 for the respondents in C. A. Nos. 253 and 254 of 1950 and for the State of Madhya Pradesh (Intervener). C. K. Daphtary	 Solicitor General of India and R. H. Dhebar	 for the respondents in C. A. No. 255 of 1955 and for the State of Bombay (Intervener). N. section Bindra and T. M. Sen	 for the State of Punjab (Intervener). April 3. The judgment of section R. Das C. J.	 Venkatarama Aiyar	 section K. Das and A. K. Sarkar JJ. was delivered by Venkatarama Aiyar J. Bose J. delivered a separate judgment. VENKATARAMA AIYAR J. These are appeals against the judgment of the High Court of Nagpur in writ applications filed by the appellants impugning the validity of certain provisions of the Central Provinces and Berar Sales Tax Act	 1947 (C. P. & Berar 21 of 1947)	 hereinafter referred to as the Act	 imposing sales tax on materials used in construction works. It will be convenient to refer to these provisions at this stage. Section 2(b) of the Act defines " contract " as including " any agreement for carrying out for cash or deferred payment or other valuable consideration the construction	 fitting out	 improvement or repair of any building	 road	 bridge or other immovable property or the installation or repair of any machinery 430 affixed to a building or other immovable property ". Section 2(c) of the Act defines " dealer " as including a person who carries on the business of supplying goods. In section 2 (d)	 " goods " are defined as including " all materials	 articles and commodities whether or not to be used in the construction	 fitting out	 improvement or repair of immovable property ". Section 2(g) defines sale " as follows: " " Sale " with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or other valuable consideration	 including a transfer of property in goods made in course of the execution of a contract	 but does not include a mortgage	 hypothecation	 charge or pledge; and the word 'purchase ' shall be construed accordingly. " Section 2(h) defines " sale price " as including the amount payable to a dealer as valuable consideration for the carrying out of any contract	 less such portion	 representing the proportion of the cost of labour to the cost of materials	 used in carrying out such contract	 as may be prescribed. " Turnover " is defined in section 2(j) as including the aggregate amount of the sale price received or receivable by a dealer in respect of the supply of goods in the carrying out of any contract. The charging section is section 4(a)	 and it provides that dealers whose turnover exceeded certain limits shall be liable to pay tax in accordance with the provisions of the Act on all sales effected after the commencement of the Act. Rule 4 of the Sales Tax Rules	 1947	 provides that " in calculating the sale price for the purpose of sub cl. (ii) of cl. (h) of section 2	 a dealer may be permitted to deduct from the amounts payable to him as valuable consideration for carrying out a contract	 a sum not exceeding such percentages as may be fixed by the Commissioner for different areas subject to the following maximum percentages "	 and then follows a scale of percentages to be allowed in respect of different classes of contracts. Acting on these provisions	 the authorities constituted under the Act called upon the contractors within the State to furnish returns in respect of their receipts 431 from contract works for the purpose of assessment of sales tax	 to which the appellants replied by instituting the proceedings	 out of which the present appeals arise. The appellant in Civil Appeal No. 253 of 1955 is a contractor doing business in the construction of buildings and roads for the Military and Public Works Department in the State of Madhya Pradesh	 and he filed M. P. No. 245 of 1954 challenging the validity of the assessment which the respondents proposed to make	 on two grounds. He contended firstly that the Provincial Legislature had authority under Entry 48 of List 11	 Sch. VII of the Government of India Act	 1935	 to impose tax only on sale of goods	 that the supply of materials in works contracts was not a sale within that Entry	 and that the provisions of the Act	 which sought to impose a tax thereon treating it as a sale	 were therefore ultra vires; and secondly that he was entitled to exemption under item 33 in Sch. 11 to the Act as enacted by Act XVI of 1949	 and that the notification of the Government dated September 18	 1950	 withdrawing that exemption was unconstitutional and void. To appreciate this contention	 it is necessary to refer to section 6 of the Act	 which is as follows: 6 (1) " No tax shall be payable under this Act on the sale of goods specified in the second column of Schedule 11	 subject to the conditions and exceptions	 if any	 set out in the corresponding entry in the third column thereof. (2) The State Government may	 after giving by notification not less than one month 's notice of their intention so to do	 by a notification after the expiry of the period of notice mentioned in the first notification amend either Schedule	 and thereupon such Schedule shall be deemed to be amended accordingly. " Item 33 in Sch. 11 as originally enacted was " Goods sold by the Crown ". This was amended by Act XVI of 1949 by substituting for the above words " Goods sold to or by the Crown ". By an Adaptation Order of 1950	 the words "State Government" were substituted for "Crown"	 and item 33 became "Goods sold to or by the State Government " In exercise of 432 the power conferred by section 6 (2) of the Act	 the State issued a notification on September 18	 1950	 amending item 33 by substituting for the words " Goods sold to or by the State Government " the words " Goods sold by the State Government ". The resultant position is that the appellant who was entitled to exemption under Act XVI of 1949 in respect of goods sold to the Government could no longer claim it by reason of the notification aforesaid. Now	 the ground of his attack was that it was not open to the Government in exercise of the authority delegated to it under section 6 (2) of the Act to modify or alter what the Legislature had enacted. The appellant accordingly claimed that the proceedings which the respondents proposed to take for assessment of sales tax were incompetent	 and prayed that an appropriate writ might be issued restraining them from proceeding with the same. In Civil Appeal No. 254 of 1955	 the appellants are the Jabalpur Contractors ' Association	 which is a registered body and certain contractors	 and they filed M. P. No. 279 of 1954 questioning the validity of the proposed assessment on the same grounds as in M. P. No. 245 of 1954. The appellant in Civil Appeal No. 255 of 1955	 is the Madhya Pradesh Contractors ' Association	 Nagpur	 which is again a registered body	 and it filed M. P. No. 305 of 1954	 challenging the legality of the proceedings for assessment on the same grounds as in M. P. No. 245 of 1954. All these three petitions were heard together	 and by their judgment dated November 30	 1954	 the learned Judges held that the expression " sale of goods" in Entry 48 was wide enough to coverall transactions in which property in the moveables passed from one person to another for money	 and that	 accordingly	 in a building contract there was a sale within Entry 48 of the materials used therein	 and that the provisions of the Act imposing tax thereon were valid. But the learned Judges also held that the tax could be levied only on the actual value of the materials to be determined on an enquiry into the matter	 and that the definition of " price " in section 2 (h) (ii) and r. 4 framed pursuant thereto were ultra vires 433 in that they laid down artificial rules for fixing the same by deducting certain percentages from out of the total receipts on account of labour. As regards the notification dated September 18	 1950	 the learned Judges held that it was within the authority conferred by the statute and was valid. In the result	 the impugned provisions of the Act were held to be valid except as to the definition of " price " in section 2 (h) (ii) and r. 4 of the Sales Tax Rules	 1947. It is against this judgment that the above appeals have been preferred on a certificate granted by the High Court under article 132(1) of the Constitution. Two contentions have been urged in support of the appeals : (1) that the Provincial Legislature has no authority in exercise of its power under Entry 48 to impose a tax on the supply of materials in works contracts as such supply cannot be said to be also of those materials within that Entry ; and (2) that the notification dated September 18	 1950	 is bad as being an constitutional delegation of legislative authority. As regards the first contention	 the question is now concluded by the decision of this Court in The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (1) in which it has been held that the expression " sale of goods " in Entry 48 has the same meaning which it has in the Indian 	 that in a building contract there is no sale of materials as such	 and that it is therefore ultra vires the powers of the Provincial Legislature to impose tax on the supply of materials. Mr. B. Sen appearing for the respondents has argued that even if the expression " sale of goods " in Entry 48 is construed in the sense which it has in the 	 that might render the impugned provisions of the Act ultra vires only in respect of a building contract which is one and indivisible	 that there might be contracts which might consist of two distinct agreements	 one for the sale of materials and another	 for work and labour	 and that in such a case	 it would be competent to the State to impose tax on the sale of materials even construing that word in its (1) ; 55 434 narrow sense	 and that these are matters which must be left to be investigated by the appropriate authorities. That undoubtedly is the correct legal position as observed in The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (1)	 and accordingly	 when a question arises as to whether a particular works contract could be charged to sales tax	 it will be for the authorities under the Act to determine whether the agreement in question is	 on its true construction	 a combination of an agreement to sell and an agreement to work	 and if they come to the conclusion that such is its character	 then it will be open to them to pro ceed against that part of it which is a contract for the sale of goods	 and impose tax thereon. (2) We have next to consider the contention that the notification dated September 18	 1950	 is bad as constituting an unconstitutional delegation of legislative power. In the view which we have expressed above that there is in a works contract no sale of materials as such	 it might seem academic to enter into a discussion of this question ; but as there may be building contracts in which it is possible to spell out agreements for the sale of materials as distinct from contracts for work and labour	 it becomes necessary to express our decision thereon. Mr. Chatterjee appearing for the appellant in Civil Appeal No. 253 of 1955 contends that the notification in question is ultra vires because it is a matter of policy whether exemption should be granted under the Act or not	 and a decision on that question must be taken only by the Legis lature	 and cannot be left to the determination of an outside authority. While a power to execute a law	 it was argued	 could be delegated to the executive	 the power to make it must be exercised by the Legislature itself	 and reliance was placed on the observations in Hampton J R & Co. vs United States (2)	 Panama Refining Co. vs Ryan (3)	 and Schechter vs United States (4)	 as supporting this position. It was also contended that the grant of a power to an outside authority to (1) ; (2) ; ; 	 629. (3) ; ; 	 458. (4) ; ; 435 repeal or modify a provision in a statute passed by the legislature was unconstitutional	 and that	 in consequence	 the impugned notification was bad in that	 in reversal of the policy laid down by the legislature in Act XVI of 1949 that sales to Government should be excluded from the operation of the Act	 it withdrew the exemption which had been granted thereunder	 and the observations in re The etc. (1)	 and the decision in Rajnarain Singh vs The Chairman	 Patna Administration Committee	 Patna and another (2)	 were strongly relied on as establishing this contention. Mr. N. C. Chatterjee particularly relied on the following observations of Bose J. at p. 301 in Rajnarain Singh 's case (2) : " In our opinion	 the majority view was that an executive authority can be authorised to modify either existing or future laws but not in any essential feature. Exactly what constitutes an essential feature cannot be enunciated in general terms	 and there was some divergence of view about this in the former case	 but this much is clear from the opinions set out above; it cannot include a change of policy. " On these observations	 the point for determination is whether the impugned notification relates to what may be said to be an essential feature of the law	 and whether it involves any change of policy. Now	 the authorities are clear that it is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws	 such as the selection of persons on whom the tax is to be laid	 the rates at which it is to be charged in respect of different classes of goods	 and the like. In Powell vs Appollo Candle Company Limited the question arose as to whether section 133 of the Customs Regulation Act of 1879 of New South Wales which conferred a power on the Governor to impose tax on certain articles of import was an unconstitutional delegation of legislative powers. In holding that it was not	 the Privy Council observed: "It is argued that the tax in question has been (1) ; 	 787	 982	 984 (3) (2) ; 436 imposed by the Governor and not by the Legislature who alone had power to impose it. But the duties levied under the Order in Council are really levied by the authority of the Act under which the Order is issued. The Legislature has not parted with its perfect control over the Governor	 and has the power	 of course	 at any moment	 of withdrawing or altering the power which they have entrusted to him. In these circumstances	 their Lordships are of opinion that the judgment of the Supreme Court was wrong in declaring Section 133 of the Customs Regulation Act of 1879 to be beyond the power of the Legislature. " In Syed Mohamed & Co. vs The State of Madras (1)	 the question was as to the vires of rules 4 and 16 framed under the Madras General Sales Tax Act. Section 5 (vi) of that Act had left it to the rule making authority to determine at which single point in the series of sales by successive dealers the tax should be levied	 and pursuant thereto	 rules 4 and 16 had provided that it was the purchaser who was liable to pay the tax in respect of sales of hides and skins. The validity of the rules was attacked on the ground that it was only the legislature that "as competent to decide who shall be taxed	 and that the determination of that question by the rule making authorities was ultra vires. The Madras High Court rejected this conntetion	 and held on a review of the authorities that the delegation of authority under section 5 (vi) war	 within permissible constitutional limits. In Hampton J. R. & Co. vs United States (2)	 which was cited on behalf of the appellant	 the question arose whether section 315(b) of the Tariff Act	 1922	 under which the President had been empowered to make such increases and decreases in the rates of duty as were found necessary for carrying out the policies declared in the statute was an unconstitutional delegation	 and the decision was that such delegation was not unconstitutional. We are therefore of the opinion that the power conferred on the State Government by section 6(2) to amend the schedule relating to exemption is in consonance with the accepted legislative practice relating to the topic	 and is not unconstitutional. (1) (1952) 3 S.T.C. 367 (2) ; ; 	 629. 437 The contention of the appellant that the notification in question is ultra vires must	 in our opinion	 fail on another ground. The basic assumption on which the argument of the appellant proceeds is that the power to amend the schedule conferred on the Government under section 6(2) is wholly independent of the grant of exemption under section 6(1) of the Act	 and that	 in consequence	 while an exemption under section 6(1) would stand	 an amendment thereof by a notification under section 6(2) might be bad. But that	 in our opinion	 is not the correct interpretation of the section. The two sub sections together form integral parts of a single enactment	 the object of which is to grant exemption from taxation in respect of such goods and to such extent as may from time to time be determined by the State Government. Section 6(1)	 therefore	 cannot have an operation independent of section 6(2)	 and an exemption granted thereunder is conditional and sub ject to any modification that might be issued under section 6(2). In this view	 the impugned notification is intra vires and not open to challenge. But on our finding on the first question that the impugned provisions of the Act are ultra vires the powers of the Provincial Legislature under Entry 48 in List 11 in the seventh Schedule	 we should set aside the orders of the Court below	 and direct that the respondents be restrained from enforcing the provisions of the Central Provinces and Berar Sales Tax Act	 1947	 in so far as they seek to impose a tax on construction works. It should be made clear	 however	 in accordance with what we have already stated	 that the prohibition against imposition of tax is only in respect of contracts which are single and indivisible and not of contracts which are a combination of distinct contracts for sale of materials and for work	 and that nothing that we have said in this judgment shall bar the sales tax authorities from deciding "whether a particular contract falls within one category or the other and imposing a tax on the agreement of sale of materials	 where the contract belongs to the latter category. The parties will bear their own costs throughout	 438 BOSE J. I agree except that I prefer not to express an opinion about the validity of the power conferred on the State Government by section 6(2) of the Central Provinces and Berar Sales Tax Act	 1947	 to amend the schedule in the way in which it has been amended here. I would leave that open for future decision. Appeals allowed.

Summary:
section 4(a) of the Central Provinces and Berar Sales Tax Act; 1947	 provided that every dealer whose turnover exceeded certain limits shall be liable to pay tax in accordance with the provisions of the Act on all sales effected after the commencement 428 of the Act ; and by section 2(g) Of the Act	 " sale . means any transfer of property in goods . including a transfer of property in goods made in course of the execution of a contract. Under section 6(1) of the Act no tax was payable on the sale of goods specified in Sch. 11 to the Act and section 6(2) enabled the State Government by notification to amend the schedule. Item 33 in Sch. 11 as amended by Act XVl of 1949 and as adapted by the Adaptation Order of 195o	 was " Goods sold to or by the State Government ". In exercise of the power conferred by section 6(2) of the Act	 the Government issued a notification on September 18	 1950	 amending item 33 by substituting the words " Goods sold by the State Government ". The appellant	 a contractor doing business in the construction of buildings and roads for the Military and Public Works Department in the State of Madhya Pradesh	 challenged the validity of the assessment which the respondent proposed to make on the appellant under the provisions of the Central Provinces and Berar Sales Tax Act	 1947	 on the grounds (1) that the Provincial Legislature had no authority under Entry 48 Of List II	 Sch. VII of the Government of India Act	 1935	 to impose a tax on the supply of materials in works contracts and that the provisions of that Central Provinces and Berar Sales Tax Act which sought to impose a tax thereon treating it as a sale were ultra vires	 and (2) that he was entitled to exemption under item 33 in Sch. 11	 to tile Act and that the notification of the Government dated September 18	 1950	 withdrawing that exemption was bad as being an unconstitutional delegation of legislative authority : Held	 that the expression "sales of goods" in Entry 48 has the same meaning which it had in the Indian 	 that in a building contract there is no sale of materials as such	 and that it is therefore ultra vires the powers of the Provincial Legislature to impose tax on the supply of materials. The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd.	 ; 	 followed. Per Das C. J.	 Venkatarama Aiyar	 section K. Das and A. K. Sarkar JJ It is not unconstitutional for the legislature to leave it to the executive to determine details relating to the working of taxation laws	 such as the selection of persons on whom the tax is to be laid	 the rates at which it is to be charged in respect of different classes of goods	 and the like. The power conferred on the State Government by section 6(2) of the Act to amend the Schedule relating to exemption is in consonance with the accepted legislative practice relating to the topic	 and is not unconstitutional. Sub sections (1) and (2) of section 6 together form integral part of a single enactment the object of which is to grant exemption from taxation in respect of such goods and to such extent as may from time to time be determined by the State Government	 and an 429 exemption granted under section 6(1) is conditional and subject to any notification that might be issued under section 6(2). The notification dated September 18	 1950	 is therefore intra vires.