Mithan Lal v. State of Delhi & Another

S.C.R. SUPREME COURT REPORTS MITHAN LAL _v._ T.FJE STATE OF DELHI & ANOTHER (with connected petition) (S. R. DAS C. J., VENKATARAMA AIYAR, S. K. A. K. SARKAR and VIVIAN BosE JJ.) 445 DAS, _April_ 7. _Sales_ _Tax-Building contracts-Tax on_ _supply of materials in_ _construction_ _worlls-Compe,ence_ _of_ _Parliament-Delegation_ _of_ _authority_ _to_ _extend taxation_ _law-Notification_ _by_ _Government-_ _V alidity-Bengal_ _Finance (Sales Tax) Act,_ _I94I (Ben.VI of I94I_),_ _ss._ _2,_ _4-Part_ C _States (Laws) Act,_ r950 (XXX _of I950),·_ s. 2~ _Constitution of India, Arts. 246(4), 248(2)._, 1 The petitioners were building contractors carrying. on business in Delhi, which under. the Constitution of India became a Part C State.· In exercise of the power conferred by Art. 246(4) of the 1:onstitution, Parliament enacted the Part C States (Laws) Act, 1950, by virtue of which the Chief Conimissioner of Delhi issued a notification extending the ' operation of the Bengal Finance (Sales Tax) Act, 194r, to Delhi. Acting under the provisions of this Act, the sales tax officer imposed tax on the petitioners in respect of materials supplied in execution of the building contracts. After paying it for some years the petitioners challenged the validity of the assessment on the grounds, inter alia, that (r). as there was no sale of materials used in execution of. a building contract, a tax thereon was not authorised, and ·.(2) 'in any event, the provisions of the Act under which the sales tax officer sought to levy the tax were unc.onstitutional and invalid : _Held,_ (1) It is within the competence of Parliament to impose a tax on the supply of materials in building contracts and to impose it under the name of sales tax, and as Parliament has the power to legislate for Part C States the imposition of the tax on the petit\oners is valid. ., _$late of Madras_ v. _Gannon Dunkerley and_ _Co._ _(Madras) Ltd.,_ [r959] S.C.R. 379, held inapplicable. . . (2) Section 2 of the Part C States (Laws) Act is not repugnant to Art. 248(2) on the ground that it conferred on the Government authority'to extend a taxation law,to Part~ States. Wh(m ·a notification is issued under s. 2 of the Act by the appropriate Government extending the law of a Part A State to a Part CState, the provisions of the law which is extended become incorporated _by_ reference, _i1!_ the Act itself, .an,d therefqre ;t. tax .imposed thereunder _rs_ a tax 1mpost::d by Parliament. : (3) Sectio~ 2,of. the Act i; not b~d as an upconstitutiona.l delegation of legislative power$., ~1 ·. 446 SUPREME COURT REPORTS [1959] _Jn_ _r<_ _The Delhi Laws Act,_ _I9I2,_ [r95r] S.C.R. 747, followed. ~ltithan _**Lal**_ **(4)** **The expression** **"enactment which is** **in** **force in a Part A** **State" in** **s.** **2** **of the Act must** **be** **construed as meaning** **"statute** _Th_, v. _i_ _D_ part A State" as distinct from a statute 1 1 11 . which is in operation in a _e_ .:::i _**a**_ _e_ _[0 ]_ _e u_ **which had been repealed, and cannot be interpreted as having** **reference to individual sections or provisions of a statute.** (5) The notification in question whether it is viewed as one extending a subsisting statute to Delhi or as extending it \~ith **modifications so** **far** **as the impugned provisions are concerned, is** _**intra vires**_ **s.** **2.** ORIGINAL JURISDICTION: Petitions Nos. 15 & 16 of 1955. Petitions under Article 32 of the Constitution of India for enforcement of Fundamental Rights. _Radhey Lal Aggarwal,_ for the petitioners. _G._ _K._ _Daphtary, Solicitor.General of India_ and• _R. H._ _Dhebar,_ for the respondents. _T._ _M._ _Sen,_ for the States of Madras and Mysore .. (Interveners). ' _G._ _G._ _Mathur_ and _G._ _P. Lal,_ for the State of U. P. (Intervener) . - _Sardar Bahadur,_ for the State of Kerala (Intervener). _Ratnaparkhi,_ _A._ _G.,_ for M/s. Raipur Provincial Engineering Co. (Intervener). 1958. April 7. The,Judgment of the Court. was delivered by _Venkatarama_ - VENKATARAMA AIYAR J.-The petitioners are _Aiyar_ _J._ building contractors carrying on business in Delhi, and they have filed the present applications under Art. 32 of the Constitution challenging the validity of certain provisio1is of the Bengal :Finance (Sales Tax) Act, 1941 (Ben. VI oi 1941), which had been extended to the State of Delhi by a notification dated April 28, 1951. The impugned provisions of the Act may now be referred to. Section 2(d) of the Act defines "goods" as including "all materials, articles and commodities, whether or not to be used in the construction, fitting "all materials, articles and commodities, or not to be used in the construction, fitting # **J** **S.C.R.** **SUPREME** **COURT** **REPORTS** **447** out, improvement or repair of immovable property". _z958_ " Sale" is defined in s. 2 (g) as including " any transfer _Mithan_ _Lal_ of property in goods for cash or deferred payment or v. other valuable consideration, including a transfer of _The_ _state_ _of_ _Delhi_ property in goods involved in the execution of a contract ........................... " . Section 2(b) defines _Venkatarama_ "contract" as meaning, omitting what is not _Aiyar_ _f._ relevant, "any agreement for carrying out for cash or deferred payment or othtir valuable consideration-the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property." " Sale price" is defined in s. 2(h)(ii) as meaning valuable consideration for "the carrying out of any 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 carrying out such contract". " Turnover" is defined in s. 2(i), and is as follows : " " Turnover "used in relation to any period means the aggregate of the sale-prices or parts of sale prices receivable, or if a dealer so elects, actually received by the dealer during such period after deducting the amounts, if any, refunded by the dealer in respect @f any goods returned by the purchaser within such period." Section 4, which is the charging section, provides, that " .................. every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded the taxable quantum shall be liable to pay tax under this Act on all sales effecteri after the date so notified." The Bengal Finance (Sales Tax) Act, 1941, was a law passed by the Legislature of the Province of Bengal and applied only to sales effected within t~at Province, and after the partition of the Country, to sales effected within the State of West Bengal. Under the Government of India Act, 1935, Delhi was a Chief Commis sioner~'> Province administered by the GovernorGeneral, and under the Constitution, it became a Part C State, and Art. 239 vested its administration in ·the President actirig through a Chief Commissioner ## . . 448 SUPREME COURT REPORTS [1959] _r958_ or a Lieutenant-Governor as he might think fit. _Mithan_ _Lal_ Article 246(4) 'vhich is material for the present purpose v. is as follows: _Th•_ _State_ _of_ _Delhi_ "Parliament has power to make laws with respect - to any matter for any part of the territory of India not _Venkatamma_ included in Part A or Part B of the First Schedule not_Aiya• J._ withstanding that such matter is a matter enumerated in the State List.'' In exercise of the power conferred by this Article, Parliament enacted the Part• C 8tates (Laws) Act No. XXX of 1950, ands. 2 thereof is as follows: "The Central Government may, by notification in the Official Gazette, extend to any Part C State (other than Coorg and the Andaman and Nicobar Islands) or to any part of such State, with such restrictions and modifications as it thinks fit, any enactment which is in force in a Part A State at the date M the Notification ............ " On April 28, 1951, the Chief Commissioner of Delhi issued a notification under this section extending the operation of the Bengal 'Finance (Sales Tax) Act, 1941, to Delhi as from November 1, 1951. Acting under the provisions of this Act, the Sales Tax Officer, Karolbagh, l)elhi issued on June 12, 1952, notices to the petitioners calling upon them to submit returns of their receipts from building contracts and to deposit the taxes due thereon. In compliance with these notices, the petitioners were sending quarterly returns of their taxable turnover and assessment orders were also made in respect of their annual turnover for the years 19511952 and 1952-1953, and the amounts due thereunder natl also been paid. For the year 1953-1954, the quarterly returns had been submitted and the tax due thereon deposited, and procedings were pending for assessment of tax for that year. This was the position whEl''~ the Madras High Court pronounced its decision in _Gannon Dunkerley_ _&_ _Co._ _v._ _State_ _of_ _Jl,fadras_ ('),that the provisions of the Madras General Sales Tax Act, 1939, imposing tax on the supply of materials in construction works were _ultra vi1es_ the powers of the Provincial Legislature under Entry 48 (1) (1954] _5_ S.T.C. 216 . , ###### f ' .. .• 1935. ' _Mithan_ _Lal_ Basing 'themselves on this judgment, the petitioners v. who had been acting so far on· the view that thene _state_ _of_ _Delhi_ provisions of the Bengal Finance (Sales Tax) Act, 1941, imposing tax· on construction contracts were valid _Ve>tkatarama_ and had been paying tax in 'that belief, filed Civil _Aiyar_ _f._ Writs Nos. 244-D and 247 ·of 1954 in the Punjab High Court challenging the validity of those p1'ovisions on the gtound that there was no sale of materials used in execution of a building contract, and that a tax thereon was not authorised by Entry 48. They accordingly prayed (a) for a writ of _certiorari_ quashing the assessments for the years 19511952 and 1952-1953, (b) for a writ of prohibition restraining proceedings for assessment of sales tax for the year 1953-1954 or realisation of any tax for that year, and (c) for a writ of _mandamus_ directing the. respondents to forbear in future from assessing the petitioners to sales tax under the impugned provisions. Both these petitions were summarily dismissed by the High Court on October 18, 1954, and the orders of dismissal, not having been challenged in appropriate proceedings have become final. Now, the present attempt of the petitioners is to reopen the question which had been answered agains.t them by the High Court of Punjab by resort to proceedings under Art. 32 of the Constitution. It is therefore not surprising that the learned SolicitorGeneral appearing for the respondents should have taken preliminary objections of a serious charactei; to 1:;.he maintainability of these petitions. He contended that the petitioners having filed petitions under Art. 226 claiming the very reliefs which they have now ·prayed for and on the very grQllnds now put forward, and those petitions having been dismissed and no appeals having been filed against the orders of dismissal, they had no right'to invoke the jurisdic_tion_ of this Court under Art. 32 for · obtaining the samr:i reliefs. He further contended that the claim of the petitioners . that the assessments in question, being S.C.R. SUPREME COURT REPORTS 449 in List II, Sch. VII to the Government of India Act, _I95_ _[8 ]_ 450 SUPREME COUi:tT REPORTS [1959] _i95B_ unauthorised, constituted an interference with their _Mithan_ _Lal_ fundamental right to carry on business under Art. 19 v. (l)(g) could not he maintained inasmuch as assessn, _Stat,_ _of_ _Ddhi_ ment proceedings had been completed and the tax realised. He also argued that even if the petitioners _y,,.katamma_ were right in their contention that the assessments _Aiya'_ _J._ were unauthorised, their remedy was to sue for refund of the taxes paid, and that the applications for writ of _certiomri_ to quash the orders of assessment were misconcefrcd. It was further ·contended that the payments having been made by the petitioners voluntarily-it might be under a misconception of their rights-they had no right to claim refund of the amounts even by action. These contentions raise questions of considerable importance; but it is unnecessary to express our opinion thereon, as the petitiov-ers also pray for a writ of _mandamus_ directing the respondents to forbear from imposing sales tax in future, and it will be more satisfactory to decide the case on the merits. The contention of the petitioners based on the decision of the Madras High Court in _Gannon Dunkerley_ _&_ _Co._ v. _State of_ ~Madras (1) is that the State Legislatures acting under Entry 48 have no competence to enact laws imposing tax on the supply of materials in execution of works contract, as there is no sale of those materials by the contractor. The decision in _Gannon Dunkerley_ cf1 _Co._ v. _State_ _of_ _Madras_ ( [1] ) was taken on appeal to this Court in Civil Appeal No. 210 of 1956, and by our judgment, _The State_ _of_ _Madras_ v . _• Gannon Dunkerley_ _&_ _Co., (Madras)_ _Ltd.(')_ pronounced on April 1, 1958, we have affirmed it, and if the present case iq governed by that judgment, the petitioners would clearly be entitled to succeed. But it is contended. by the learned Solicitor-General that that decision has no application to the present petitions, because the impugned law was enacted not by a State Legislature in exercise of the power conferred by Entry 54 in List II but by Parliament by virtue of the authority granted by Art. 246( 4) of the Constitution, (1) [1954] _5_ S.T.C. 210 . (z) [1959] S.C.R. _3i9·_ S.C.R; SUPREME COURT REPORTS 451 and that it was within the competence of Parliament acting m.1der that Article to impose a tax on the _Mithan_ _Lal_ supply of materials in building contracts, even though v. there was no sale of those materials within Entry 54. _The State_ _of_ _Delhi_ . In our opinion, this contention is well-founded. Art. 246, Cls. (2) and (3), of the Constitution confer _Venkataram,a_ on the Legislatures of the States mentioned in Parts _Aiyar J._ A and B the power to make laws with respect to the matters enumerated in Lists II and III of Sch. VII, and one of those m"atters is " Tax on the sale of goods ", Entry 54 .in List II. It is with reference to the corresponding, Entry in the Government of India Act, 1935, Entry 48 in List II, that we have held in _The State_ _of_ _Madras_ v. _Gannon Dunkerley_ _&_ _Co.,_ _Madras Ltd._ (1) that the power to tax sale of goods conferred by that Entry has reference only to sales as defined in the Indian Sale of Goods Act, 1930. But here, we are concerned not with a law of a State mentioned in Part A or Part B but with that of a State in Part C. Under Art. 246(4) it is Parliament that has the power to legislate for Part C States, and that power is untrammelled by the limitations prescribed by Art. 246, Cls. (2) and (3), and Entry 54 of List II, ;:i,nd is plenary and absolute, subject only to such restrictions as are imposed by the Constitution, and there is none such which is material to the present question. It would therefore be competent to Parliament to impose tax on the supply of materials in building contracts and to impose it under the name of sales tax, as has been done by the Parliament of the Commonwealth of Australia or by the Legislatures of the American States. The decision in _The State_ _of Madras_ _v. GannonDunkerley_ _&_ _Co.,_ _Madras Ltd._ ( [1 ] ) which was given on a statute.passed by the Provincial Legislature under the Government of I1'dia Act, 1935, has therefore no application to the present case. It is argued that though Parliament has the power under Art. 246(4) to make a law imposing tax on construction contracts, that power is subject to the limita.tion contained in Art. 248, that under that Article it is Parliament that has the exclusive power (1) (1959J s.c.~: 379. 452 SUPREME COURT REPORTS [1959] _r958_ to enact laws in respect of matters not enumerated in the Lists, including taxation, and that such a power _Milhan_ v _Lal_ cou ld proper 1 y e exercise on y b . d 1 b y p ar l' 1amen 1 se t "t lf _The sia1<. of_ _Delhi_ imposing a tax and not by its extending the operation of a taxation law passed by the Legislature of a _V enkatamma_ State ; and that s. 2 of the Part C States (Laws) Act _Aiyar_ _J._ must be held to be bad as being repugnant to Art. 248(2) in so far as it conferred on the Government authority to extend a taxation law to Part C States. This argument proceeds on a m"isapprehension of the true scope of Art. 248. That Article has reference to the distribution of legislative powers between ~he Centre and the States mentioned in Parts A and B under the three Lists in Sch. VII, and it provides that in respect of matters not enumerated in the Lists including taxation, it is Parliament that has powJ)r to enact laws. It has no application to Part C States, for which the governing provision is Art. 246( 4 ). Moreover, when a notification is issued by the appropriate Government extending the law of a Part A State to a Part C State, the law so extended derives its force in the State to which it is extended from s. 2 of the Part C States (Laws) Act enacted by Parliament. The result of a notification issued under that section is that the provisions of the law which is extended become incorporated by reference, in the Act itself, and therefore a tax imposed thereunder is a tax imposed by Parliament. There is thus no substance in this contention. It is next contended for the petitioners that even a~suming that Parliament was competent to impose a tax on the supply of materials in a building contract and that could be done by a notification extending the law of a Part A State, the notification dated April 28, 1951, is, in oio far as it relates to the impugned provisions, in excess of the authority conferred by s. 2, because that section limits the authority of the Central Government to extend laws of Part A States to Part C States; to "any enactment which is in force" at the date of the notification, and, as the impugned provisions of the Bengal Finance (Sales Tax) Act, 1941, ### w1ire ultra virea . Entry 48 under which' the Legislature . ' S.O.R. SUPREME COURT REPORTS 453 .... of the Province of Bengal derived its power to _z958_ impose sales tax, they were not "in force " in the _M. h_ _L 1_ State of West Bengal at the date of the notification, - " ~~ _a_ and could not therefore be extended to the State of _Ths_ _state_ _of_ _Delhi_ Delhi. According to the petitioners, "enactment in force" in s. 2 must be construed as meaning pro- _Venkattlrama_ visions of a statute which are valid and enforceable. _Aiyar.J._ We are unable to agree with this contention. Though the language of s. 2 might, in the abstract, be susceptible of the con•struction which the petitioners seek to put upon it, in the context that is not, in our opinion, its true meaning. What is intended by that section is that with reference to different topics of legislation on which the several States in Part A had enacted different statutes, the authority acting under s. 2 ~hould have the discretion to extend that statute in any of the Part A States which is best suited to the conditions in the particular Part C State to which it is to be extended, and that, further, the authority should have the power to extend it with suitable "restrictions and modifications". It could not have been intended by this section that the authority concerned should take upon itself to examine the vires of each and every one of the provisions in the statute, and then extend only such of them as it considers to be valid. In our view, the expression "enactment which is in force in a Part A State" must be construed as meaning " statute which is in operation in a Part A State" as distinct from a statute which had been repealed and it cannot be interpreted as having reference to individual sections .. or provisions of a statute. But even if we accept the narrow construction contended for by the petitioners, that would not. make any difference in the result, as the authority conferred by s. 2 on the Government to extend the enactments in force in Part A State includes a power to do so with restrictions and modifications, and _it_ was within the competence of the Government acting on thi~ provision to incorporate on its own authority the impugned provisions by way of modification of the Bengal FiI).ance ~Sales Tax) Act, **1941.** It is said th~t. 58 - 454 SUPREME COURT REPORTS [1959] _r958_ the notification does not, as a fact, purport to modify the Bengal Act, but merely extends the whole of it on . 1 _M•t_ ·~.n _Lal_ a mistaken notion that it is all valid. But that does _The State_ _of_ _Ddhi_ not affect the position. The notification intends that all the provisions of the Bengal Finance (Sales Tax) _Vsnkatarama_ Act, 1941, should operate in the State of Delhi, and if _Aiyar_ _J._ that could be effectuated by recourse being had to any of the pmvers of the Legislature, that should be dofJ.e and the legislation upheld as referable to that power. _U t_ _res_ _magis valeat quarn per_ eat~ It is lastly urged thats. 2 of the Part C States (Laws) Act is bad for the reason that it confers on the Government a power to modify laws passed by State Legislatures, and that it is an unconstitutional delegation of legislative powers to authorise an outside authority to modify a law enacted by a Legislature on wh~t are essentially matters of policy. Now, it should be noted that in _In re_ _The Delhi Laws Act, 1912_ _etc._ ( [1] ) one of the questions referred. for the opinion of this Court related to the vires of this very provision, and the answer of the majority of this Court was that the first portion of the section, which is what is material for the present discussion, was valid. Counsel for the petiti6ners, however, relies on the decision of this Court in _Rajnarain Singh_ v. _The Chairman, Patna Administra-_ _tion Committee, Patna and another_ ('), wherein it was held than an executive authority could be authorised by a statute to modify either existing or future laws but not in any essential feature, and that a modification, which involved a change of policy of the Act would be bad. It is argued that it is a question of policy whether taxes should be imposed on the supply of materials in building contracts; and that, therefore, the power conferred bys. 2 on the Government to extend a law with modificii.tions cannot be exercised so as to modify a/.ifroyision of the Beng:,t~, Finance (Sales Tax) Act, 1941, rel.ating to that mat~e.r.,.,The answer to this contentior{ "is . that the' niodifi,cation made by the Central GovetHment, assuming that tlia.t. is its true character, does not.involve any chmige Of poricy iinderlying the Bengal Fi'nAnce '(Sales Tax) Act, 1941,." Incieed, ##### t}i.e .modification gi-i?es;'~,ff·~ct to the. policy of ~~a:t . (1) [;951) S.C,R. _j47._ (2) [1955) I S.C.R. 290" . <( ' _University_ _of_ _Gauhati,_ _powers_ _of-:-Principal dismissed_ _by_ _Governing_ _Body_ _of_ College~If _University_ _can_ _interfere-'---Gauhati_ _University_ _Act_ _(Ass. XV I of I947),_ _ss._ _2,_ _9,_ _I2_ _and_ _ZI,_ _Statutes of_ _the_ _University,_ _els._ _I,_ _2_ _and_ _3._ ' - . · R was appointed Professor of Math'ematics in a College affiliated to the Gauhati University. He was later appointed Principal of the College. On complaints being made against R the Governing Body of the College held an enquiry artd or:dered his dismissal as Principal and Professor of Mathematics. R made representations to the Vice-Chancellor of the Gauhati University and the Executive Council of the University appointed a committee to report on the propriety of the action taken. Upon the report of the committee that there was no reasonable gro1V1d justifying. the dismissal of R, the Executive Council passed ·a resolution directing the Governing Body to reinstate R : _Held,_ that the Executive Council acted without jurisdiction in so far as it interfered with the action taken against R as the Principal of the College .. The Gauhati Universify Act, 1947, and the Statutes framed under s. 21(g) thereof made a qistinction between a Principal and a teacher. Clause 3(g)(v) ofthe Statutes empowered the Executive Couqcil to interfere only with the action _taken_ by the Governing Body of an affiliated College against a S.C.R. SUPREME COURT REPORTS enactment .which was to bring· cbnstruction contracts _x958_ within the ambit of the tax;a.tion powers of the State, _Mitha11_ _Lal_ and which failed only for want ·of legislative authority. v. Whether we view the notification as one extending _aTJwState_ _of Delhi_ subsisting statute to Delhi or as extending it with modifications so far as the impugned provisions are _Venkatar!lma_ concerned, it is _intra vires_ s. 2. - _Aiyar_ _J._ - All the contentions urged by the petitioners having failed, the petitions are dismissed with costs . - . . . _Petitions_ dismissed~ J. K. CHAUDHURI - _v._ ',. . H,, K. DATTA GUPT:k & OTlIERS' _.April_ 7. ' ' (BIIAGWATI, J. L. KAPUR and A. K, SARKAR JJ.) teach~ a·nd not with action taken against a Principal.,. CIVIL APPELLATE JURISDICTION; Civil Appeal No. #### 321 of 1957. [. ][. ]