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Report No. 61

Whether Amendment Needed

1A.21. Conclusion.-

It is in this background that we have considered the question whether the power to tax indivisible contracts of works should be conferred on the Sates. In our view, in its judgments on this question, the Supreme Court, with respect appears to have adopted an unusually restricted interpretation of the expression "sale". It is true that the expression "sale" is not defined in the Constitution-but, it is a well-recognised canon of construction that the words used in the three Legislative Lists should receive the widest possible interpretation and it was, we venture to suggest, somewhat inappropriate to have taken recourse to the narrow definition of the word "sale" contained in the sale of Goods Act for the purpose of interpreting that expression occurring in the State List, entry 54.

That is the principal juridical ground on which we have expressed our preference1 for the transfer of the power to tax such contracts to the State Legislatures. We ought to add that before the judgment of the Supreme Court was pronounced2 "sale" was usually regarded as including works contracts, and works contracts were, as such, regarded as falling within the power of the States to tax under State List, entry 54, and taxes on that basis were being levied and recovered.

1. Para. 1.22, supra.

2. Gannon Dunkerley's case.

1A.22. The present position on the subject and the possible alternatives, may be briefly stated thus:-

(i) The Union has the power to tax works contracts under Constitution, Seventh Schedule, Union List, entry 97.

(ii) The power to tax inter-State works has not, so far, been exercised by the Union, and the definition of 'sale' in the Central Sales Tax Act does not include Works contract.

(iii) The power to tax works contracts within the State also vests in the Union, under Union List, entry 97 (as interpreted in the judgments of the Supreme Court).

Before the judgments of the Supreme Court, however, sale was usually regarded as including a works contract. The question is ultimately one of policy, but the Commission would prefer restoration of the power to the States. Narrow interpretation of the expression "sale" was not the practice before the Supreme Court judgments. Entries in the legislative list, should receive a broad interpretation. Fine nuances need not be material. The transactions resemble sale in substance. Hence, the power should be given to the States.

If this alternative is adopted, there are several drafting devices open, e.g.:-

(a) amending State List, entry 54, or

(b) adding a fresh entry in the State List, or

(c) inserting in Article 366 a wide definition of "sale" so as to include works contracts.

The Commission prefers the last one. It would avoid multiple amendments.

(iv) Whether the course at (iii) should be adopted or not, is a matter of policy, involving financial and political implications.

(v) In the alternative, power to tax intra-State works contracts could (if a policy decision to that effect is taken by the Union), be exercised by the Union, and the necessary law passed. The proceeds of the tax imposed thereunder could, then be distributed to the State Article 269 may have to be amended in that case.

(vi) Whether the course referred to at (v) above, should be adopted or not, is again a matter of policy, involving financial and political considerations.

Certain Problems connected with Powers of the States to Levy a Tax on the Sale of Goods and with the Central Sales Tax Act, 1956 Back

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