Mithan Lal Vs. The State of Delhi
& ANR  INSC 38 (7 April 1958)
AIYYAR, T.L. VENKATARAMA BOSE, VIVIAN DAS,
SUDHI RANJAN (CJ) DAS, S.K.
CITATION: 1958 AIR 682 1959 SCR 445
Sales Tax--Building contracts-Tax on supply
of materials in construction works-Competence of Parliament-Delegation of
authority to extend taxation law-Notification by GovernmentValidity--Bengal
Finance (Sales Tax) Act, 1941 (Ben. VI of 1941), SS. 2, 4-Part C States (Laws)
Act, 1950 (XXX of 1950), S. 2 Constitution of India, Arts. 246(4), 248(2).
The petitioners were building contractors
carrying on business in Delhi, which under the Constitution of India became a
Part C State. In exercise of the power conferred by Art.
246(4) of the Constitution,, Parliament
enacted the Part C States (Laws) Act, 1950, by virtue of which the Chief
Commissioner of Delhi issued a notification extending the operation of tile
Bengal Finance (Sales Tax) Act, 1941, to Delhi. Acting under the provisions of
this Act, the sales tax officer imposed tax oil the petitioners in respect of
materials supplied in execution of the building contracts.
After paying it for some years the
petitioners challenged the validity of the assessment on the grounds, inter
alia, that (1) as there was no sale of materials used in execution of a
building contract, a tax thereon was not authorised, and (2) in any event, the
provisions of the Act under which tile sales tax officer sought to levy the tax
were unconstitutional and invalid Held, (1) It is within tile competence of
Parliament to impose a tax on the supply of materials in building contracts and
to impose it under the name of sales tax, and as Parliament has the power to
legislate for Part C States tile imposition of the tax on the, petitioners is
State of Madras v. Gannot Dunkerley and Co.
(Madras) Ltd.,  S.C.R379, held inapplicable.
(2) Section 2 of the Part C States (Laws) Act
is not repugnant to Art. 248(2) on the ground that it conferred on the
Government authority to extend a taxation law to Part C States. When a
notification is issued under s. 2 of the Act by the appropriate Government
extending the law of a Part A State to a Part C State, the provisions of the
law which is extended become incorporated by reference, in the Act itself, and
therefore a tax; imposed there under is a tax imposed by Parliament.
(3) Section 2 Of,, the Act, is not bad as an
unconstitutional delegation of legislative powers.
57 446 In re The Delhi Laws Act, 1912, 
S.C.R. 747, followed.
(4) The expression "enactment which is
in force in a Part A State " in s. 2 of the Act must be construed as
meaning ",statute which is in operation in a part A State " as
distinct from a statute which had been repealed, and cannot be interpreted as
having reference to individual sections or provisions of a statute.
(5) The notification in question whether it
is viewed as one extending a subsisting statute to Delhi or as extending it
which modifications so far as the impugned provisions are concerned, is intra
vires s. 2.
ORIGINAL JURTSDTCTION: Petitions Nos. 15
& 16 of 1955.
Petitions under Article 32 of the
Constitution of India, for enforcement of Fundamental Rights.
Radhey Lal Aggarwal, for the petitioners.
C. K. Daphtary, Solicitor-Genneral of India
and R. H.
Dhebar, for the respondents.
T. M. Sen, for the States of Madras and
G. C. Mathur and C. P. Lal, for the State of U.
Sardai, Bahadur, for the State of Kerala
Ratnaparkhi, A. G., for M/s. Raipur
Provincial Engineering Co. (Intervener).
1958. April 7. The Judgment of the Court was
delivered by VENKATARAMA AIYAR J.-The petitioners are building contractors
carrying on business in Delhi, and they have filed the present applications
under Art. 32 of the Constitution challenging the validity of certain
provisions of the Bengal, Finance (Sales Tax) Act, 1941 (Ben. VI of 1941),
which had been extended to the State of Delhi by a notification dated April 28,
The impugned provisions of the Act may 'now be referred to Section 2(d) of the
Act defines "goods as including "all materials, articles and
commodities, whether or not to be used in the construction fitting 447 out,
improvement or repair of immovable property Sale" is defined in s. 2 (g)
as including " any transfer of property in goods for cash or deferred
payment or other valuable consideration, including a transfer of property in
goods involved in the execution of a contract.................................
Section 2(b) defines " contract as meaning, omitting what is not relevant,
" 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." "Sale
price" is defined in s. 2(h)(ii) as meaning valuable consideration for
"the carrying out of any contract, less such portion as may be prescribed
of such amount, representing the usual proportion of the cost of labour to the
cost of materials used in carrying out such contract " Turnover" is
defined in s. 2(i), and is as follows:
" Turnover " used in relation to
any period mean,, the aggregate of the sale-prices or parts of sale prices
receivable, or if a dealer so elects, actually received by the dealer during
such period after deducting the amounts, if any, refunded by the dealer in
respect of any goods returned by the purchaser within such period." Section
4, which is the charging section, provides, that.................... every
dealer whose gross turnover during the year immediately preceding the
commencement of this Act exceeded the taxable quantum shall be liable to pay
tax under this Act on all sales effected after the date so notified." The
Bengal Finance (Sales Tax) Act, 1941, was a law passed by the Legislature of
the Province of Bengal and applied only to sales effected within that Province,
and, after the partition of the Country, to sales effected within the State of
West Bengal. Under the Government of India Act, 1935, Delhi was a Chief
Commissioner's Province administered by the Governor General, and under the
Constitution, it became a Part C State, and Art. 239 vested its administration
in the President acting through a Chief Commissioner 448 or a
Lieutenant-Governor as he might think fit. Article 246(4) which is material for
the present purposes as follows:
Parliament has power to make laws With
respect to any matter for any part of the territory of India not included in
Part A or Part B of the First Schedule notwithstanding that such matter is a
matter enumerated in the State List." In exercise of the power conferred
by this Article, Parliament enacted the Part C States (Laws) Act No. XXX of 1950,
and s. 2 thereof is as follows:
"The Central Government may, by
notification in the Official Gazette', extend to any Part C State (other than
Coorg and the Andaman and Nicobar Islands) or to any part of such State, with
such restrictions and modifications as it thinks fit, any enactment which is in
force in a Part A State at the date of the Notification............." On
April 28, 1951, the Chief Commissioner of Delhi issued a notification under
this section extending the operation of the Bengal Finance (Sales Tax) Act,
1941, to Delhi as from November 1, 1951. Acting under the provisions of this
Act, the Sales Tax Officer, Karolbagh, Delhi issued on June 12, 1952, notices
to the petitioners calling upon them, to submit returns of their receipts from
building contracts and to deposit the taxes due thereon. In compliance with
these notices, the petitioners were sending quarterly returns of their taxable
turnover and assessment orders were also made in respect of their annual
turnover for the. years 1951-1952 and 1952-1953, and the amounts due there under
had also been paid. For the year 1953-1954, the quarterly returns had been
submitted and the tax due thereon deposited, and proceedings were pending for
assessment of tax for that year. This was the position when the Madras High
Court pronounced its, decision in Gannon Dunkerley & Co. v. State of Madras
(1), that the provisions of the Madras General Sales Tax Act, 1939, imposing
tax on the supply of materials in construction works were ultra vires the powers
of the Provincial Legislature under Entry 48 (1)  5 S.T.C. 216.
449 in List II, Sch. VII to the Government of
India Act, 1935.
Basing themselves on this judgment, the
petitioners who had been acting so far on the view that the provisions of the
Bengal Finance (Sales Tax) Act, 1941, imposing tax on construction contracts
were valid and had been paying tax in that belief, filed Civil Writs Nos. 244-D
and, 247 of 1954 in the Punjab High Court challenging the validity of those
provisions on the ground that there was no sale of materials used in execution
of a building contract, and that a tax thereon was not authorised by Entry 48.
They accordingly prayed (a) for a writ of certiorari quashing the assesssment
for the years 1951-1952 and 1952-1953, (b) for a writ of prohibition
restraining proceedings for assessment of sales tax for the year 1953-1954 or
realisation of any tax for that year, and (c) for a writ of mandamus directing
the respondents to forbear in future from assessing the petitioners to sales tax
under the impugned provisions.
Both these petitions were summarily dismissed
by the High Court on October 18, 1954, and the orders of dismissal, not having
been challenged in appropriate proceedings have become final.
Now, the present attempt of the petitioners
is to reopen the question which had been answered against them by the High
Court of' Punjab by resort to proceedings under Art. 32 of the Constitution. It
is therefore not surprising that the learned Solicitor General appearing for
the respondents should have taken preliminary objections of a serious character
to the maintainability of these petitions. He contended that the petitioners
having filed petitions under Art. 226 claiming the very reliefs which they have
now prayed for and on he very grounds now put forward, and those petitions
having been dismissed and no appeals having been filed against the orders of
dismissal, they had no right to invoke the jurisdiction of this Court under
Art. 32 for obtaining the same reliefs. He further contended that the claim of
the petitioners that the assessments in question, being 450 unauthorised,
constituted an interference with their fundamental right to carry on business
under Art 19 (1)(g) could not be maintained inasmuch as assessment proceedings
had "been completed and the tax realised He also argued that even if the
petitioners were right in their contention that the assessments were
unauthorised, their remedy was to sue for refund of the taxes paid, and that
the applications for writ of certiorari to quash the orders of assessment were
misconceived. It was further contended that the payments having been made, by
the petitioners voluntarily-it might be under a misconception of their rights
they had no right to claim refund of the amounts even by action. These
contentions raise questions of considerable importance; but it is unnecessary
to express our opinion thereon, as the petitioners also pray for a writ of
mandamus directing the respondents to forbear from imposing sales tax in
future, and it will be more satisfactory to decide the case on the merits.
The contention of the petitioners based on
the decision of the Madras High Court in Gannon Dunkerley & Co. v. State of
Madras (4) is that the State Legislatures acting under Entry 48 have no
competence to enact laws imposing tax on the supply of materials in execution
of works contract, as there is no sale of those materials by the contractor.
The decision in Gannon Dunkerley & Co. v., State of Madras (1) was taken on
appeal to this Court in Civil Appeal No. 210 of 1956, and by our judgment, The
State of Madras v. Gannon Dunkerley & Co., (Madras) Ltd.(2) pronounced on
April 1, 1958, we have affirmed it, and if the present case is governed by
'that judgment, the petitioners would clearly be entitled to succeed. But it is
contended by the learned Solicitor-General that that decision has no
application to the present petitions' because the impugned law was enacted not
by a State Legislature in exercise of the power conferred by Entry 54 in List
II but by Parliament by virtue of the authority granted by Art. 246(4) of the
Constitution, (1)  5 S.T.C. 216 (2) S.C.R. 379.
451 and that it was within the competence of
Parliament acting under, that Article, to impose a tax on the supply of
materials in building contracts, even though there was no sale of those
materials within Entry 54.
In our opinion,. this contention is
well-founded. Art. 246, Cls., (2), and (3), of the Constitution confer on the
Legislatures, of the States mentioned in Parts A and B the power, to make laws
with respect to the matters enumerated in Lists II and III of Sch. VII, and one
of those. matters is Tax on the sale of goods ", Entry 54 in List II. It
is with reference to the corresponding Entry in the Government of India Act,
1935, Entry 48 in List II, that we have held in The State of Madras v. Gannon
Dunkerley & Co., Madras Ltd (1) that the power to tax sale of goods
conferred by that Entry has reference only to sales as defined in the Indian
sale of Goods Act, 1930. But here, we are concerned not with a law of a State,
mentioned in Part A or Part But with that of a State in Part C. Under Art.
246(4) it is Parliament that has the power to legislate for Part C States, and
that power is untrammelled by the limitations prescribed by Art. 246, Cls. (.2)
and (3), and Entry 54 of List II , and is plenary and absolute, subject-only to
such restrictions as are imposed by the Constitution,and there is none such
which is, material to the present question. It would therefore be competent to Parliament
to impose tax on the supply of materials in building contracts and to impose it
under the name of., sales tax, as has been done by the Parliament of the
Commonwealth of Australia or by the Legislatures of the American States. The
decision in The State of Madras v. Gannon Dunkerley Co., Madras Ltd. which was
given on a statute passed by the Provincial Legislature.
under the Government of India Act, 1935, has
therefore no application to the present case.
It is argued that though Parliament his' the
power under Art.264(4) to make a law imposing tax on construct a contracts that
power is subject to the limitation contained in Art., 248, that under that
Article it is Parliament that has the exclusive power (1)  S.C.R.379 452
to enact laws in respect of matters not enumerated in the Lists, including
taxation, and that such a power could properly be exercised only by Parliament
itself imposing a tax and not by its extending the operation of a taxation law
passed by the Legislature of a State ; and that s. 2 of the Part C States
(Laws) Act must be held to be bad as being repugnant to Art. 48(2) in so far as
it conferred on the Government authority to extend a taxation law to Part C
States. This argument proceeds on a misapprehension of the true scope of Art.
248. That Article has reference to the distribution of legislative powers
between the Centre and the States mentioned in Parts A and 13 under the three
Lists in Sch. VII, and it provides that in respect of matters not enumerated in
the Lists including taxation, it is Parliament that has power to enact laws. It
has no application to Part C States, for which the governing provision is Art.
Moreover, when a notification is issued by
the appropriate Government extending the law of a Part A State to a Part C
State, the law so extended derives its force in the State to which it is
extended from s. 2 of the Part C States (Laws) Act enacted by Parliament. The
result of a notification issued under that section is than, the provisions of
the law which is extended become incorporated by reference, in the Act itself,
and therefore a tax imposed there under is a tax imposed by Parliament. There
is thus no substance in this contention.
It is next contended for the petitioners that
even assuming that Parliament was competent to impose a tax on the supply of
materials in a building contract and that could be done by a notification
extending the law of a Part A State, the notification dated April 28, 1951, is,
in so far as it relates to the impugned provisions, in excess of the authority
conferred by s. 2, because that section limits the authority of the central
Government to extend laws of Part A States to Part C States, to " any
enactment which is in force " at the date of the notification, and, as the
impugned provisions of the Bengal Finance (Sales Tax) Act, 1941, were ultra
vires Entry 48 under which the Legislature 453 of the Province of Bengal
derived its power to impose sales tax, they were not " in force " in
the State of West Bengal at the date of the notification, and could not
therefore be extended to the State of Delhi. According to the petitioners,
" enactment in force" in s. 2 must be construed as meaning provisions
of a statute which are valid and enforceable. We are unable to agree with this
Though the language of s. 2 might, in the
abstract, be susceptible of the construction which the petitioners seek to put
upon it, in the context that is not, in our opinion, its true meaning. What is
intended by that section is that with reference to different topics of
legislation on which the several States in Part A had enacted different
statutes, the authority acting under s. 2 should have the discretion to extend
that statute in any of the Part A States which is best suited to the conditions
in the particular Part C State to which it is to be extended, and that,
further, the authority should have the power to extend it with suitable it
restrictions and modifications ". It could not have been intended by this
section that the authority concerned should take upon itself to examine, the
vires of each and every one of the provisions in the statute, and then extend
only such of them as it considers to be valid. In our view, the expression
" enactment which is in force in a Part A State " must be construed
as meaning " statute which is in operation in a Part A State" as
distinct from a statute which had been repealed and it cannot be interpreted as
having reference to individual sections or provisions of a statute.
But even if we accept the narrow construction
contended for by the petitioners, that would not make any difference in the
result, as the authority conferred by s. 2 on the Government to extend the
enactments in force in Part A State includes a power to do so with restrictions
and modifications, and it was within the competence of the Government acting on
this provision to incorporate on its own authority the impugned provisions by
way of modification of the Bengal Finance (Sales Tax) Act, 1941. It is said
that, 58 454 the notification does not, as a fact, purport to modify the Bengal
Act, but merely extends the whole of it on a mistaken notion that it is all
valid. But that does not affect the position. The notification intends that all
the provisions of the Bengal Finance (Sales Tax) Act, 1941, should operate in
the State of Delhi, and if that could be effectuated by recourse being had to
any of the powers of the Legislature, that should be done and the legislation
upheld as referable to that power.
Ut res magis valeat quam pereat.
It is lastly urged that s. 2 of the Part C
States (Laws) Act is bad for the reason that it confers on the Government a
power to modify laws passed by State Legislatures, and that it is an
unconstitutional delegation of legislative powers to authorise an outside authority
to modify a law enacted by a Legislature on what are essentially matters of
Now, it should be noted that in re The Delhi
Laws Act, 1912 etc. (1) one of the questions referred for the opinion of this
Court related to the vires of this very provision, and the answer of the
majority of this Court was that the first portion of the section, which is what
is material for the present discussion, was valid. Counsel for the petitioners,
however, relies on the decision of this Court in Rajnarain Singh v. The
Chairman, Patna Administration Committee, Patna and another (2), wherein it was
held than an executive authority could be authorised by a statute to modify
either existing or future laws but not in any essential feature, and that a
modification which involved a change of policy of the Act would be bad. It is
argued that it is a question of policy whether taxes should be imposed on the
supply of materials in building contracts, and that, therefore, the power
conferred by s. 2 on the Government to extend a law with modifications cannot
be exercised so as to modify a provision of the Bengal Finance. (Sales Tax)
Act, 1941, relating to that matter. The answer to this contention is that the
modification made by the Central Government, assuming that is its true
character, does not involve any change of policy underlying the Bengal Finance
(Sales Tax) Act, 1941. Indeed, the modification gives effect to the policy of
that (1)  S.C.R. 747.
(2)  1 S.C.R. 290.
455 enactment which was to bring construction
contracts within the ambit of the taxation powers of the State, and which
failed only for want of legislative authority. Whether we view the notification
as one extending a subsisting statute to Delhi or as extending it with
modifications so far as the impugned provisions are concerned, it is intra
vires S. 2.
failed, the petitions are dismissed with