# • Pandit Br1narsi na v. The State of Illadhya Pradesh Bose ]. April 7

- **Citation:** [1959] 1 S.C.R. 438
- **Court:** Supreme Court of India
- **Decided:** 1957-01-31
- **Bench:** S. It. DAS C. J, Venkatarama Aiyar, s. K. DAS, A. K. Sarkar, VIVIAN BosE
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/pandit-br1narsi-na-v-the-state-of-illadhya-pradesh-bose-april-7-1658
- **Pages:** 7

## Headnote

Sales Tax-Building contracts-State's power of taxation on
supply of materials in construction works-Whether building contract
comprises a distinct agreement for sale of materials-East Punjab
General Sales Tax Act, z948 (East Punjab XLVI of z948),
ss. ;<d)(j), 4(z)-Government of India Act, z935 (26 Geo. 5 Ch. 2),
Sch. VII, List II, Entry 48.
The petitioners who were building contractors in the State of
Punjab were assessed to tax by the sales tax authorities on the
supply of materials in construction works treating it as a sale,
acting under the provisions of the East Punjab General Sales Tax
Act, 1948. The petitioners challenged the legality of the assessment proceedings on the grounds, inter alia, that the legislature
of the Province of Punjab had, under Entry 48 in List II of
Sch. VII to the Government of India Act, 1935, no power to
impose tax on the supply of materials in construction works as
there was no sale in fact or in la\v of those materials, and that
the provisions of the Act which sought to do it were ·ultra vires.
'fhe assessing authorities contended that on a true construction of
the building con~act entered into by petitioners with the Government it comprised a distinct agreement for the sale of materials
and particularly relied on r. 33 of the rules appearing in the
printed General Conditions of Contracts issued by the Government:
Held, that there was no sale as such of the material~ used
in the construction·s by the petitioners and that no tax could be
levied thereon.
•
•
•
\
.. .•
•
s.c.R.
SUPREME COURT 1tl!JPORTS
439
Rule 33 which provides that the materials brought to the site
shall become the property of the Government but that when the
works are finally completed the surplus materials shall revert and
become the property of the contractor, has for its object that
materials of the right sort are used in the construction and has
not the effect of converting what is a lump sum contract for construction of buildings into a contract for the sale of materials
used therein.
• State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,
[r959] S.C.R. 379, followed.
Tripp v. Armitage, (r8~9) 4 M. & W. 687 and Reid v. Macbeth
~ Gray, [r904] A.C. 223, relied on .
ORIGINAL JURISDICTION: Petition No. 128 of 1957.
Petition under Article 32 of the Constitution of
India for enforcement of Fundamental Rights.
Gopal Singh, for the petitioner.
N.°S. Bindra and T. M. Sen, for the respondents.
1958. April 7. The Judgment of the Court was
delivered by
VENKATARAMA AIYAR J.-This is a petition under
Art. 32 of the Constitution, and the question that
is raised therein for our decision is as to the validity
of certain provisions of the East Punjab Gene:cal
Sales Tax Act, 1948 (East Pb. XLVI of 1948), hereinafter referred to as the Act, imposing a tax on the
supply of materials in construction works treating it
as a sale.
It will. be convenient at this stage to refer to the
relevant provisions of the Act. Section 2(c) defines
" contract " as meaning,
" Any agreement for carrying out for cash cir
deferred payment or other valuable consideration-
(i) the construction, fitting out, improvement, or
repair of· any building, road, bridge or other immovable property; or
•
(ii) the installation or repair of any machinery
affixed to a building or other immovable property
.
. ',
"Dealer" is defined ins. 2(d) as any person engaged
in the business of selling or supplying goods;
~ection 2(h) defines " sale " as meaning " any transfer
•
•
Peare Lal
Hari Singh
v.
The State of
Punjab
V enkatarama
Aiyar ].
•
•
Peare Ltil
Hari Sirigh
v.
The .':itaft nf
Punjab
Venkatrira111a
Aiyar ].
440
SUPREME COURT R:gPORTS
[l959j
of property in goods for cash or deferred payment
or other valuable consideration, including a transfer of
property in goods involved in the execution of a
t
t
"
" T
" . l f'
d .
2( ·)
con rac .. .. . . . . . . . . . .
urnover
rn c e me
111 s. · J
as including " the carrying out of any contract, less
snch portion as may be prescribed of suc

## Text

•
Pandit Br1narsi
na,
v.
The State of
Illadhya Pradesh
Bose ].
April 7,
438
SUPREME COUitT REPORTS
[1959)
BosE J.-I agree except that I prefer not to express
an opinion about the validity of the power conferred
on the State Government by s. 6(2) of the Central
Provinces and Berar Sales Tax Act, 1947, to amend
the schedule in the way in which it has been amended
here.
I would leave that open for future decision.
Appeals allowed.
FIItl\I OF M/S. PEAitE LAL HAitl SINGH
v.
THE STATE OF PUNJAB & ANOTHEit •
(S. It. DAS C. J., VENKATARAMA AIYAR, s. K. DAS,
A. K. SARKAR and VIVIAN BosE JJ.)
Sales Tax-Building contracts-State's power of taxation on
supply of materials in construction works-Whether building contract
comprises a distinct agreement for sale of materials-East Punjab
General Sales Tax Act, z948 (East Punjab XLVI of z948),
ss. ;<d)(j), 4(z)-Government of India Act, z935 (26 Geo. 5 Ch. 2),
Sch. VII, List II, Entry 48.
The petitioners who were building contractors in the State of
Punjab were assessed to tax by the sales tax authorities on the
supply of materials in construction works treating it as a sale,
acting under the provisions of the East Punjab General Sales Tax
Act, 1948. The petitioners challenged the legality of the assessment proceedings on the grounds, inter alia, that the legislature
of the Province of Punjab had, under Entry 48 in List II of
Sch. VII to the Government of India Act, 1935, no power to
impose tax on the supply of materials in construction works as
there was no sale in fact or in la\v of those materials, and that
the provisions of the Act which sought to do it were ·ultra vires.
'fhe assessing authorities contended that on a true construction of
the building con~act entered into by petitioners with the Government it comprised a distinct agreement for the sale of materials
and particularly relied on r. 33 of the rules appearing in the
printed General Conditions of Contracts issued by the Government:
Held, that there was no sale as such of the material~ used
in the construction·s by the petitioners and that no tax could be
levied thereon.
•
•
•
\
.. .•
•
s.c.R.
SUPREME COURT 1tl!JPORTS
439
Rule 33 which provides that the materials brought to the site
shall become the property of the Government but that when the
works are finally completed the surplus materials shall revert and
become the property of the contractor, has for its object that
materials of the right sort are used in the construction and has
not the effect of converting what is a lump sum contract for construction of buildings into a contract for the sale of materials
used therein.
• State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,
[r959] S.C.R. 379, followed.
Tripp v. Armitage, (r8~9) 4 M. & W. 687 and Reid v. Macbeth
~ Gray, [r904] A.C. 223, relied on .
ORIGINAL JURISDICTION: Petition No. 128 of 1957.
Petition under Article 32 of the Constitution of
India for enforcement of Fundamental Rights.
Gopal Singh, for the petitioner.
N.°S. Bindra and T. M. Sen, for the respondents.
1958. April 7. The Judgment of the Court was
delivered by
VENKATARAMA AIYAR J.-This is a petition under
Art. 32 of the Constitution, and the question that
is raised therein for our decision is as to the validity
of certain provisions of the East Punjab Gene:cal
Sales Tax Act, 1948 (East Pb. XLVI of 1948), hereinafter referred to as the Act, imposing a tax on the
supply of materials in construction works treating it
as a sale.
It will. be convenient at this stage to refer to the
relevant provisions of the Act. Section 2(c) defines
" contract " as meaning,
" Any agreement for carrying out for cash cir
deferred payment or other valuable consideration-
(i) the construction, fitting out, improvement, or
repair of· any building, road, bridge or other immovable property; or
•
(ii) the installation or repair of any machinery
affixed to a building or other immovable property
.
. ',
"Dealer" is defined ins. 2(d) as any person engaged
in the business of selling or supplying goods;
~ection 2(h) defines " sale " as meaning " any transfer
•
•
Peare Lal
Hari Singh
v.
The State of
Punjab
V enkatarama
Aiyar ].
•
•
Peare Ltil
Hari Sirigh
v.
The .':itaft nf
Punjab
Venkatrira111a
Aiyar ].
440
SUPREME COURT R:gPORTS
[l959j
of property in goods for cash or deferred payment
or other valuable consideration, including a transfer of
property in goods involved in the execution of a
t
t
"
" T
" . l f'
d .
2( ·)
con rac .. .. . . . . . . . . . .
urnover
rn c e me
111 s. · J
as including " the carrying out of any contract, less
snch portion as may be prescribed of such amount,
representing the usual proportion of the cost of
L1 1iour to the cost of materials used in carrying Ot•t
snch contract ". Section 4(1) enacts 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 effected
after the coming into force of this Act."
Section 5 provides that the tax shall be levied every
year on the taxable turnover of a dealer at ,su<:h
rates as the Provincial Government may by notification direct. Rule 28 prescribes the mode of computing
the taxable consideration with reference to contracts as
provided in sub-cl. (ii) of cl. (i) of s. 2.
The petitioners are a firm of building contractors.
In December, 1956, they entered into a contract with
the Military Engineering Services Department of the
Geivernment for the construction of certain buildings
known as "Married accommGdation"
at Ambala
Cantonment and received a sum of Rs. 32,000 on
January 31, 1957, as advance. On February 14, 1957,
the assessing authority, J ullundur District issue:l a
notice intimating the petitioners that as they had
failed to apply for registration under s. 7 of the Act
assessment would be made under s. 18, sub-s. (2), for
the periods commencing from April 1, 1955, onwards,
and calling upon them to produce their account books
and attend the hearing on February 16, 1957. Thereupon, the petitioners tiled the present petition under
Art. 32 of the Constitution challenging the legality
of the assessment proceedings, the main ground of
attack being that the legislature of the Province .of
Punjab had, under Entry 48 in List II of Sch. VII to
the Government of India Act, 1935, no pml'er to
impose tax on the supply of materials in construction
works as there was no sale in fact or' in Jaw of those
•
•
•
•
..
...
! .
S~C.R.
SUPREME COURT REPORTS
441
materials, and that the provisions of the Act which ·
sought to do it were ultra vires.
This question is now
concluded by the decision of this Court in The State
of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. (1)
wherein it has been held that the expression ""sale of
goods" in Entry 48 has the same import which it
bears in the Indian Sale of Goods Act, 1930, that in a
bnilding contract there is no sale of materials as
such, and that accordingly the Provincial Legislature
had no power to impo~e a tax thereon under Entry 48.
In this view, we have no}V to consider the contention advanced by Mr. Bindra for the respondents that
the building contract entered into by the petitioners
with the Government was not an agreement simpliciter
for the construction of works, but that on its true
const.ruction, it comprised a distinct agreement for the
sale of materials. If that can be established, it is
not disputed that the respondents would have a right
. to ta:x: the transaction even apart from the impugned
provisions. The question is whether the contract of
the petitioners with the Government for construction
was one and indivisible, or whether it was a combination of an agreement for sale of materials and an agreement for work and labour. The evidence placed
before us leaves us in no doubt as to the true character
of the contract. The tenders which where called for
and received were for executing works for a lump sum,
and in his acceptance of the tender of the petitioners
dated December 15, 1956, the Deputy Chief Engineer
stated:
·" The above tender was accepted by me op
behalf of the President of India for a lump sum of
. Rs. 9,74,961."
How this amount is made up is given in Annexure E
to the reply statement. It will be seen th.erefrom that
the petitioners were to construct nine blocks, and the
amounts are worked out treating each of the blocks as
one unit, and the figures are totalled up. It is ..
impossible on this evidence to hold that there was any
agreement for sale of the materials as such by the
petitioners to the Government .
(1) [1959] S.C.R. 3l9·
rP
•
Peare Lal
Hari Singh
v.
The Slate of
Ptmjab
V enkatarama
Aiyar ].
•
Peare Lal
Hafi Si:1gh ·
v.
The slate of
Punjab
V enkatarania
Aiyar].
442'
SUPREME COURT REPORTS
[1959]
For the respondents reliance was placed on the rules· ·
appearing
in the printed General
Conditions of
Contracts issued by the Government. Rule 33 which
was particularly relied oi1 provides:
" All stores and materials brought to the Site
shall become and remain the property of Government
and shall not be removed off the Site without the prior
written approval of the G. E. But whenever theworks are finally completed, the contractor shall at his
own expense forthwith remov!l from the Site all
surplus stores and materials originally supplied by
him and upon such removal, the same shall revest ·in·
and become the property of the Contractor."
It is argued that the true effect of this provision
vesting the materials in the Government is that those
materials must be taken to have ])een sold to it.
'J;hat
this is not the true meaning of the rule will be clear
when regard is had to other provisions in the rules.
Thus, the materials which are used in the construction.
must be approved by the authorities as of the right
quality, and they could be condemned even after the·
construction is completed if they are not according to
contract or of inferior quality, in which case the contractor has to remove thorn and rebtiild with proper
materials. Terms such as these and those in r. 33
quoted above are usually inr;erted in building contracts
with the object of ensuring that materials of the right
sort are used in the construction and not with the intention of purchasing them. If r. 33 is to be construed as
operating by way of sale of materials to the Government when they are brought on the site, it must follow
that the surplus materials remaining after the comple.
tion of the work must be held to have been re-sold by
the Government 'to the contractor, and that is not
contended for .•
In Tripp v. Armitage (1), a builder who had been
engaged to construct a hotel became insolvent, and
dispute arose between the assignees in bankruptcy and
the proprietors of the hotel as to the title to certain.
wooden sash. frames. '"hi ch had been delivered by the
insolvent on the premises. of the. hotel. and had been
Ji) (1839) 4 M. & W. 687; 150 E. R; 1597. 1603.
. .
•
•
s.eJ.~. . SUPRE~fEt QOUR'f :REPORTS
443: .. t
approved by the clerk and ret~rned to the insolvent
for the purpose of bei:μg affixed.
The contention on
behalf; of the proprietors was that the goods having
· been approved by their surveyor, they. must be held to
have been appropriated to the contract and the property therein passed to them. In negativing this con" ·
tention, Parke B. observed:
• "It is- said that the approbation of the surveyor
is sufficient to constitute an acceptance by the defendants; but that approbation is not given eo animo at
all; it 1s only to ascertain that they are such materials
as .are suitable for the purpose; and notwithstanding
that approval, it ~sonly when they have been put up,
and fixed to the house, in performance of.the larger
contract, that they are to be paid for."
In Reid v. Macbeth & Gray(1), the facts were similar ..
The dispute related to certain plates which had been
prepared by contractors to be fitted in a ship. These
plates• had been. passed by the surveyor and were
marked with the number of the vessel and with marks
showing· the position which each plate was to occupy
in the vessel. The ship-owners laid claim to these
plates on the ground that by reason of the approval
by. their surveyor and by the markings the property
therein must be held to have passed po them, and that
accordingly the assignees in bankruptcy of the · contractors could not claim them. That contention. was
negatived by the House of Lords, who held that the·
facts. relied on did not establish a contract of sale. of
the materials apart from the contract to construct the
ship, and that the title to the materials did not as ·such
pass to the shipowners. The position is the same in
the present case. Rule 33 has not the effect of converting what is a lump sum· contract for construction of
buildings into a contract for the sale of m6l-terials used
therein. It must therefore be held following the
decision in The State of Madras v. Gannon Dunkerley &
Co. (.LWadras) Ltd. (2):that there has been no sale of the
materials used by the petitioners in their constructions, !!nd that no tax could be levied thereon.
(1) [1904] A.C. 223.
(2) [1959] S.C.R. 379.
•
•
Pellre Lal . .
Hari S.ingh.
v.
The State of
P11njab
V enkatarama ·
Aiyarj,,
•
•
Peare Lal
Hari Singh
v.
'J. };~State of
P14njab
V enkatarama
Aiyar ].
SUPREME COURT REPORTS
[1959]
Counsel for the petitioners raised two other conten>
tions, but they are unsubstantial and may be shortly
disposed of. ·One was that in the definition of "turnover " in s. 2 (j), cl. (ii) which is what is applicable to
the present case, there is no reference to sale of goods,
and that, accordingly, even if Entry 48 in List II is to
be interpreted in a wide sense, the provision as actually
enacted does not, in fact, tax the supply of materials
in works contracts, treating it as a sale. But the charging section is s. 4 (1), which n1akes it clear that the
tax is on the gross turnover in respect of sales effected
after the coming into force of the Act, and the obvious
intention is to include the supply of materials in works
contracts within the category of taxable turnover.
It was next contended that the definition of" dealer "
ins. 2(d) required that the person should be en~aged
in the business of selling or supplying goods, that the
petitioners who were building contractors were not
engaged in the business of selling or supplying goods
but of constructing buildings, and that therefore they
were not dealers within that definition, and that as
under s. 4 the tax could be imposed only on a dealer,
the petitioners were not liable to be taxed. But if the
Sl.J1lply of materials in construction works can be
regarded as a sale, then clearly building contractors
are engaged in the sale of materials, and they would
be within the definition of "dealers " under the Act.
There is no substance in this contention either.
The petitioners, however, are entitled to succeed on
the ground that the impugned provisions are not
w,ithin the authority conferred by Entry48, and a writ
of prohibition should accordingly issue restraining the
respondents from taking proceedings for a~sessment of
tax in respect, of materials supplied by the petitioners.'
in construction contracts. We direct the parties to
. .
bear their own costs.
Petition allowed .
•
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•
'