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TMI Blog1958 (4) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... with him), for the appellant. Gopal Singh, Advocate, for Interveners Nos. 6 and 7. B.P.L. Iyengar, Advocate, for Intervener No. 8. JUDGMENT Venkatarama Aiyar, J. This appeal arises out of proceedings for assessment of sales tax payable by the respondents for the year 1949-50, and it raises a question of considerable importance on the construction of Entry 48 in List II of Schedule VII to the Government of India Act, 1935, "Taxes on the sale of goods." The respondents are a private limited company registered under the provisions of the Indian Companies Act, doing business in the construction of buildings, roads and other works and in the sale of sanitary wares and other sundry goods. Before the Sales Tax Authorities, the disputes ranged over a number of items, but we are concerned in this appeal with only two of them. One is with reference to a sum of Rs. 29,51,528-7-4 representing the value of the materials used by the respondents in the execution of their works contracts, calculated in accordance with the statutory provisions applicable thereto, and the other relates to a sum of Rs. 1,98,929-0-3 being the price of food grains supplied by the respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue, from time to time for different areas, representing the usual proportion in such areas of the cost of labour to the cost of materials used in carrying out such contract, subject to the following maximum percentages. . . . . . . . ", and then follows a scale varying with the nature of the contracts. It is on the authority of these provisions that the appellant seeks to include in the turnover of the respondents the sum of Rs. 29,51,528-7-4 being the value of the materials used in the construction works as determined under rule 4(3). The respondents contest this claim on the ground that the power of the Madras Legislature to impose a tax on sales under Entry 48 in List II in Schedule VII of the Government of India Act, does not extend to imposing a tax on the value of materials used in works, as there is no transaction of sale in respect of those goods, and that the provisions introduced by the Madras General Sales Tax (Amendment) Act, 1947, authorising the imposition of such tax are ultra vires. As regards the sum of Rs. 1,98,929-0-3, the contention of the respondents wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the provisions introduced by the Madras General Sales Tax (Amendment) Act, (Madras XXV of 1947) and set out above are ultra vires the powers of the Provincial Legislature under Entry 48 in List II. As provisions similar to those in the Madras Act now under challenge are to be found in the Sales Tax Laws of other States, some of those States, Bihar, Punjab, Mysore, Kerala and Andhra Pradesh, applied for and obtained leave to intervene in this appeal, and we have heard learned counsel on their behalf. Some of the contractors who are interested in the decision of this question, Gurbax Singh, Messrs. Uttam Singh Duggal and United Engineering Company, were also granted leave to intervene, and learned counsel representing them have also addressed us on the points raised. The sole question for determination in this appeal is whether the provisions of the Madras General Sales Tax Act are ultra vires, in so far as they seek to impose a tax on the supply of materials in execution of works contract treating it as a sale of goods by the contractor, and the answer to it must depend on the meaning to be given to the words "sale of goods" in Entry 48 in List II of Schedule VII to the Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h confer legislative powers should receive a liberal construction, and that, accordingly, the expression "sale of goods" in Entry 48 should be interpreted not in the narrow and technical sense in which it is used in the Indian Sale of Goods Act, 1930, but in a broad sense. We shall briefly refer to some of the authorities cited in support of this position. In British Coal Corpn. v. King [1935] A.C. 500, the question was whether section 17 of the Canadian Statute, 22 & 24, Geo. V, c. 53, which abolished the right of appeal to the Privy Council from any judgment or order of any Court in any criminal case, was intra vires its powers under the Constitution Act of 1867. In answering it in the affirmative, Viscount Sankey, L.C., observed:- "Indeed, in interpreting a constituent or organic statute such as the Act, that construction most beneficial to the widest possible amplitude of its powers must be adopted. This principle has been again clearly laid down by the Judicial Committee in Edwards v. A.G. for Canada [1930] A.C. 124, 136". In James v. Commonwealth of Australia [1936] A.C. 578, Lord Wright observed that a Constitution must not be construed in any narrow and pedantic sense. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Commissioner of Taxation (N.S.W.) [1936-37] 56 C.L.R. 337, 379 in support of his contention. In Morgan (supra) the question was as to the validity of a law which had enacted that lands belonging to a company were deemed to be held by its shareholders as joint owners and imposed a land tax on them in respect of their share therein. In upholding the Act, Griffith, C.J., observed: "In my opinion, the Federal Parliament in selecting subjects of taxation is entitled to take things as it finds them in rerum natura, irrespective of any positive laws of the States prescribing rules to be observed with regard to the acquisition or devolution of formal title to property, or the institution of judicial proceedings with respect to it." In Broken Hill South Ltd. (supra) the observations relied on are the following:- "In any investigation of the constitutional powers of these great Dominion Legislatures, it is not proper that a Court should deny to such a legislature the right of solving taxation problems unfettered by a priori legal categories which often derive from the exercise of legislative power in the same constitutional unit." On these authorities, the contention of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en parties to give and pass rights of property for money, which the buyer pays or promises to pay to the seller for the thing bought or sold." It is added that the word "sale" as used by the authorities "is not a word of fixed and invariable meaning, but may be given a narrow or broad meaning, according to the context." In Williston on Sales, 1948 Edition, "sale of goods" is defined as "an agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price" (page 2). At page 443, the learned author observes that "it has doubtless been generally said that the price must be payable in money", but expresses his opinion that it may be any personal property. In the Concise Oxford Dictionary, "sale" is defined as "exchange of a commodity for money or other valuable consideration, selling." It will be seen from the foregoing that there is practical unanimity of opinion as to the import of the word "sale" in its legal sense, there being only some difference of opinion in America as to whether price should be in money or in money's worth, and the Dictionary meaning is also to the same effect. Now, it is argued by Mr. Sikri, the learned Advoca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppatlal Shah v. State of Madras [1953) S.C R. 677, 683 and State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069,1078. It has also been held in STO v. Budh Prakash Jai Prakash [1955] 1 S.C.R. 243., that the sale contemplated by Entry 48 of the Government of India Act was a transaction in which title to the goods passes and a mere executory agreement was not a sale within that Entry. We must accordingly hold that the expression "sale of goods" in Entry 48 cannot be construed in its popular sense, and that it must be interpreted in its legal sense. What its connotation in that sense is must now be ascertained. For a correct determination thereof, it is necessary to digress somewhat into the evolution of the law relating to sale of goods. The concept of sale, as it now obtains in our jurisprudence, has its roots in the Roman Law. Under that law, sale, emptio venditio, is an agreement by which one person agrees to transfer to another the exclusive possession (vacuam possessionem tradere) of something (merx) for consideration. In the earlier stages of its development, the law was unsettled whether the consideration for sale should be money or anything valuable. By a rescript ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient to constitute a sale that there was a transfer of ownership in the thing for a price and that a bargain between the parties was not an essential element. But the scheme of the Contract Act is that it enacts in sections 1 to 75 provisions applicable in general to all contracts, and then deals separately with particular kinds of contract such as sale, guarantee, bailment, agency and partnership, and the scheme necessarily posits that all these transactions are based on agreements. We then come to the Indian Sale of Goods Act, 1930 (III of 1930), which repealed Chapter VII of the Contract Act relating to sale of goods, and section 4 thereof is practically in the same terms as section 1 of the English Act. Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale. Thus, if merely title to the go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the English law as they existed when the Constitution was adopted depends upon the terms or the nature of the particular clause in question. Certainly, these rules have no such restrictive effect in respect of any constitutional grant of governmental power Waring v. Clarke [1847] 5 How. 441; 12 L. Ed. 226 though they do, at least in some instances, operate restrictively in respect of clauses of the Constitution which guarantee and safeguard the fundamental rights and liberties of the individual, the best examples of which, perhaps, are the Sixth and Seventh Amendments, which guarantee the right of trial by jury." It should, however, be stated that the law is stated in Weaver on Constitutional Law, 1946 Edition, page 77, and Crawford on Statutory Construction, page 258, in the same terms as in South Carolina (supra). But it is unnecessary to examine minutely the precise scope of this rule of interpretation in American law, as the law on the subject has been stated clearly and authoritatively by the Privy Council in construing the scope of the provisions of the British North America Act, 1867. In L'Union St. Jacques De Montreal v. Be Lisle [1874] L.R. 6 P.C. 31, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal of the character of the Labour Relations Board. In Halsbury's Laws of England, Volume 11, para. 157, page 93, the position is thus summed up: "The existing state of English law in 1867 is relevant for consideration in determining the meaning of the terms used in conferring power and the extent of that power, e.g., as to customs legislation." Turning next to the question as to the weight to be attached to legislative practice in interpreting words in the Constitution, in Croft v. Dunphy [1933] A.C. 156, the question was as to the validity of certain provisions in a Canadian statute providing for the search of vessels beyond territorial waters. These provisions occurred in a Customs statute, and were intended to prevent evasion of its provisions by smugglers. In affirming the validity of these provisions, Lord Macmillan referred to the legislative practice relating to Customs, and observed: "When a power is conferred to legislate on a particular topic it is important, in determining the scope of the power, to have regard to what is ordinarily treated as embraced within that topic in legislative practice and particularly in the legislative practice of the State which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. There, in deciding that an agreement to sell is not a sale within Entry 48, this Court referred to the provisions of the English Sale of Goods Act, 1893, the Indian Contract Act, 1872, and the Indian Sale of Goods Act, 1930, for construing the word "sale" in that entry and observed:- "Thus, there having existed at the time of the enactment of the Government of India Act, 1935, a well-defined and well-established distinction between a sale and an agreement to sell it would be proper to interpret the expression 'sale of goods' in Entry 48 in the sense in which it was used in legislation both in England and India and to hold that it authorises the imposition of a tax only when there is a completed sale involving transfer of title." This decision, though not decisive of the present controversy, goes far to support the contention of the respondents that the words "sale of goods" in Entry 48 must be interpreted in the sense which they bear in the Indian Sale of Goods Act, 1930. The appellant and the intervening States resist this conclusion on the following grounds: (1) The provisions of the Government of India Act, read as a whole, show that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cating liquors and narcotic drugs, that is to say, the production, manufacture, possession, transport, purchase and sale of intoxicating liquors, opium and other narcotic drugs. . . . ". The argument is that "sale" in the entry must be interpreted as including barter, as the policy of the law cannot be to prohibit transfers of liquor only when there is money consideration therefor. But this argument proceeds on a misapprehension of the principles on which the entries are drafted. The scheme of the drafting is that there is in the beginning of the entry words of general import, and they are followed by words having reference to particular aspects thereof. The operation of the general words, however, is not cut down by reason of the fact that there are sub-heads dealing with specific aspects. In Manikkasundara v. R. S. Nayudu([1946] F.C.R. 67, 84.) occur the following observations pertinent to the present question:- "The subsequent words and phrases are not intended to limit the ambit of the opening general term or phrase but rather to illustrate the scope and objects of the legislation envisaged as comprised in the opening term or phrase." A law therefore prohibiting any dealing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1940. The position, therefore, is that Entry 48 introduces a topic of legislation with respect to which there was no legislative practice. In the absence of legislative practice with reference to sales tax in this country or in England, counsel for the appellant and the States sought support for their contention in the legislative practice of Australia and America relating to that topic. In 1930, the Commonwealth Sales Tax Act was enacted in Australia imposing a tax on retail sales. A question arose whether a contractor who supplied materials in execution of a works contract could be taxed as on a sale of the materials. In Sydney Hydraulic and General Engg. Co. v. Blackwood & Son 8 N.S.W.S.R. , the Supreme Court of New South Wales held that the agreement between the parties was one to do certain work and to supply certain materials and not an agreement for sale or delivery of the goods. Vide Irving's Commonwealth Sales Tax Law and Practice, 1950 Edition, page 77. In 1932, the Legislature intervened and enacted in the Statute of 1930, a new provision, section 3(4), in the following terms:- "For the purpose of this Act, a person shall be deemed to have sold goods if, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods, and, accordingly, the Provincial Legislature cannot, in the purported exercise of its power to tax sales, tax transactions which are not sales by merely enacting that they shall be deemed to be sales. The position in the American law appears to be the same as in Australia. In Blome Co. v. Ames [1937] 111 A.L.R. 940, the Supreme Court of Illinois held that a sales tax was leviable on the value of materials used by a contractor in the construction of a building or a fixture treating the transaction as one of sale of those materials. But this decision was overruled by a later decision of the same Court in Herlihy Mid-Continent Co. v. Nudelman [1937] 115 A.L.R. 485, wherein it was held that there was no transfer of title to the materials used in construction work as goods, and that the provisions of the Sales Tax Act had accordingly no application. This is in accordance with the generally accepted notion of sale of goods. This, of course, does not preclude the States in exercise of their sovereign power from imposing tax on construction works in respect of materials used therein. Thus, the position is that in 1935 there was no legislative practice relating to sales tax either in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olution of two companies under a scheme of amalgamation with a third company under which the shareholders were to be given in exchange for their shares in the dissolved companies, in the case of one company, stock in the third company in certain specified proportions, and in the other, discharge of debentures on shares already held by them in the third company. The question was whether a copy of the Act had to be stamped ad valorem as on conveyance on sale under the first schedule to the Stamp Act, 1891. The contention of the company was that there was no sale by the shareholders of their shares to it, and that the provision in question had accordingly no application. In rejecting this contention, Esher, M.R., observed: "Turning to the Stamp Act, the words used are 'a conveyance on sale'. Does that expression mean a conveyance where there is a definite contract of purchase and sale preceding it? Is that the way to construe the Stamp Act, or does it mean a conveyance the same as if it were upon a contract of purchase and sale? The latter seems to me to be the meaning of the phrase as there used." Kay, L.J., said: "And we must remember that the Stamp Act has nothing to do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt an interesting one. I think, however, that this question loses its importance for the purpose of the decision of this appeal when it is realized that for the last 100 years transactions by which the property of A has been transferred to B, on payment of compensation to the owner but without the consent of the owner, have been referred to many times, in Acts of Parliament, in opinions delivered in this House, in judgments of the Court of Appeal and the High Court of Justice, and in textbooks as a 'sale'-generally as a 'compulsory sale'. . . . . . . . . . "The case of Newcastle Breweries Ltd. v. Inland Revenue Commissioners [1927] 96 L.J.K.B. 735, referred to later, affords a striking modern instance of the use of the word 'sale' as applied to compulsory taking of goods. . . . . . . . . . "In these circumstances, whether this use of the word 'sale' was originally correct or incorrect, I find it impossible to say that the only construction which can fairly be given to the word 'sold' in section 17(1)(a) of the Income-tax Act, 1945, is to limit it to a transaction in which the element of mutual assent is present." But the majority of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties and in the carrying out of that agreement there is transfer of title in movables belonging to one person to another for consideration. It is argued that Entry 48 only requires that there should be a sale, and that means transfer of title in the goods, and that to attract the operation of that entry it is not necessary that there should also be an agreement to sell those goods. To hold that there should be an agreement to sell the goods as such is, it is contended, to add to the entry words which are not there. We are unable to agree with this contention. If the words "sale of goods" have to be interpreted in their legal sense, that sense can only be what it has in the law relating to sale of goods. The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense, and that, accordingly, the Legislature must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law. It has been already sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), the question was whether the Edison Telephone Company, London, had infringed the exclusive privilege of transmitting telegrams granted to the Postmaster-General under an Act of 1869 by installation of telephones. The decision turned on the construction of the definition of the word "telegraph" in the Acts of 1863 and 1869. It was contended for the company that telephones were unknown at the time when those Acts were passed and therefore could not fall within the definition of "telegraph". The Court negatived this contention on the ground that the language of the definition was wide enough to include telephones. Toronto Corpn. (supra) is a decision on section 92(10)(a) of the British North America Act, 1867, under which the Dominion Parliament had the exclusive competence to pass laws in respect of "lines of steam or other ships, railways, canals, telegraphs, and other works and undertakings connecting the province with any other or others of the provinces or extending beyond the limits of the province". The question was whether a law incorporating a telephone company and conferring on it powers to enter upon streets and highways vested in a municipal corporation was intra v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that words having known legal import should be construed in the sense which they had at the time of the enactment, the expression "sale of goods" must be construed in the sense which it has in the Sale of Goods Act. A contention was also urged on behalf of the respondents that even assuming that the expression "sale of goods" in Entry 48 could be construed as having the wider sense sought to be given to it by the appellant and that the provisions of the Madras General Sales Tax Act imposing a tax on construction contracts could be sustained as within that entry in that sense, the impugned provisions would still be bad under section 107 of the Government of India Act, and the decision in D. Sarkar & Bros. v. CTO A.1.R. 1957 Cal. 283.. was relied on in support of this contention. Section 107, so far as is material, runs as follows: 107-"(1) If any provision of a Provincial law is repugnant to any provision of a Dominion law which the Dominion Legislature is competent to enact or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent Legislative List, then, subject to the provisions of this section, the Dominion l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is open to the State in execution of its tax laws to split up that agreement into its constituent parts, single out that which relates to the supply of materials and to impose a tax thereon treating it as a sale. It is said that this is a power ancillary to the exercise of the substantive power to tax sales, and reliance is placed on the observations in The United Provinces v. Atiqa Begum [1940] F.C.R. 110, 134 and Navinchandra Mafatlal [1955] 1 S.C.R. 829, 833, 836. The respondents contend that even if the agreement between the parties could be split up in the manner suggested for the appellant, the resultant will not be a sale in the sense of the Sale of Goods Act, as there is in a works contract neither an agreement to sell materials as such, nor does property in them pass as movables. The nature and incidents of works contracts have been the subject of consideration in numerous decisions of the English Courts, and there is a detailed consideration of the points now under discussion, in so far as building contracts are concerned, in Hudson on Building Contracts, 7th Edition, pages 386-389 and as regards chattels, in Benjamin on Sale, 8th Edition, pages 156-168 and 352-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not contracted for to be delivered, or delivered, as an engine, in its complete state, and afterwards affixed to the free-hold; there was no sale of it, as an entire chattel, and delivery in that character; and therefore it could not be treated as an engine sold and delivered. Nor could the different parts of it which were used in the construction, and from time to time fixed to the freehold, and therefore became part of it, be deemed goods sold and delivered, for there was no contract for the sale of them as movable goods; the contract was in effect that the plaintiff was to select materials, make them into parts of an engine, carry them to a particular place, and put them together, and fix part to the soil, and so convert them into a fixed engine on the land itself, so as to pump the water out of a mine." In Seath v. Moore [1886] 11 App. Cas. 350, the facts were similar to those in Tripp (supra). A firm of Engineers, A. Campbell & Son, had entered into five agreements with the appellants, T.B. Seath and Co., who were shipbuilders to supply engines, boilers and machinery required for vessels to be built by them. Before the completion of the contracts. A. Campbell and Son became ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship', and that only the things can pass with the ship 'which have been fitted to the ship and have once formed part of her, although afterwards removed for convenience'. I assent to that rule, which appears to me to be in accordance with the decision of the Court of Exchequer in Tripp v. Armitage [1839] 4 M. & W. 687; 150 E.R. 1597." In Reid v. Macbeth & Gray [1904] A.C. 223, the facts were that a firm of shipbuilders who had agreed to build a ship became bankrupt. At the date of the bankruptcy, there was lying at railway stations a quantity of iron and steel plates which were intended to be fixed in the ship. The dispute was between the assignee in bankruptcy and the shipowners as to the title to these articles. It was held by the House of Lords following Seath v. Moore [1886] 11 App. Cas. 350 and in particular the observations of Lord Watson at page 381 that the contract was one for the purchase of a complete ship, and that under that contract no title to the articles in question passed to the shipowners. The following observations of Lord Davey are particularly appropriate to the present question:- "There is only one contract-a contract for the purchase of the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um meruit. It was argued that if a contractor is prevented by the other party to the contract from completing the construction he has, as observed by Lord Blackburn in Appleby v. Myres [1904] A.C. 223, a claim against that party, that the form of action in such a case is for work done and materials supplied, as appears from Bullen & Leake's Precedents of Pleadings, 10th Edition, at pages 285-286, and that that showed that the concept of sale of goods was latent in a building contract. The answer to this contention is that a claim for quantum meruit is a claim for damages for breach of contract, and that the value of the materials is a factor relevant only as furnishing a basis for assessing the amount of compensation. That is to say, the claim is not for price of goods sold and delivered but for damages. That is also the position under section 65 of the Indian Contract Act. Another difficulty in the way of accepting the contention of the appellant as to splitting up a building contract is that the property in materials used therein does not pass to the other party to the contract as movable property. It would so pass if that was the agreement between the parties. But if there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnised in English Law, quicquid plantatur solo, solo credit has no application, and that they have the right to remove the superstructures, and that the owner of the land should pay compensation if he elects to retain them. That exception does not apply to buildings which are constructed in execution of a works contract, and the law with reference to them is that the title to the same passes to the owner of the land as an accretion thereto. Accordingly, there can be no question of title to the materials passing as movables in favour of the other party to the contract. It may be, as was suggested by Mr. Sastri for the respondents, that when the thing to be produced under the contract is movable property, then any material incorporated into it might pass as a movable, and in such a case the conclusion that no taxable sale will result from the disintegration of the contract can be rested only on the ground that there was no agreement to sell the materials as such. But we are concerned here with a building contract, and in the case of such a contract, the theory that it can be broken up into its component parts and as regards one of them it can be said that there is a sale must fail on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to cover the extended sense. But our duty is to interpret the law as we find it, and having anxiously considered the question, we are of opinion that there is no sale as such of materials used in a building contract, and that the Provincial Legislatures had no competence to impose a tax thereon under Entry 48. To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the Court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at page 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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