TMI Blog1956 (11) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts, they are paid either a lump sum for the work done by them, or according to a schedule of rates after the work done is measured. They, however, do not sell any materials used in the execution of the contract for a stipulated price to the Government. Their contention, therefore, is that there is no sale of any goods, which is liable to be taxed under the Rajasthan Sales Tax Act; but the Act has so defined the word "sale" in section 2, subsection (o), of the Act as to include the materials that they provide in carrying out their contracts as sale of goods. The Act has also provided explanation (i) to section 2, sub-section (t), defining the word "turnover" for purposes of determining the value of the goods. Further rule 7 of the Rajasthan Sales Tax Rules, 1955 (hereinafter called the Rules) has provided certain percentages which have to be deducted to represent the cost of labour to arrive at the value of the goods. In view of these provisions, the Sales Tax Officers concerned have given notices to the applicants for levy of sales tax and have also served notices under section 16 which deals with offences, penalties and prosecutions. The applicants contend that the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of cases. The contention of the applicants is that in this type of contract there is no element of sale of goods, and therefore there is no question of any tax under the Act being levied on any part of the money that is paid to the contractor on the completion of the contract. The entry, with which we are concerned, is entry 54 of List II of the Seventh Schedule which is in these terms: "Taxes on the sale or purchase of goods other than newspapers." It is contended that the words "sale or purchase of goods" used in this entry has to be understood in the sense which can be deduced from section 4 of the Sale of Goods Act, 1930, read with section 2, sub-section (7), of the same Act. There are differences between the various High Courts in India on this point. The applicants rely on Gannon Dunkerley and Co. (Madras) Ltd. v. State of Madras[1954] 5 S.T.C. 216; A.I.R. 1954 Mad. 1130. , which represents one view of the matter. The State, on the other hand, relies on Pandit Banarsi Das v. State of Madhya Pradesh[1955] 6 S.T.C. 93., decided by the Nagpur High Court, which represents the other view. Section 2(7) of the Sale of Goods Act is in these terms: " 'Goods' means every kind of mova ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of a Constitution Act should not be cut down by a narrow and technical construction but considering the magnitude of the subjects with which it purports to deal in a very few words, it should be given a large and liberal interpretation (see In the matter of Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938[1938] 1 S.T.C. 1; A.I.R. 1939 F.C. 1. The question, therefore, that arises is whether we should give the same meaning to the words "sale or purchase of goods" appearing in entry 54 of List II as to be found in section 4 of the Sale of Goods Act read with section 2(7). Section 2(7) lays down that things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale are goods. The argument is that in a building contract of the nature with which we are dealing there is no agreement to sever the materials form the land, and therefore when the contract is completed, and the building handed over to the person giving the contract, there is no question of any sale of goods. Stress is also laid on the ingredients of a sale of goods, which have been thus summarised in Bengal Immunity Co., Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the substance of the transaction which is a building contract of the nature with which we are dealing. In such a contract, the contractor contracts to supply material and make a building, dam, or bridge etc. and is paid in a lump sum or at certain schedule rates according to the work done when the contract is complete. The land, to which the building or dam is attached, is not the property of the contractor, and all that he supplies to the person giving the contract is the finished product which includes on its coming into existence materials, labour and work of the contractor. Though, therefore, the contractor is handing over a completed building or dam or bridge according to the terms of the contract, what he is really selling is the materials which are included in the building etc., in addition to the labour charges which he has incurred, and charges for his own work and skill. There must, in our opinion, be an element of sale of the materials also, for without that we cannot see how the property in the materials, which undoubtedly belonged at one stage to the contractor, would pass to the person who gave the contract. When therefore a contract of this nature is completed, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the contractor and the sale is only of goods and not of immovable property so far as the contractor is concerned. That it is possible to make this severance and to treat the materials which are transferred as movable property, even though they may be fixed to the earth by the contractor and will become immovable property when the contract is complete and the contractor has been paid its price, will be clear from M.R. Hornibrook (Pty.) Ltd. v. The Federal Commissioner of Taxation(1939) 62 C.L.R. 272. That was a sales tax case by which the tax was levied upon the sale value of goods manufactured in Australia. In that case, a contractor constructed a bridge under contract. The bridge was built on reinforced concrete piles, driven into the bed of the sea. The contractor was assessed to sales tax in respect of the piles, and the question arose whether the concrete piles were goods within the meaning of the Sales Tax Assessment Act. The following observations of Latham, C.J., in this connection at page 278 may be quoted: "Thus there was in fact no sale of the piles by the appellant to any person whereby that person became owner of the piles before they lost their character as chattels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sale of Goods Act. The learned Judges were certainly conscious of the well-known principle that a Constitution is not to be construed in a narrow and pedantic sense, and that a broad and liberal spirit should inspire those whose duty it is to interpret it. But they thought that laws, which impose a tax, are subject to the strict construction. With all due respect we feel that there is a certain amount of confusion here. So far as the interpretation of the Rajasthan Sales Tax Act is concerned, it being a tax law has certainly to be interpreted strictly. But the point which is being raised by the applicants is not the interpretation of the Sales Tax Act. It is the interpretation of item 54 of List II of the Constitution, and it is that item which they ask us to interpret strictly within the ambit of section 4 of the Sale of Goods Act. What we have to see is whether the enactment of the Act is within the competence of the Legislature in view of entry 54 in List II. This has nothing to do with the interpretation of the taxation statute itself. We are, therefore, of opinion that we must interpret entry 54 of List II in a large and liberal spirit, and unless there is some reason for us t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g weighty observations at page 716: "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 commended 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 America Act of 1867." The learned Judges of the Nagpur High Court, therefore, arrived at the following conclusion with respect to legislative practice: "It would appear from the foregoing discussion that legislative practice is helpful within limits, but not conclusive. It is also plain that judicial interpretation of words and expressions is not necessarily conclusive unless those decisions are well-known and the Legislature is legislating upon the same matter, for the same purpose and for the same object." If we may say so with respect, we agree with this conclusion. Refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f materials and tax such sale in the exercise of undoubted plenary powers." If we may say so with respect, this is exactly what we have said above, and we agree with this view of the Nagpur High Court. We, therefore, come to the conclusion that section 2(o) is intra vires of the powers of the Rajasthan Legislature by virtue of entry 54 in List II of the Seventh Schedule of the Constitution. It is also faintly urged that the impugned words in section 2(o) of the Act will result in double taxation. We are of opinion that this is not so. Section 5 of the Act shows that the tax will be levied at a single point. The definition of the words "taxable turnover" in section 2(s) of the Act shows that it is only that part of the turnover which remains after deducting therefrom the aggregate amount of the proceeds of sale of goods on which no tax is leviable under this Act, or which have already been subjected to a tax under this Act. Thus if sales tax has already been paid on certain goods purchased by a contractor, which he in his turn passes on to the person who has given him the contract, these sales will not be included within the words "taxable turnover", and thus there will be no doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Legislature is taxing not only the sale price of the goods, but also the labour supplied by the contractor, and the work of the contractor himself, which, of course, it could not do under entry 54. Consequently this artificial rule cannot be sustained as a valid piece of legislation under entry 54. Therefore, explanation (i) to section 2(t), and rule 7 must be held to be ultra vires of the powers of the State Legislature. As these are separable, they can be struck down without in any way affecting the rest of the Act. We may point out that it is not impossible for the Sales Tax Officer to find out the actual price of the materials sold by the contractor in connection with the contract. The contractors should be asked to furnish a return of the cost of materials supplied in their contracts in the assessment year. This is the only way that the Sales Tax Officer can proceed as there is a provision for the best judgment assessment in case the return was not acceptable to him. In these circumstances, we hold that explanation (i) to section 2(t) and rule 7 of the Rules are beyond the powers of the State Legislature conferred on it by entry 54 of List II of the Seventh Schedule of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete, that would be the relevant date, and the tax would be levied if the date is 1st April, 1955, or afterwards. When there is no date in the contract, the date would be the date when the contract is actually completed, and if that date is on or after the 1st of April, 1955, the Sales Tax Act would apply. The date of contract itself is not necessarily the date of sale, and the fact that the contract is entered into before the 1st of April, 1955, would not in itself make the Act inapplicable. Let us now turn to individual cases. In Cases Nos. 9, 10, 53, 54, 103 and 104, all that has happened is that the Sales Tax Officer, Udaipur, is taking proceedings for realisation of sales tax against the applicants, and has served a notice to them under section 16 of the Act. In view of what we have said above, there is no case for interference in these cases. The Sales Tax Officer will keep our judgment in mind declaring explanation (i) to section 2(t), and rule 7 of the Rules ultra vires when taking further proceedings. We dismiss these applications with costs. In Case No. 121, the proceedings are being taken by the Sales Tax Officer, Bikaner. The Sales Tax Officer has already passed an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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