TMI Blog1954 (11) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ners submit that there is no transfer of property in the materials as such, that they are not goods in the strict sense, that there is no sale for a price and that the materials form part of immov- able property before payment is made. The petitioners contend that the Central Provinces and Berar Sales Tax Act, 1947 (hereinafter called the impugned Act) purports to tax the building materials treating the supply thereof as a sale and it was thus beyond the powers of the Legis- lature conferred by Entry No. 48-taxes on the sale of goods-in the second list of the Seventh Schedule of the Constitution Act, 1935. A detailed reference to the provisions of the impugned Act involved in this connection will be made hereafter. 5.. The petitioners submit that all sales to Government were ex- empted by the Central Provinces and Berar Sales Tax (Amendment) Act, 1949 (XVI of 1949) but this exemption was withdrawn by a mere notification (No. 1503-1349-VIII, dated 18th September, 1950). They contend that this action amounts to legislation by the State Government and is ultra vires. They finally contend that the fixation of the price of the materials sought to be taxed under the Act is arbitrary. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroversy" before the Court. I did express then that judicial review should not be allowed to run the un- certain course it sometimes did in America and Courts should not pronounce upon the vires of legislation unless the matter was properly before it in a "case or controversy ". I also suggested the adoption of the rule in Dyson v. Attorney-General(2). But my observations were made because there was no threat to the rights of the petitioner in that case unless he took the courage of his convictions and broke the law and he could not create a "case or controversy" by merely alleging that if he did break the law he was immune from punishment. Here the peti- tioners must, on pain of penalty, make a return and pay a tax which, if illegal, cannot be rightly demanded, or to avoid it must resort to onerous remedies including the payment of the tax. The Divisional Bench had in the case of Himmatlal v. State of Madhya Pradesh(3) declined to grant a writ because the petitioner was not asked to make a return but a writ was eventually issued by the Supreme Court: See HimmatIal v. State of Madhya Pradesh(4). The circumstances here are even stronger and if the petitioners successfully establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in respect of the supply of goods or in respect of the supply of goods in the carrying out of any contract effected or made during the prescribed period excluding inter alia such sales as may be prescribed. 11.. These definitions extend the operation of the impugned Act to reach the supply of materials used in the building contracts. When we incorporate these definitions in the charging section and exclude there- from all references to "sale of goods" as opposed to "supply of goods" we get a true picture of the incidence of the tax and its pith and substance. I shall for reference reproduce the main charging section (in capitals) and define the words within brackets immediately as they occur: IN MADHYA PRADESH EXCLUDING THE MERGED TERRITORIES EVERY (DEALER) person who carries on in Madhya Pradesh the business of supplying (goods), materials, articles and commodities used in the construction, fitting out, improvement or repair of immovable property WHOSE (TURNOVER) aggregate of the amounts of (sale prices), i.e., amounts payable to him as valuable consideration for the carrying out of any (contract) agreement for carrying out for cash or deferred pay- ment or other valuable con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enactment of the Constitution Act, 1935. Their Lordships then observed that: "It must be remembered that the Constitution Act was enacted by the British Parliament and the draftsmen and the Parliament must have been well aware that the expression 'sale of goods' had acquired a legal import by that time, and it is legitimate therefore to presume that the expression was used in the sense in which it was understood by English lawyers and also in India. The draftsmen must have intended to define the power of the Legislature to tax only the transaction of sale of goods, which was understood in law as meaning and as consti- tuting those composite series of acts beginning with an agreement of sale and ending with transfer of property for a price, which constitute sale of goods. That the expression sale of goods acquired a definite meaning in England under the Sale of Goods Act, 1893, and in India under the Sale of Goods Act, 1930, which was modelled on the English Act, does not admit of serious doubt." (1) [1954] 5 S.T.C. 193; A.I.R. 1954 S.C. 459. (2) [1954] 5 S.T.C. 216. 14.. Their Lordships next traced the meaning of the word "sale" from the time of the Romans down to 1935 and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court in determining the meaning of the expression "sale of goods" have relied on two principles. They rely on (1) legislative practice existing in England and in India when the Constitution Act of 1935 was passed, and (ii) the rule of construction enunciated by James, L.J., in Ex Parte Campbell.(1) (1) (1870) 5 Ch. 703 at 706. 16.. Legislative practice can sometimes be taken into account to determine the sense in which a word or expression has been used in a Constitution. The scope of such an enquiry is necessarily limited and often is inconclusive. Legislative practice was examined in Croft v. Dunphy(1). In that case Lord Macmillan laid down that: "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 conferred the power." Their Lordships were on that occasion concerned with certain measures designed to combat smuggling and invoked the "Hovering Acts" to lay down that: "In these circumstances it is difficult to conceive that the Imperial Parliament in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be admissible for cutting down the meaning of a word in order to reconcile two conflicting pro- visions in two legislative lists as was done in the C.P. Berar Act case(2) or to enlarge their ordinary meaning as in the State of Bombay Another v. F.N. Balsara(3). The cardinal rule of interpretation, how- ever, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude." 19.. The true test of how to use legislative practice was laid down in James v. Commonwealth of Australia(4) where it was observed by Lord Wright, M.R., at page 6I4 as follows: "It is true that a Constitution must not be construed in any narrow and pedantic sense. The words used are necessarily general, and their full import and true meaning can often only be appreciated when con- sidered, as the years go on, in relation to the vicissitudes of fact which from time to time emerge. It is not that the meaning of the words changes, but the changing circumstances illustrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mely, the external evidence derived from extraneous circumstances such as previous legislation and decided cases and the internal evidence derived from the Act itself, the conclusion based on legislative practice must not be pushed too far, and agreed with the dictum of Farwell, L.J., in Rex v. West Riding of Yorkshire County Council(3) that "although it may, perhaps, be legitimate to call history in aid to show what facts existed to bring about a statute, the inferences to be drawn therefrom are extremely slight." Their Lordships on that occasion made a forceful pronouncement on the matter in these words: "Over and above that, their Lordships do not think it right to apply rigidly to Canada of today the decisions and the reasons therefor which commanded themselves, probably rightly, to those who had to apply the law in different circumstances, in different centuries, to countries in different stages of development. Referring therefore to the judgment of the Chief justice and those who agreed with him, their Lordships think that the appeal to Roman Law and to early English decisions is not of itself a secure foundation on which to build the interpretation of the British North Ameri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nction between a "sale" and an "agreement to sell" and therefore it was proper to interpret the expression "sale of goods" in Entry No. 48 in the sense in which it was used in legislation, both in England and in India, and to hold that it authorized the imposition of a tax only when there was a completed sale involving transfer of title. Their Lordships further observed that the sense of the thing also re- quired that the tax should not be levied except on the price of goods (1) (1870) L.R. 5 Ch. 703. (3) (1880) 14 Ch. D. 563, at 571 (2) [1933] A.C. 402. (4) [1954] 5 S.T.C. 193; A.I.R. 1954 S.C. 459. and only at the stage when the seller could recover the price under the contract. In a case of forward transactions which their Lordships were then dealing, there can be no suit for recovery of the price but for damages for breach of contract and their Lordships therefore held that the entry could not contemplate a mere agreement of sale as opposed to a sale proper. 24.. Their Lordships were not limiting the scope of the Entry for all purposes. Their Lordships only excluded from its operation matters which could not be brought within its ambit in any way. The word "sale" involves a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. Building materials are goods is clear from The Deputy Federal Commissioner of Taxation v. Stronach(1) and M. R. Hornibrook (Pty.) Ltd. v. Federal Commissioner of Taxation(2) and certain other rulings in Australia. The Sales Tax (Assessment) Acts, 1930-36, lay the tax on goods manufactured or imported into Australia granting exemptions for some building materials and these cases may not be fully apposite. But there is a clear statement that building materials can be treated as "goods" and the wide definition of that term in the Constitution Act, 1935, renders the dictum easily applicable here. The Canadian Statutes also tax "manufacture" but the cases of tailors (e.g. The King v. Pedrick Palen(3)) are interesting, though again not quite appropriate. 27. We are here concerned with a taxing measure and the power to levy the tax can only be determined by a fair consideration of the ambit of the entry by which the power is conferred. If the pith and substance of the Act come within that ambit, the power is there, other- Wise not. If a building contract was not split up into its component parts, that is to say, material and labour, in legislative practice relating to the ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y: (a) In the case of an electrical contract-20 per cent. (b) In the case of a structural contract-30 per cent. (c) In the case of a sanitary or gas contract-33 I/3 per cent. (d) In the case of overhaul or repair of any motor vehicle-60 per cent. (e) In the case of other contracts-30 per cent." 30.. It appears from the above definition and the rule that the consideration paid for an entire contract is sought to be split up into two parts. The first part represents the fee for the contract and the second part the cost of materials used in carrying out such contract. These contracts into which the petitioners enter with the Public Works Department, the Military Engineering Service and private persons do not ordinarily provide separately for cost of material and consideration for carrying out the contract. They are not what can be conveniently described "cost-plus-a-fee" (shortly cost-plus) contracts. The expression "cost-plus contract" received its exposition in Alamba v. King Boozer(1). In that case immunity from sales tax was claimed on the ground that if the sales tax was demanded from the contractor and was allowed to pass into price charged to the United States, the immunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural determina- tion of the price of goods cannot be said to square with the powers given by the Constitution Act to levy a tax on the "sale of goods". The tax is not laid in the Act on different articles and commodities supplied by the contractor but on their cost, and this cost is not found out actually but is deduced by substracting from the total consideration, the con- sideration for the execution of the contract as opposed to cost of materials which the Commissioner thinks suitable in any area, subject to an upward limit fixed by the rules. If there had been provision for agreements on the basis of "cost-plus-a-fee", the matter might have been simple. But since the contract is for a finished work and payment is in a lump sum on the basis of quantity and quality, rather than the cost of labour plus the cost of the materials supplied, it is impossible on the rules as they exist to determine the correct price of the goods on which the tax can legitimately be demanded. There is a distinct probability that the tax falls on services by inclusion into the price of materials determined in this artificial manner. 33.. I would, therefore, hold that the artificial test laid down in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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