TMI Blog1958 (4) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment of India Act, 1935, relied on for the appellant are too inconclusive to support the inference that sale in Entry 48 was intended to be used in a sense different from that in the Sale of Goods Act. Sale in Entry 48 must be con- strued as having the same meaning which it has in the Sale of Goods Act, 1930. In a building contract, the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement, and in consideration therefor receive payment as provided therein, and as will presently be shown there is in such an agreement neither a contract to sell the materials used in the construction, nor does property pass therein as movables. It is therefore impossible to maintain that there is implicit in a building contract a sale of materials as understood in law. Appeal dismissed. - Civil Appeal No. 210 of 1956, Civil Revision Petition No. 2292 of 1952, T.A. No. 863 of 1951, - - - Dated:- 1-4-1958 - Sudhi Ranjan Das, C.J., A.K. Sarkar, S.K. Das, T. L. Venkatarama Aiyyar and Vivian Bose, JJ. Sardar Bahadur, Advocate, for Intervener No. 4. C.K. Daphtary, Solicitor General of India, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roducing several new provisions in the Act, and it is necessary to refer to them so far as they are relevant for the purpose of the present appeal. Section 2(c) of the Act had defined goods as meaning all kinds of movable property other than actionable claims, stocks and shares and securities and as including all materials, commodities and articles , and it was amended so as to include materials used in the construction, fitting out, improvement or repair of immovable property or in the fitting out, improvement or repair of movable property . The definition of sale in section 2(h) was enlarged so as to include a transfer of property in goods involved in the execution of a works contracts . In the definition of turnover in section 2(i), the following Explanation (1)(i) was added: Subject to such conditions and restrictions, if any, as may be prescribed in this behalf-the amount for which goods are sold shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such 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 carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 2292 of 1952 to the High Court of Madras. That was heard by Satyanarayana Rao and Rajagopalan, JJ., who decided both the points in their favour. They held that the expression sale of goods had the same meaning in Entry 48 which it has in the Indian Sale of Goods Act, (III of 1930), that the construction contracts of the respondents were agreements to execute works to be paid for according to measurements at the rates specified in the schedule thereto, and were not contracts for sale of the materials used therein, and that further, they were entire and indivisible and could not be broken up into a contract for sale of materials and a contract for payment for work done. In the result, they held that the impugned provisions introduced by the Amendment Act No. XXV of 1947, were ultra vires the powers of the Provincial Legislature, and that the claim based on those provisions to include ₹ 29,51,528-7-4 in the taxable turnover of the respondents could not be maintained. As regards the item of ₹ 1,98,929-0-3 they held that the sale of foodgrains to the workmen was not in the course of any business of buying or selling those goods, that there was no profit motive beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... everal High Courts. In Pandit Banarsi Das v. State of Madhya Pradesh [1955] 6 S.T.C. 93, a Bench of the Nagpur High Court held, differing from the view taken by the Madras High Court in the judgment now under appeal, that the provisions of the Act imposing a tax on the value of the materials used in a construction on the footing of a sale thereof were valid, but that they were bad in so far as they enacted an artificial rule for determination of that value by deducting out of the total receipts a fixed percentage on account of labour charges, inasmuch as the tax might, according to that computation, conceivably fall on a portion of the labour charges and that would be ultra vires Entry 48. A similar decision was given by the High Court of Rajasthan in Bhuramal v. State of Rajasthan AIR 1957 Raj. 104. In Mohamed Khasim v. State of Mysore AIR 1955 Mys. 41, the Mysore High Court has held that the provisions of the Act imposing a tax on construction of works are valid, and has further upheld the determination of the value of the materials on a percentage basis under the rules. In Gannon Dunkerley Co. v. Sales Tax Officer A.I.R. 1957 Ker. 146, the Kerala High Court has likewise affirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... errors. A Federal Court will not strengthen, but only derogate from, its position, if it seeks to do anything but declare the law; but it may rightly reflect that a Constitution of a government is a living and organic thing, which of all instruments has the greatest claim to be construed ut res magis valeat quam pereat. The authority most strongly relied on for the appellant is the decision of this Court in Navinchandra Mafatlal v. CIT [1955] 1 S.C.R. 829, 833, 836, in which the question was as to the meaning of the word income in Entry 54 of List I. The contention was that in the legislative practice of both England and India, that word had been understood as not including accretion in value to capital, and that it should therefore bear the same meaning in Entry 54. In rejecting this contention, this Court observed that the so-called legislative practice was nothing but judicial interpretation of the word 'income' as appearing in the fiscal statutes , that in construing an entry in a List conferring legislative powers the widest possible construction according to their ordinary meaning must be put upon the words used therein , and that the cardinal rule of interpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning given to the word sale in authoritative text-books, and they will now be referred to. According to Blackstone, sale or exchange is a transmutation of property from one man to another, in consideration of some price or recompense in value. This passage has, however, to be read distributively and so read, sale would mean transfer of property for price. That is also the definition of sale in Benjamin on Sale, 1950 Edition, page 2. In Halsbury's Laws of England, Second Edition, Vol. 29, page 5, para. 1, we have the following:- Sale is the transfer of the ownership of a thing from one person to another for a money price. Where the consideration for the transfer consists of other goods, or some other valuable consideration, not being money, the transaction is called exchange or barter; but in certain circumstances it may be treated as one of sale. The law relating to contracts of exchange or barter is undeveloped, but the Courts seem inclined to follow the maxim of civil law, permutatio vicina est emptioni, and to deal with such contracts as analogous to contracts of sale. It is clear, however, that statutes relating to sale would have no application to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the two dates, the Finance Act, 1918, had imposed excess profits tax, and the question was whether the agreement dated April 12, 1918, amounted to a sale in which case the transaction would fall outside the operation of the Act. The Commissioners had held that as title to the goods passed only on June 24, 1918, the agreement dated April 12, 1918, was only an agreement to sell and not the sale which must be held to have taken place on June 24, 1918, and was therefore liable to be taxed. Sankey, J., agreed with this decision, but rested it on the ground that as the agreement left some matters still to be determined and was, in certain respects, modified later, it could not be held to be a sale for the purpose of the Act. In the course of the judgment, he observed that sale in the Finance Act should not be construed in the light of the provisions of the Sale of Goods Act, but must be understood in a commercial or business sense. Now, in its popular sense, a sale is said to take place when the bargain is settled between the parties, though property in the goods may not pass at that stage, as where the contract relates to future or unascertained goods, and it is that sense t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales developed very much on the lines of the Roman law in insisting on agreement between parties and price as essential elements of a contract of sale of goods. In his work on Sale , Benjamin observes:- Hence it follows that, to constitute a valid sale, there must be a concurrence of the following elements, viz., (1) Parties competent to contract; (2) mutual assent; (3) a thing, the absolute or general property in which is transferred from the seller to the buyer; and (4) a price in money paid or promised. (Vide 8th Edition, page 2). In 1893 the Sale of Goods Act, 56 57 Vict. c. 71, codified the law on the subject, and section 1 of the Act which embodied the rules of the common law runs as follows:- 1.-(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. There may be a contract of sale between one part owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... general law relating to sale of goods and in the legislative practice relating to that topic both in England and in India, it must be interpreted in Entry 48 as having the same meaning as in the Sale of Goods Act, 1930, and a number of authorities were relied on in support of this contention. In United States v. Wong Kim Ark [1898] 169 U.S. 649, it was observed:- In this, as in other respects, it must be interpreted in the light of the common law, the principles and history of which were familiarly known to the framers of the Constitution. The language of the Constitution, as has been well said, could not be understood without reference to the common law. In South Carolina v. United States [1905] 199 U.S. 437, Brewer, J., observed: To determine the extent of the grants of power, we must, therefore, place ourselves in the position of the men who framed and adopted the Constitution, and inquire what they must have understood to be the meaning and scope of those grants. A more recent pronouncement is that of Taft, C.J., who said:- The language of the Constitution cannot be interpreted safely except by reference to the common law and to British institutions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions in which that law is to be brought into operation, the manner in which it is to be brought into operation, and the effect of its operation. On this test, it was held that the law in question was not one relating to bankruptcy. In Royal Bank of Canada v. Larue [1928] A.C. 187, the question was whether section 11, sub-section (10), of the Bankruptcy Act of Canada under which a charge created by a judgment on the real assets of a debtor was postponed to an assignment made by the debtor of his properties for the benefit of his creditors was intra vires the powers of the Dominion Legislature, as being one in respect of bankruptcy and insolvency within section 91, sub-clause (21), of the British North America Act. Viscount Cave, L.C., applying the test laid down in L'Union St. Jacques De Montreal (supra) held that the impugned provision was one in respect of bankruptcy. In The Labour Relations Board of Saskatchewan v. John East Iron Works Ltd. [1949] A.C. 134, the question arose under section 96 of the British North America Act, 1867, under which the Governor-General of the Dominion had power to appoint Judges of the superior district and county Courts. The Province o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain the general conception involved in the words in the enabling Act. In In re The Central Provinces and Berar Act No. XIV of 1938 [1939] F.C.R. 18; 1 S.T.C. 1, in considering whether a tax on the sale of goods was a duty of excise within the meaning of Entry 45 in List I of Schedule VII, Sir Maurice Gwyer, C.J., observed at page 53: Lastly, I am entitled to look at the manner in which Indian legislation preceding the Constitution Act had been accustomed to provide for the collection of excise duties; for Parliament must surely be presumed to have had Indian legislative practice in mind and, unless the context otherwise clearly requires, not to have conferred a legislative power intended to be interpreted in a sense not understood by those to whom the Act was to apply. In State of Bombay v. F.N. Balsara [1951] S.C.R. 682, in determining the meaning of the words intoxicating liquor in Entry 31 of List II of Schedule VII to the Government of India Act, 1935, this Court referred to the legislative practice with reference to that topic in India as throwing light on the true scope of the entry. (Vide pages 704 to 706). On the basis of the above authorities, the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o as to take in new concepts of sales tax. We shall examine these contentions seriatim. (1) As regards the first contention, the argument is that in the Government of India Act, 1935, there are other provisions which give a clear indication that the expression sale of goods in Entry 48 is not to be interpreted in the sense which it bears in the Sale of Goods Act, 1930. That is an argument open to the appellant, because rules of interpretation are only aids for ascertaining the true legislative intent and must yield to the context, where the contrary clearly appears. Now, what are the indications contra? Section 311(2) of the Government of India Act defines agricultural income as meaning agricultural income as defined for the purposes of the enactments relating to Indian income-tax. It is said that if the words sale of goods in Entry 48 were meant to have the same meaning as those words in the Sale of Goods Act, that would have been expressly mentioned as in the case of definition of agricultural income, and that therefore that is not the meaning which should be put on them in that entry. In our opinion, that is not the inference to be drawn from the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can throw no light on the meaning of that word in Entry 48. We are of opinion that the provisions in the Government of India Act, 1935, relied on for the appellant are too inconclusive to support the inference that sale in Entry 48 was intended to be used in a sense different from that in the Sale of Goods Act. (2) It is next urged that for determining the true meaning of the expression Taxes on the sale of goods in Entry 48 it would not be very material to refer to the legislative practice relating to the law in respect of sale of goods. It is argued that sale of goods and taxes on sale of goods are distinct matters, each having its own incidents, that the scope and object of legislation in respect of the two topics are different, that while the purpose of a law relating to sale of goods is to define the rights of parties to a contract, that of a law relating to tax on sale of goods is to bring money into the coffers of the State, and that, accordingly, legislative practice with reference to either topic cannot be of much assistance with reference to the other. Now, it is true that the object and scope of the two laws are different, and if there was any difference in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at he was. Latham, C.J., put his decision on the ground that though there was, in fact, no sale of the piles, in law there was one by reason of section 3(4) of the Act. Now, the judgment of the learned Chief Justice is really adverse to the appellant in that it decides that under the general law and apart from section 3(4) there was no sale of the materials and that it was only by reason of the deeming provision of section 3(4) that it became a taxable sale. The point to be noted is that under the Australian Constitution the power to legislate on the items mentioned in section 51 of the Constitution Act is vested exclusively in the Commonwealth Parliament. Item (ii) in section 51 is Taxation; but so as not to discriminate between States or parts of States . Subject to this condition, the power of Parliament is plenary and absolute, and in exercise of such a power it could impose a tax on the value of the materials used by a contractor in his works contracts; and it could do that whether the transaction amounts in fact to a sale or not. It is no doubt brought under the Sales Tax Act, it being deemed to be a sale; but that is only as a matter of convenience. In fact, two of the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me meaning which it has in the Sale of Goods Act, 1930. (3) It is next contended by Mr. Sikri that though the word sale has a definite sense in the Sale of Goods Act, 1930, it has a wider sense in law other than that relating to sale of goods, and that, on the principle that words conferring legislative powers should be construed in their broadest amplitude, it would be proper to attribute that sense to it in Entry 48. It is argued that in its wider sense the expression sale of goods means all transactions resulting in the transfer of title to goods from one person to another, that a bargain between the parties was not an essential element thereof, and that even involuntary sales would fall within its connotation. He relied in support of this position on various dicta in Ex parte DrakeWare In re [1877] 5 Ch. D. 866, Great Western Railway Co. v. Commissioners of Inland Revenue [1894] 1 Q.B. 507, Commissioners of Inland Revenue v. Newcastle Breweries Ltd. [1927] 12 Tax Cas. 927, Kirkness v. John Hudson Co. Ltd. [1955] A.C. 696 and Nalukuya v. Director of Lands, Native Land Trust Board of Fiji [1957] A.C. 325. In Ex parte Drake Ware, In re (supra), the question was whether an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .( (1927) 12 Tax Cas. 927), the point for decision was whether payments made by the Admiralty to the respondent company which was carrying on business as brewers, on account of stocks of rum taken over by it compulsorily under the Defence of Realm Regulations were liable to be assessed as trade receipts to excess profits duty. The contention of the company was that the acquisition by the Admiralty was not a sale, that the payments made were not price of goods sold but compensation for interference with the carrying on of business by it, and that accordingly the amounts could not be held to have been received in the course of trade or business. In rejecting this contention, Viscount Cave, L.C., observed:- If the raw rum had been voluntarily sold to other traders, the price must clearly have come into the computation of the appellant's profits, and the circumstance that the sale was compulsory and was to the Crown makes no difference in principle. In Kirkness (supra) the facts were that railway wagons belonging to the respondent company were taken over by the Transport Commission compulsorily in exercise of the powers conferred by section 29 of the Transport Act, 1947, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Ordinance, c. 86 of 1945, Fiji. The decision, however, proceeded on the particular terms of the statute, and does not affect the decision in Kirkness v. John Hudson Co. Ltd. [1955] A.C. 696. that mutual assent is an element of a transaction of sale. It should be noted that the main ground on which the decision of Lord Morton rests is that compulsory acquisition of property had been described in the legislative practice of Great Britain as compulsory sales. The legislative practice of this country, however, has been different. The Land Acquisition Act, 1894, refers to the compulsory taking over of immovable property as acquisition. In List II of the Government of India Act, this topic is described in Entry 9 as compulsory acquisition of land . In the Constitution, Entry 42 in List III is acquisition and requisition of property . The ratio on which the opinion of Lord Morton is based has no place in the construction of Entry 48, and the law as laid down by the majority is in consonance with the view taken by this Court that bargain is an essential element in a transaction of sale. Vide Poppatlal Shah (supra) and State of Bombay v. United Motors (India) Ltd. (supra). It is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reach of warranty. Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another. We are accordingly of opinion that on the true interpretation of the expression sale of goods there must be an agreement between the parties for the sale of the very goods in which eventually property passes. In a building contract, the agreement between the parties is that the contractor should construct a building according to the specifications contained in the agreement, and in consideration therefor receive payment as provided therein, and as will presently be shown there is in such an agreement neither a contract to sell the materials used in the construction, nor does property pass therein as movables. It is therefore impossible to maintain that there is implicit in a building contract a sale of materials as understood in law. (4) It was finally contended that the words of a Constitution conferring legislative power should be construed in such manner as to make it flexible and elastic so as to enable that power to be exercised in respect of matters which might be unknown at the time it was enacted but might come into existence with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Regulation and Control of Radio Communication in Canada (supra), the question was whether broadcasting was covered by the expression telegraph and other works and undertakings in section 92(10)(a) of the Constitution Act, 1867. The Privy Council answered it in the affirmative on the grounds firstly that broadcasting was an undertaking connecting the province with other provinces and extending beyond the limits of the province , and secondly, that it fell within the description of telegraph . In Brislan: Ex parte Williams (supra), the question was whether a law of the Commonwealth Parliament with respect to radio broadcasting was one with respect to postal, telegraphic, telephonic and other like services under section 51(5) of the Australian Commonwealth Act, and it was answered in the affirmative. The principle of these decisions is that when, after the enactment of a legislation, new facts and situations arise which could not have been in its contemplation, the statutory provisions could properly be applied to them if the words thereof are in a broad sense capable of containing them. In that situation, it is not, as observed by Lord Wright in James v. Commonwealth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernor-General, the Provincial law shall in that Province prevail, but nevertheless the Dominion Legislature may at any time enact further legislation with respect to the same matter. Now, the argument is that the definition of sale given in the Madras General Sales Tax Act is in conflict with that given in the Sale of Goods Act, 1930, that the sale of goods is a matter falling within Entry 10 of the Concurrent List, and that, in consequence, as the Madras General Sales Tax (Amendment) Act, 1947, (Madras XXV of 1947) under which the impugned provisions had been enacted, had not been reserved for the assent of the Governor-General as provided in section 107(2), its provisions are bad to the extent that they are repugnant to the definition of sale in the Sale of Goods Act, 1930. The short answer to this contention is that the Madras General Sales Tax Act is a law relating not to sale of goods but to tax on sale of goods, and that it is not one of the matters enumerated in the Concurrent List or over which the Dominion Legislature is competent to enact a law, but is a matter within the exclusive competence of the Province under Entry 48 in List II. The only question that can aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut had not yet been fitted in the building. The trustees claimed them on the ground that property therein had passed to them when once they had approved the same. In negativing this contention, Lord Abinger, C.B., observed:- . . . . . . . . . . this is not a contract for the sale and purchase of goods as movable chattels; it is a contract to make up materials, and to fix them; and until they are fixed, by the nature of the contract, the property will not pass. Parke, B., observed: . . . . . . . . . . but in this case, there is no contract at all with respect to these particular chattels-it is merely parcel of a larger contract. The contract is, that the bankrupt shall build a house; that he shall make, amongst other things, window-frames for the house, and fix them in the house, subject to the approbation of a surveyor; and it was never intended by this contract, that the articles so to be fixed should become the property of the defendants, until they were fixed to the freehold. In Clark v. Bulmer [1843] 152 E.R. 793, the plaintiff entered into a contract with the defendant to build an engine of 100 horse power for the sum of ₹ 2,500, to be completed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to which I have referred appear to me to establish the principle that, where it appears to be the intention, or in other words the agreement, of the parties to a contract for building a ship, that at a particular stage of its construction, the vessel, so far as then finished, shall be appropriated to the contract of sale, the property of the vessel as soon as it has reached that stage of completion will pass to the purchaser, and subsequent additions made to the chattel thus vested in the purchaser will, accessione, become his property. It is to be noted that even in this passage the title to the parts is held to pass not under any contract but on the principle of accretion. The respondents rely on the following observations at page 381 as furnishing the true ground of the decision:- There is another principle which appears to me to be deducible from these authorities and to be in itself sound, and that is, that materials provided by the builder and portions of the fabric, whether wholly or partially finished, although intended to be used in the execution of the contract, cannot be regarded as appropriated to the contract, or as 'sold', unless they have been aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disintegration of the building contract cannot yield any sale such as can be taxed under Entry 48. The decision in Love v. Norman Wright (Builders) Ltd. [1944] 1 K.B. 484, 487 cited by the appellant does not really militate against this conclusion. There, the defendants to the action had agreed with the Secretary of State to supply black-out curtains and curtain rails, and fix them in a number of police stations. In their turn, the defendants had entered into a contract with the plaintiffs that they should prepare those curtains and rails and erect them. The question was whether the sub-contract was one for sale of goods or for work and services. In deciding that it was the former, Goddard, L.J., observed:- If one orders another to make and fix curtains at his house the contract is one of sale though work and labour are involved in the making and fixing, nor does it matter that ultimately the property was to pass to the War Office under the head contract. As between the plaintiff and the defendants the former passed the property in the goods to the defendants who passed it on to the War Office. It will be seen that in this case there was no question of an agreement to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into a coat which is under repair, or planks and nails and pitch worked into a ship under repair, become part of the coat or the ship. When the work to be executed is, as in the present case, a house, the construction imbedded on the land becomes an accretion to it on the principle quicquid plantatur solo, solo credit, and it vests in the other party not as a result of the contract but as the owner of the land. Vide Hudson on Building Contracts, 7th Edition, page 386. It is argued that the maxim, what is annexed to the soil goes with the soil, has not been accepted as a correct statement of the law of this country, and reliance is placed on the following observations in the Full Bench decision of the Calcutta High Court in Thakoor Chunder Poramanick v. Ramdhone Bhuttacharjee [1866] 6 W.R. 228:- We think it should be laid down as a general rule that, if he who makes the improvement is not a mere trespasser, but is in possession under any bona fide title or claim of title, he is entitled either to remove the materials, restoring the land to the state in which it was before the improvement was made, or to obtain compensation for the value of the building if it is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale. This conclusion entails that none of the Legislatures constituted under the Government of India Act, 1935, was competent in the exercise of the power conferred by section 100 to make laws with respect to the matters enumerated in the Lists, to impose a tax on construction contracts and that before such a law could be enacted it would have been necessary to have had recourse to the residual powers of the Governor-General under section 104 of the Act. And it must be conceded that a construction which leads to such a result must, if that is possible, be avoided. Vide Manikkasundara (supra). It is also a fact that acting on the view that Entry 48 authorises it, the States have enacted laws imposing a tax on the supply of materials in works contracts, and have been realising it, and their validity has been affirmed by several High Courts. All these laws were in the statute book when the Constitution came into force, and it is to be regretted that there is nothing in it which offers a solution to the present question. We have, no doubt, Article 248 and Entr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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