# [1959] 1 S.C.R. 379

- **Citation:** [1959] 1 S.C.R. 379
- **Court:** Supreme Court of India
- **Decided:** 1959
- **Case number:** Civil Revision Petition No. 2292 of 1952
- **Bench:** S. R. DAS c. J, Venkatarama Aiyar, s. K. DAS, A. K. Sarkar, VIVIAN BosE
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1959-1-s-c-r-379-1647
- **Pages:** 49

## Headnote

Sales Tax-Building contracts-Tax on supply of materials in
construction works_-·State's pou·er of taxation-" Sale of good~"·,
Meaning of-Legislative practice-N aiure of agreement in building
contracts-Indian Sale of Goods Act, I9JO (III of I9JO), s. 4~
]'vfadras General Sales Tax Act, I939 (Mad. IX of I939L as amended by Madras Act XXV of .I947, ss. 2(c)(h)(i), Explanation I(i),
r. 4(3)--Government of India Act, I935 (26 Geo. 5, Ch. 2), s. ro7,
Sch. Jl II, List II, Entry 48.
The responde~t company, doing business, inter alia, in the.
construction of buildings, roads and other .works was assessed to
sales tax by the sales tax authorities who SO\lght to indude.·
the value of the materials used in the execution of building con~
tracts within the taxable turnover of the respondent. The vaii-.
dity of the assessment was challenged by the respondent .\vlio'
contended that the power of the Madras Legi~laljire to impose a.
tax on· sales under Entry 48 in List II in Sch. VII of the. Governc
ment of India Act, 1935, did not extend to imposing a tax 'on tlie,
value of materials used in construction works, as there was no
transaction of sale in respect of those goods, and that the provisions introduced in the Madras General Sales Tax Act, 1939, by
the Maaras General Sales Ta·x (Amendment) Act, 1947, authorfs~
ing the imposition of such tax were ultra vi res.
The Sales Tax
Appellate Tribunal.rejected the respondent's contention but, on
..
Imam],
April I.
380
SUPREME COURT REPORTS
[1959]
I958
revision, the High Court took the view that the expression "sale
of goods" had the same meaning in Entry 48 which it has in the
The State of
Indian Sale"of Goods Act, 1930, that the construction contracts of
Madras
·the respondent were agreements to execute works to be paid for
v.
according to measurements at the rates specified in the schedule
Gannon Diutkevlf:y thereto, and \Vere not contracts for sale of the· materials used
& Co..
therein, and that further, they were entire and indivisible and
(Madras) Ltd.
could not be broken up into a contract for sale of materials and a
contract for payment for work done. Accordingly, it held th~t
the impugned provisions introduced by the Madras General Sales
Tax (Amendment) Act, 1947, were ultrp vires the powers of the
Provincial Legislature. On appeal to the Supreme Court:
Held, (1) 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.
Poppatlal Shah v. The State of Madras, [1953] S.C.R. 677 and
The State of Bombay v. The United Motors (India) Ltd., [1953]
S.C.R. 1069, relied on.
In a building contract, the agreement between the parties is
that the contractor should construct the building according to the
specifications contained in the agreement, and in consideration
therefor receive payment as provided therein, and in such an
agreement there is neither a contract to sell the materials used
in the construction, nor does property pass therein as moveables.
(2) The expression" sale of goods" was, at the time when the
Government of India Act, 1935, was enacted, a term of wellrecognised legal.import in the general law relating to sale of goods
and in the legislative practice relating to that topic and must be
interpreted in Entry 48 in List II in Sch. VII of the Act as having
the same meaning as in the sale of Goods Act, 1930.
The Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai
Prakash, [1955] l S.C.R. 243, relied on.
(3) In a building contract which is one, entire and indivisible,
there is no sale of goods· and it is not within the competence
of ·the Provincial Legislature under Entry 48 in List II in Sch.
VII of the Government of India Act, 1935, to impose a tax on
the supply of the materials used in such a contract treating it as
a sale .
. Pandit Banarsi Das v. State of Madhya Pradesh, (1955) 6
S. T. C. 93, Bhur4mdl v. Stal< of Rajasthan, A. I. R. 1957 Raj. 104,
Mohamad Khasim v

## Text

_Characters 0–39,803 of 111,333. This is a partial read: ask again with offset=39803 for what follows._

S.C.R.
SUPREME COURT REPORTS
379
the event of the appeal being dismissed or decided
r958
against them.
Having regard to . the undertakings' b 1 1- 1. h
1
.
·
a u a
J urama
given, as also the fact that execution of the decree
and A.noiher
in suit No. 483/4400 of the Co~u~t of Small Causes,
v. · ·
Bombay has been delayed long enough, · we are Nandrani Shivram
unable to accede to the request made by the appeland Others
lants.
·The appeal is accordingly dismissed with costs.
•
Appeal dismissed.
THE STATE OF MADRAS
v .
GANNON DUNKERLEY & CO.,
(MADRAS) LTD.
(S. R. DAS c. J., VENKATARAMA AIYAR, s. K. DAS,'
A. K. SARKAR and VIVIAN BosE JJ.)
Sales Tax-Building contracts-Tax on supply of materials in
construction works_-·State's pou·er of taxation-" Sale of good~"·,
Meaning of-Legislative practice-N aiure of agreement in building
contracts-Indian Sale of Goods Act, I9JO (III of I9JO), s. 4~
]'vfadras General Sales Tax Act, I939 (Mad. IX of I939L as amended by Madras Act XXV of .I947, ss. 2(c)(h)(i), Explanation I(i),
r. 4(3)--Government of India Act, I935 (26 Geo. 5, Ch. 2), s. ro7,
Sch. Jl II, List II, Entry 48.
The responde~t company, doing business, inter alia, in the.
construction of buildings, roads and other .works was assessed to
sales tax by the sales tax authorities who SO\lght to indude.·
the value of the materials used in the execution of building con~
tracts within the taxable turnover of the respondent. The vaii-.
dity of the assessment was challenged by the respondent .\vlio'
contended that the power of the Madras Legi~laljire to impose a.
tax on· sales under Entry 48 in List II in Sch. VII of the. Governc
ment of India Act, 1935, did not extend to imposing a tax 'on tlie,
value of materials used in construction works, as there was no
transaction of sale in respect of those goods, and that the provisions introduced in the Madras General Sales Tax Act, 1939, by
the Maaras General Sales Ta·x (Amendment) Act, 1947, authorfs~
ing the imposition of such tax were ultra vi res.
The Sales Tax
Appellate Tribunal.rejected the respondent's contention but, on
..
Imam],
April I.
380
SUPREME COURT REPORTS
[1959]
I958
revision, the High Court took the view that the expression "sale
of goods" had the same meaning in Entry 48 which it has in the
The State of
Indian Sale"of Goods Act, 1930, that the construction contracts of
Madras
·the respondent were agreements to execute works to be paid for
v.
according to measurements at the rates specified in the schedule
Gannon Diutkevlf:y thereto, and \Vere not contracts for sale of the· materials used
& Co..
therein, and that further, they were entire and indivisible and
(Madras) Ltd.
could not be broken up into a contract for sale of materials and a
contract for payment for work done. Accordingly, it held th~t
the impugned provisions introduced by the Madras General Sales
Tax (Amendment) Act, 1947, were ultrp vires the powers of the
Provincial Legislature. On appeal to the Supreme Court:
Held, (1) 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.
Poppatlal Shah v. The State of Madras, [1953] S.C.R. 677 and
The State of Bombay v. The United Motors (India) Ltd., [1953]
S.C.R. 1069, relied on.
In a building contract, the agreement between the parties is
that the contractor should construct the building according to the
specifications contained in the agreement, and in consideration
therefor receive payment as provided therein, and in such an
agreement there is neither a contract to sell the materials used
in the construction, nor does property pass therein as moveables.
(2) The expression" sale of goods" was, at the time when the
Government of India Act, 1935, was enacted, a term of wellrecognised legal.import in the general law relating to sale of goods
and in the legislative practice relating to that topic and must be
interpreted in Entry 48 in List II in Sch. VII of the Act as having
the same meaning as in the sale of Goods Act, 1930.
The Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai
Prakash, [1955] l S.C.R. 243, relied on.
(3) In a building contract which is one, entire and indivisible,
there is no sale of goods· and it is not within the competence
of ·the Provincial Legislature under Entry 48 in List II in Sch.
VII of the Government of India Act, 1935, to impose a tax on
the supply of the materials used in such a contract treating it as
a sale .
. Pandit Banarsi Das v. State of Madhya Pradesh, (1955) 6
S. T. C. 93, Bhur4mdl v. Stal< of Rajasthan, A. I. R. 1957 Raj. 104,
Mohamad Khasim v. State of Mysore, A. I. R. 1955 Mys. 41 and
Gannon Dunkerley & Co. v. Sales Tax Officer, A. I. R. 1957 Ker.
146, disapproved.
Jubilee Engineering Co. Ltd. v. Sales Tax Officer, A. I. R.
1956 JI yd. 79, approved.
(4) The Madras General Sales Tax Act is a law relating not
to sale of goods but to tax on sale of goods and· consequently the
•
.
'
•
•
•
s.e.R.
SUPREME COURT REPORTS
381
Madras General Sales Tax (Amendment) Act, 1947, is not bad
I958
under s. 107 of the Government of India Act, 1935, on the
ground that it had not been reserved for the assent of the GoverT lie State of
·n.or-General.
Madras
D. Sarkar & Bros. v. Commercial Tax Officer, A. I. R. 1957
v.
Cal. 283, disapproved.
Gannon Dunkerley
.
&Co.,
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
(Madms) Ltd.
2l0of1956.
Appeal from the judgment and order dated April 5,
1954, of the "'Madras IDgh Court in Civil Revision Petition No. 2292 of 1952, arising out of the judgment and
order dated August 11, 1952, of the Sales Tax Appellate Tribunal, Madras, in T. A. No. 863 of 1951.
1958. Jan. 22, 23, 24; Feb. 4, 5, 6, 7, 10, 11.
V. K. T. Chari, Advocate General for the State of
Madras and R. H. Dhebar, for the appellant.
The
provisions of the Constitution Act which confer legislative powers should be construed liberally. See
Navinchandra .L11afatlal v. The Commissioner of Income
Tax, (1955] 1 S. C. R. 829 at 833; Broken Hill South
Ltd. v. Comm·issioner of Taxation, N. S. W. (56 C.L.R.
337 at 379); Love v. Norman Wright (Builders) Ltd.
([1944] 1 K. B. 484); In re the Central Provinces a_nd
Berar Act No. XIV of 1938 ( [1939] :F. C.R. 18).
The
words" sale of goods" in Entry 48 have to be interpreted in a wide sense and not in the narrow sense of
the definition of sale of goods contained in the Indian
Sale of Goods Act, 1930. See Irving's Commonwealth
Sales Tax Law and Practice, at pp. 62, 77. The Deputy
Federal Commissioner of Taxation v. Stronach (55
C.L.R. 305); M. R. Hornibrook (pty. Ltd.) v. Federal
Commissioner of Taxation (62 C. L. R. 272 at 276). '
Mahabir Prasad, Advocate General for the State of
Bihar and R. C. Prasad, for the State of Bihar (Intervener). The question is whether definiti~n in the Sales
Tax Act enlarges the concept of sale of goods as in the
Sale of Goods Act. The only requirement of a sale of
goods is that there should be transfer of property in
goods- for valuable consideration. See Hudson on
Building Contracts, 7th Edn., p. 386.
Bujlding Contracts involve sale of materials.
•
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•
•
382 •
SUPREME COURT REPORTS
[1959]
r95B
S. JYI. Sikri, Advocate General for the State of Punjab,
N. S. Bindra and T. 111. Sen, for the State of Pun3"ab
The State of
Madras
(Intervener). The words "taxes on the sale of goods"
,..
in Entry 48 mean taxes on a transaction the effect of
Gannon Dnnk"l<y which is to transfer to a person for valuable COnsidera.
& Co.,
tion, all the rights of an owner in the goods.
Sale of
(Macfra.;) l.td.
goods need not necessarily be in pursuance of a contract. Even an auction sale is a sale and can be subjected to sales tax.
Exchange is also a sale of goods.
See Blackstone; Chalmers Salef! of Goods Act, 12th
Edn., pp. 3, 172; Benjamin on Sales 8th Ed., p. 2 ;
Halsbury, Vol. 29, 2nd Edn., p. 5, see p. 6, footnote (c);
Williston on Sales Vol. 1, revised Ed., p. 2, 433.
Sale
has a wider meaning and a prior agreement to sell
goods is not necessary to constitute sale of goods.
See Great Western Railway Co. v. Commissioners of Jn.
land Revenue, ( [1894] 1 Q. B. 5071at 512, 515, 5'16);
Kirkness v. John Hudson & Co. Ltd., ( [1955] A. C. 696·
at 719, 737); Nalukuya v. Director of Lands ( [1957]
A. C. 325 at 332); Ex parte Drake, In re Ware ( (1877)
5 Ch. D. 866 at 871); Blome Co. v. Ames ( (1937) 111
A. L. l~. 940) though a contrary view has been taken
in Herlihy Mid-Continent Co. v. Nudelmcm ( (1937) 115
A. L. R 485); Morgan v. Depu.ty
~Federal Commissioner of Land Tax, N. S. W., ( (1912) 15 C. L. R. 661 ·
at 665).
The entries conferring legislative power are
flexible and elastic and should be so construed as to
include the extended and wider meaning of the words
used therein. Entry 48 should include not only what
was understood as sales at the time of the enactment
of the Government of India Act, 1935, but also all that
wliich may be regarded as sales later on.
See The
Regulation and Control of Radio Communication in
Canada, In re ( [1932] A. C. 304 at 314); The King v.
Brislan: Ex parte Williams (54 C. L. R. 262 at 273,
283); Toronto"Oorporation v. Bell Telephone Company
of Canada, ( [1905] A. C. 52 at 57); Atto1·ney General
v. Edison 'Pelephone Company of London ( (1880) L.R.
6 Q. 13. D. 244 at 254); Nevile Reicl and Compa.ny
Ltd. v. The Commissioners of Inland. Revenue (12. Tax
Cas. 245 at 5.65, 567); Edwards v. A. G. for Canada,
( [1930] A. C. 124 at 127, 134); Attor!1'ey-General for
•
•
t
;
S.C.R.
SUPREME COURT REPORTS
383
Aiberta v. Attorney-General for Canada, ( [1947] A. C.
· r9s8
503 at 516,. 517) ; · N ewcas.tle Breweri~s Ltd. v. Inland
The State of
Revenue Commissioners, (96 L. J. K. B. 735) ; It is a
Madrns
fallacy to deduce from the proposition that because
v.
the contract is not an agreement to sell goods but a Cannon Dunkerley
contract Of work ana labour no sale of goods takes
&. Co.,
place.
A works contract is a composite transaction
(Madras) Ltd.
'Which can be split up and a sale of goods in the sense
of the Sales of Goods.Act can be, spelt out of it and it
is permissible for the State to do so and to tax the sale
of goods.
Benjamin on Sales, pp. 155, 156, 167. and
352; Seath v. Moore (ll App. Oas. 350); Reid v.
·Macbeth & Gray ( [1904] A. C. 223); Langford Property
Oo .. Ltd. v . . Batten ( [1951] A. C. 786 at 813).
0: K. Daphtary, Solicitor General of India and T. M.
Sen, for the State of Mysore (Intervener).
Sale of
goods is. nothing but a transfer of property for a price.
There need not be any bargain or contract to sell-but
the. sale must be voluntary.
See Appleby v. MY,res
(L. R. 2 C. P. 651 at 658); Reeves v. Barlow (L. R. 12
Q. B. 436).
The composite transaction of. a works
·. contract can be split up and the sale of goods therein
. be taxed.
.
Sardar Bahadur, for the State of Kerala (Intervener),
supported the appellant.
·
A. V. Viswanatha Sastri, R. Ganapathy Iyer and G.
Gopalakrishnan, for the respondents.
The powers of
the legislatures are limited and the Entries fix the
bounds of legislation. . See The Queen v. Burah
(5 I. A. 178 at 193); James v. Commonwealth.of
Australia, ( [1936] A. C. 578 at 613, 633); In· re
The Central Provinces and Berar Act XIV of Jf)38
( [1939] F. C. R. 18, 36, 37).
In the absence of any
positrve directive in the Constitution ~ct itself or a
compelling contest, Entries have to be interpreted in
the light of existing law so as to be in conformity with
it. · The expression "sale of goods" was, at the time··
of the enactment of the Government of India Act,
1935; a term of well recognised legal import and it
must be interpreted in Entry 48 as having the same
meaning as in the Sale of Goods Act, 1930.
See
•
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•
384
SUPREME COURT REPORTS
[1959]
r958
L'Union St. Jacques De Montreal v. Be Lisle (L.R.
6 P. C. 31 at 36); Royal Bank of Ca=da v. Larue
Th;./~ate of
( [1928] A. C. 1&7
at 196);
Wallace Brothers and
:. ras
Co. Ltd. v. Commissioner of Income Tax, (75 I. A.
Gannon Dunk,,Jey 86 at 99); In re The Central Provinces and Berar Act
& co.,
XIV of 1938, ( [1939] F. C. R. 18 at 53, 54); The State
(Madras) Ltd.
of Bombay v. F. N. Balsara, ( [1951] S. C.R. 682 at
705). The expression 'sale of goods' has always been.
understood by the Supreme Court in the sense of the
Sale of Goods Act, 1930. See PIJJ!patlal Shah v. The
State of Jlfadras, ([1953] S. C.R. 677 at 683); The State
of Bombay v. The United Motors (India) Ltd., ([1953]
S. C.R. 1069 at 1082, 1101, 1102); State of TravancoreCochin v. Shanmugha Vilas
Cashew Nut Factory,
( [1954] S. C. R. 53 at 80); Bengal Immunity Co., Ltd.
v. Tke State f!f Bihar, ( [1955] 2 S. C. R. 603 at 698,
700, 704).
The matter is concluded by the decision in
The Sales Tax Officer, Pilibhit v. M / s. Budh Prakash
Jai Prakash, ( [1955] l S. C. R. 243 at 247) where it has
beon specifically held th'1t 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 in India.
'I!he definition of " sale " given in the Madras General Sales Tax Act, 1939, is in conflict with that given
in the Sale of Goods Act, 1930, and as sale of goods is
a matter which falls within Entry 10 of the Concurrent
List, the definition in the Madras Act would be repugnant and void under s. 107 of the Government of
India Act, 1935.
See, D. Sarkar & Bros. v. Commercial
Ta~ Officer, (A. I. R. 1957 Cal. 283).
·
A works contract cannot be disintegrated into a
contract for labour and a sale of goods. See Inland
Revenue Commissioners v. The Duke of Westminster,
( [1936] A. C. 1 at 19, 24); Bank of Chettinad Ltd. v.
Commissioner of Income 'Pax, Madras, (67 I. A. 394 at
400-401).
A works contract is entire and indivisible;
it is in no sense a sale of goods or of materials, nor is
there any sale of goods or materials as chattels within
the meaning of Entry 48. In English cases a cleai: distinction has been made between works con.tract and sale
of goods. See Lee v. Griffin (121 E.R. 716); Robinson v .
•
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•
S.C.R.
SUPREME COURT REPORTS
385
Graves, ( [1935] 1 K. B. 579 at 590, 593); Love v. Norr951!
man Wright (Builders Ltd.) ( [1944] l K.B. 484); Tripp
v. Armitage (150 E. R. 1597), Clark v. Bulmer (152
n. State of
l'vf adras
E. R. 793); Appleby v. Myers (L. R. 2 C. P. 651 at
v.
658); Seath v. Moore (11 App. Cas. 350 at 381); Reid Gannon Dunkerley
v. Ma<:beth & Gray, ( [1904] A. C. 223). See also Hud-
&- co ..
son on Building Contracts, pp. 165, 386 and 388 ;
(Madras) Ltd.
&njamin on Sales, pp. 352 to 355.
Gopal Singh, for Gurbaksh Singh and M/s. Uttam
Singh Duggal & Co. (Interveners) and B. R. L. Iyengar,
for the United Engineering Co. (Intervener), supported
the respondents.
V. V. Raghavan, for the appellant, replied.
Legislative history should not be pushed too far.
See In re
Central Provinces and Berar Act XIV of 1938 ( [1939]
F. C. R. 18 at 54) ; Edwards v. A. G. for Canada
( [19i.!O) A. C. 124 at 134); Wallace Brothers case (75
I. A. 86 at 99); Poppatlal Shah v. The State of ~iJfadras,
( [1953} S. C. R. 677).
A works contract can be split
up. Viewed from the point of view of the contractor,
he sells materials and renders service. There is a sale
of goods in the contract.
. S. M. Sikri, Advocate-General for the State of Purijab (with the permission of the Court). Grant of
legislative power has been widely interpreted. See,
Continental Illinois National Bank & Trust Co. of
Chicago v. Chicago Rock Island & Pacific Railway Co.
(79 L. Ed. lllO at 1124); South Carolina v. United
States, (50 L. Ed. 262 at 269). Legislative history
cannot be used to cut down the meaning of the Entry,
but only to enlarge it. Lefroys Canadian Pedera.l
System, pp. 14, 15 and 18. There is no legislative
practice with respect to " taxes on sale of goods".
1958. April I. The Judgment ·of the Court was
delivered by
•
VENKATARAMA AIYAR J.-This appeal arises out
v,nkatarama
of proceedings for assessment of sales tax payable by
Aiyar J.
the re~ondents for the year 1949-1950, and it raises a
question of considerable importance on the construction of Entry 48 in List II of Sch. VII to the
49
•
386
SUPREME COURT REPORTS
[1959)
x95B
Government of India Act, 1935, " Taxes on the sale of
goods."
The State of
Mad,as
The respondents are a private limited company
v.
registered under the provisions
of the
Indian
Gannon Dunkerley Companies Act, doing business in the construction of
'"' Co.,
buildings, roads and other works and in the sale of
(Madras) Ltd.
sanitary wares and other sundry goods. Before the
Venkatarama
sales tax authorities, the disputes ranged over .a
Aiyar J.
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 foodgrains supplied by the respondents to
their workmen.
•
It will be convenient at this stage to refer to the
provisions of the Madras General Sales Tax Act, 1939
(Mad. IX of 1939), in so far as they are relevant for
the purpose of the present appeal. Section 2(h) of
the Act, as it stood when it was enacted, defined
" sale " as meaning " every transfer of the property
in· goods by one person to another in the course of
trade or business for cash or for deferred payment or
other valuable consideration". In 194 7, the Legislature of Madras enacted the Madras General Sales
Tax (Amendment) Act No. XXV of 1947 introducing
several new provisions in the Act, and it is necessary
to refer to them so far as they are relevant for the
pprpose 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 s. 2(h) was enlarged so as to include "a
transfer of property in goods involved in the execution
of a works contract". In the definition of "turn-
•
•
S.C.R.
SUPREME COURT REPORTS
387
over" ins. 2(i), the following Explanation (l)(i) was
z95B
added:
The State of
"Subject to such conditions and restrictions, if
Madras
any, as may be prescribed in this behalfv.
the amount for which goods are sold ·shall, in Gannon Dunkerley
relation to a works contract, be deemed to be the
& Co.,
amount payable to the dealer for carrying out such
(Madras) Ltd.
c@ntract, less such portion as may be prescribed of
venkatarama
such amount, representing the usual proportion of the
Aiyar J.
cost of labour to the cost of materials used in
carrying out such contract."
A new provision was inserted in s. 2(ii) defining
" works contract" as meaning "any agreement for
carrying out for cash or for deferred payment or other
valuable consideration the construction, fitting out,
improvement or repair of any building, road, bridge
or other immovable property or the fitting out,
improvement or repair of any movable property".
Pursuant to the Explanation (l)(i) ins. 2(i), a new
rule, r. 4(3), was enacted that " the amount for which
goods are sold by a dealer shall, in relation to a works
contract, be deemed to be the amount payable to the
dealer for carrying out such 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 tlie
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 r. 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 Sch. VII of the Government of India Act,
does rlot extend to impostng 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
•
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•
388
SUPREME COURT REPORTS
[1959]
r9ss
introduced by the Madras General Sales Tax (Amendment) Act, 1947, authorising the imposition of such tax
The State of
•
d
Madras
are iiltra vires. As regar s the sum of Rs. 1,98,929-0-3,
v,
the contention of the respondents was that they were
Gannon Dunkerley not doing business in the sale of foodgrains, that they
& Co,
had supplied them to the workmen when they were
(Madras) Ltd.
engaged in construction works in out of the way places,
Venkatarama
adjusting the price therefor in the wages due to them
Aiyar 1,
and that the amounts so adjusted were not liable to be
included in the turnover.
ThE!' Sales Tax Appellate
Tribunal rejected both these contentions, and held that
the amounts in question were liable to be included in
the taxable turnover of the respondents.
Against this decision, the respondents preferred Civil
Revision Petition 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 \heir
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 (lll 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
Wtire 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
i~clude Rs. 29,51,528-7-4 in the taxable turnover of
the respondents could not be maintained. As regards
the item of Rs. 1,98,929-0-3 they held that the sale of
foodgrains to the workmen was not in the course of
any business M buying or selling those goods, that
there was no profit motive behind it, that the respondents were not dealers as defined in s. 2(d) of the
Act, and that, therefore, the amount in question was
not liable to be taxed under the Act. In the result; both
the amounts were directed to be excluded from the
<,
taxable turnover of the respondents.. Against
th~
r
•
•
~
S.C.R.
SUPREME COURT REPORTS
389
decision, the State of Madras has preferred the present
I958
appeal on a certificate granted by the High Court
The State of
under Art. 133(1) of the Constitution.
Madras
:Before us, the learned Advocate-General of Madras
v.
did not press the appeal in so far as it relates to the Gannon Dunkerley
sum of Rs. 1,98,929-0-3, and the only question, there-
&- Co.,
fore, that survives for our decision is as to whether the
(Madras) Ltd.
provisions introduced by the Madras General Sales Tax
venkatarama
(Amendment) Act, 1947 and set out above are ultra
Aiyar J.
vires the powers of tlie 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
theif 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 Sa'les
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 Sch. VII to the Government of India Act,
1935.
Now, it is to be noted that whiles. 311(2) of the
Act defines "goods " as including " all materials,
commodities and articles ", it contains no definition of
the expression "sale of goods". It was suggested that
the word "materials " in the definitio~ of " goods "
is sufficient to take in materials used in a works
contract. That is so; but the question still remains
whether there is a sale of those materials within the
meaning of that word in Entry 48. On that, there has
been ~harp conflict of opinion among the several High
Courts. In Pandit Banarsi Das v. State of Madhya
,
Pradesh (1 ), a Bench of the Nagpur High Court held,
~
{I) [I955] 6 S.T.C. 93.
•
..
•
390
SUPREME COURT REPORTS
[1959]
z95B
differing from the view taken by the Madras High
The State of
Court in the judgment now under appeal, that the
Mad,as
provisions of the Act imposing a tax on the value of
v.
the matel'.ials used in a construction on the footing of
Gannon Dunkerl<y a sale thereof were valid, but that they were bad in so
<!> Co..
far as they enacted an artificial rule for determination
(Madras) Ltd.
of that value by deducting out of the total receipts a
Venkatarama
fixed percentage on account of labour charges, inas•
hyar 1.
much as the tax might, according to that computation,
conceivably fall on a portion of tbe labour charges and
that would be ultra vires Entry 48.
A similar decision
was given by the High Court of Ra jasthan in Bhuramal
v. State of Rajasthan (1).
In Mohamed Khasim v. State
of Mysore('), 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 0,(Jicer (3), the Kerala High Court has likewise affirmed the validity of both the provisions
imposing tax on construction works and the rules
providing for apportionment of value on a percentage
basis. In Jubilee Engineering Co., Ltd. v. Sales Tax
o,fficer (4), the Hyderabad High Court has followed the
decision of the Madras High Court, and held that the
taxing provisions in the Act are ultra vires. The entire
controversy, it will be seen, hinges on the meaning of
the words "sale of goods" in Entry 48, and the point
which we have now to decide is as to the correct interpretation to be put on them.
'l'he contention of the appellant and of the States
which have intervened is that the provisions of a
Constitution which 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
(1) A.LR. 1957 Raj. 104.
(2) A.LR. 1955 Mys. 41.
•
(3) A.l.R. 1957 Ker. 146.
(4) A.LR. I956
0 Hyd. 79.
•
(
S.C.R.
SUPREME COURT REPORTS
391
Briti,~h Coal Corporation v. King (1), the question was
r958
whether s. 17 of the Canadian Statute, 22 & 24, Geo. V,
The State of
c. 53, which abolished the right of appeal to the Privy
Madras
Council from any judgment or order of any court in
v.
any criminal case, was intra vires its powers under the Gannon Dunkerley
Constitution Act of 1867. In answering it in the
& Co.,
affirmative, Viscount Sankey L. C. observed:
(Madras) Ltd.
•
" Indeed, in interpreting a constituent or organic
Venkatatania
statute such as the Act, that construction most benefiAiyar 1.
cial 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 (2) ".
In James v. Commonwealth of Australia (3), Lord
Wright observed that a Constitution must not be construed in any narrow and pedantic sense. In In re the
Central Provinces and Berar Act No. XIV of 1938 (4),
discussing the principles of interpretation of a constitutional provision, Sir Maurice Gwyer C. J. observed:
"I conceive that a broad and liberal spirit should
inspire those whose duty it is to interpret it ; but I do
not imply by this that they are free to stretch or
pervert the language of the enactment in the interests
of any legal or constitutional theory, or even for the
purpose of supplying omissions or of correcting
supposed errors. A ]'ederal 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 N avinchandra
Mafatlal v. The Commissioner of Income-tax, Bombay
City (5), in which the question was as M 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
(1) "[1935] A.C. 500, 518.
(3) [1936] A.C. 578, 614.
(2) [1930] A.C. 124, 136.
(4) [1939] F.C.R. 18, 37.
(5) [1955] I S.C.R. 829, 833, 836.
•
' ..
I
I
392
SUPREME COURT REPORTS
[1959]
r958
not including accretion in value to capital, and that it
should therefore bear the same meaning in Entry 54.
The State of
I
.
h
C
Madrns
n reJecting t is contention, this 'ourt observed that
v.
the so-called " legislative practice was nothing but
Gannon Dunk,,ley judicial interpretation of the word 'income' as appear-
& Co.,
ing in the fiscal statutes", that in "construing an
(Madrns) Ltd.
entry in a List conferring legislative powers the widest
Venkatamma
possible construction according to their ordinary
Aiyar J.
meaning must be put upon the words used therein '',
and that the cardinal rule of interpretation was "that
words should he 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."
The lrarned Advocate-General of Madras also urged
in further support of the above conclusion that the
provisions of a Constitution Act conferring powers of
taxation should be interpreted in a wide sense, and
relied on certain observations in Morgan v. Deputy
Federal Commissioner of Land Tax, N. S. W. (1) and
Broken Hill South Ltd. v. Commissioner of Taxation
(N.S. W.) (2) in support of his contention. In Morgan v.
Deputy Federal Commissioner of Land Tax, N.S. W. ('),
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
.i,,
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 snbjects 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 ~cquisition or devolution of formal title
to property, or the institution of judicial proceedings
with respect to it."
In Broken Hill South Ltd. v. Commissioner of Taxation,
N. S. W. ('),the observations relied on are the foilowmg:
(1) (1912) 15 C.L.R. 661, 066 .
(2) (1937) 561:.L.R. 337, 379.
•
•
S.C.R.
SUPREME COURT REPORTS
393
" In any investigation of the
constitutional
I958
Powers of these great Dominion legislatures, it is not
_
The State of
proper that a court should deny to such a legislature
Madras
the right of solving taxation problems unfettered by
v.
a priori legal categories which often derive from the Gannon Dunkerley
exercise of legislative power in the same constitutional
& Co.,
unit."
(Madras) Ltd.
• On these authorities, the contention of the appellant
Venkatarama
is well-founded that as the words "sale of goods" in
Aiyar 1.
Entry 48 occur in a Cbnstitution Act and confer legislative powers on the State Lgislature in respect of a
topic relating to taxation, they must be interpreted
not in a restricted but broad sense. And that opens
up questions as to what that sense is, whether popular
or legal, and what its connotation is either in the one
·sense or the other. Learned counsel appearing for the
States and for the assessees have relied in support of
their respective contentions on 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 som~ price or
recompense in value. " This passage has, however, to
be read distributively and so read, sale would moon
transfer of property for price. That is also the definition of" sale " in Benjamin on Sale, 1950 Edn., p. 2. In
Halsbury's Laws of England, Second Edn., Vol. 29, p.
5, para. I, we have the following:
" Sa.le 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 othf)r
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 exch~nge 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 transactions
by way of barter."
~o
•
•
394
SUPREME COURT REPORTS
[1959]
z958
In Chalmer's Sale of Goods Act, 12th Edn., it is stated
The State of
at p. 3 that "the essence of sale is the transfer of the
Madras
property in a thing from one person to another for a
v.
price", and at p. 6 it is pointed out that "where the
Gannon Dunkerley consideration for the transfer ...... consists of the deli-
& Co ..
(Madras) Ltd.
Venkatarama
Aiyar ].
very of goods, the contract is not a contract of sale
but is a contract of exchange or barter". In Corpus
Juris, Vol. 55, p. 36, the law is thus stated:
" Sale " in legal nomenclat'lre, is a term of precise
legal import, both at law and in equity, and has a well
defined " legal signification, and has been said to
mean, at all times, a contract between 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 b:ii 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 Edn., "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"
(p. 2). At p. 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
pl:actical 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 prtce
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 Advocate-General
of Punjab, that the word "sale" is, in its popular
sense, of wider import than in its legal sense, and that
is the meaning which should be given to that "'ord in
Entry 48, and he relies in support of this position on
the observations in Nevile Reid and, Company Ltd .
•
•
'
,
S.C.R.
SUPREME COURT REPORTS
395
v. The Commissioners of Inland Revenue(1). There, an
r95a
agreement was entered into on April 12, 1918, for the
The State of
sale of the trading stock in a brewery business and the
Madras
transaction was actually completed on June 24, 1918.
v.
In between the two dates, the Finance Act, 1918, had Gannon Dunkerley
imposed excess profits tax, and the question was
& Co.,
whether the agreement dated April 12, 1918, amount-
(Madras) Ltd.
ed to a sale in which case the transaction would fall
venkatarama
outside the operation of the Act. The Commissioners
Aiyar J.
had held that as tiUe 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 that the learned Judge would appear to have had in his mind when
he spoke of a commercial or business sense. But apart
from the fact that these observations were obiter, this
Court has consistently held that though the word
" sale " in its popular sense is not restricted to passirig
of title, and has a wider connotation as meaning the
transaction of sale, and that in that sense an agreement to sell would, as one of the essential ingredients
of sale, furnish sufficient nexus for a Sta~ to impose a
tax, such levy could, nevertheless, be made only when
the transaction is one of sale, and it would be a sale
only when it has resulted in the passing of property in
the gf>ods to the purchaser. Vide Poppatlal Shah v.
The State of Madras (2) and The State of Bombay v.
(1) (1922) 12 Tax t;as. 545.
(2) [1953] S.C.R. 677, 683.
•
•
•
396
SUPREME COURT REPORTS
[1959]
z958
The United .Motors (India) Ltd. (1).
It has also been
held in '1.'he Sales 'Pax O.fficer, Pilibhit v. J.lf essrs. Budh
Th~~~:~,
0
!
Prakash Jai Prakash(') that the sale contemplated by
v.
Entry 48 of the Government of India Act was a
Gannon Dnnkedq transaction in which title to the goods passes and a
& Co.,
mere executory agreement was not a sale within that
(Madras) Ltd.
Entry. We must accordingly hold that the expression
" sale of goods " in Entry 48 cannot be construed in
Venkatarama
Aiyar 1.
its popular sense, and that it must be interpreted in
its legal sense. What its conn<itation 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.