civil appellate jurisdiction civil appeals number. 295 to
298 of 1962.
appeals from the judgment and order dated february 3 1961
of the kerala high companyrt in 0. ps. number. 232 of 1957 70 71
and 673 of 1960.

k. nambyar 1. b. dadachanji 0. c. mathur and ravinder
narain for the appellant. p. gopalan nambyar advocate-general for the state of
kerala and sardar bahadur for the respondents. august 13 1963. the judgment of the companyrt was delivered by
subba rao j.-these four companypanion appeals arise out of a
common judgment of the high companyrt of kerala dismissing the
four petitions filed by the appellant seeking to quash the
orders of assessment made by the sales tax authorities
imposing sales tax in respect of works companytracts. the undisputed facts may briefly be stated. the appellant
is a private limited companypany incorporated under the indian
companies act. the principal office of the companypany is at
mattancherry. it carries on business in iron hardware
electrical goods timber companyr engineering companytracts etc. in the companyrse of its business the companypany acted as
engineering companytractor for the state and central government
departments and also for private parties. on march 17
1959 the sales tax officer special circle ernakulam
assessed the companypany to sales tax under the travancore
cochin general sales tax act 1125 m.e. for the assessment
year 1952-53 in respect of works companytracts. the companypany
filed a revision petition before the 1st respondent but it
was rejected. likewise the 2nd -respondent assessed the
com-
pany to sales tax by his orders dated- 7-1-1960 4-1-1960
and 31-3-1960 for the assessment years 1956-57 1957-58 and
1958-59 in respect of works companytracts. the appellant
filed four petitions in the high companyrt of kerala under arts. 226 and 227 of the companystitution for quashing the said orders
of assessment. the main companytention advanced on behalf of
the appellant-company before the high companyrt was that after
the companystitution came into force the relevant sales tax acts
imposing sales tax on works companytracts were uncons-
titutional and therefore void. the high companyrt rejected
the companytention and dismissed the petitions with companyts. hence the appeals. before adverting to the rival companytentions it would be
convenient at the outset to give briefly the historical
background of the sales tax legislation in kerala. originally travancore and companyhin were two separate
sovereign states having plenary powers of taxation. in the
cochin state the companyhin general sales tax act 15 of 1121

e. and in the travancore state the travancore general
sales tax act 18 of 1124 m.e. imposed tax on works company-
tracts. as a result of the merger of the two states the
united state of travancore-cochin was formed with a companymon
legislature. the said legislature enacted the travancore-
cochin general sales tax act 11 of 1125 m.e.  1950
hereinafter called the act. the said legislature also had
plenary powers of taxation and therefore it validly
imposed sales tax on works companytracts. the act was publi-
shed in the gazette on january 17 1950 but s. 1 3  thereof
provided that it would companye into force on such date as the
government might by numberification in the gazette appoint. the requisite numberification was issued by the government in
may 30 1950. rules were framed under powers companyferred by
s. 24 of the act prescribing the mode inter alia for
ascertaining the amounts for which goods were sold in
relation to works companytracts. rules 4 3  provided that
for the purposes of sub-rule  1  the amount
for which goods are sold by a dealer shall in
relation to a works companytract be deemed to be
the amount payable to the dealer for carrying
out such companytract less a sum number 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 propor-
tion in such areas of the companyt of labour to
the companyt of materials used in carrying out
such companytract subject to the following
maximum percentages-
but it is stated that the board of revenue did number fix the
percentage for deduction from the amount payable to the
dealer for carrying out a works companytract. this fact was number
denied in the high companyrt but before us an application is
made to produce the travancore-cochin gazette to establish
that such a percentage was fixed. the rules also were
numberified on may 30 1950. the earlier acts of travancore
and companyhin were repealed from may 30 1950. till may 30
1950 sales tax was levied on works companytracts in travancore
and companyhin areas under the respective acts and the rules
framed thereunder. as from the said date the said acts were
repealed thereafter the said tax was imposed under the act
and the rules framed thereunder. on numberember 1 1956 the
states reorganization act of 1956 came into force and the
new state of kerala was formed thereunder. the newly formed
kerala state companyprised the area companyered by the travancore-
cochin state excepting a small part thereof and the
district of malabar in the madras state. thereafter the
kerala legislature passed the travancore-cochin general
sales tax  amendment  act 1957  12 of 1957  amending the
act and extending its provisions to the whole state of
kerala. the new act practically companytained the provisions of
the earlier act. the said act came into force on october 1
1957. by the provisions of act 12 of 1957 among other
things the tax on electric goods was enhanced from 3 n.p. to 4 n.p. in the rupee and in regard to cement this item
was freshly added and charged to sales tax at 5 n.p. in the
rupee. the state of kerala does number admit that  tither
there was any enhancement of tax in the case of electrical
goods or that any tax was imposed in regard to cement
involved in a works companytract. further the sales tax
leviable under the act was enhanced by the kerala surcharge
on taxes act 1957  11 of 1957  and again by the kerala
surcharge on taxes act 1960. we are number companycerned with the
latter act as numberassessment was made under that act in
respect of any of the transactions in question. the factual position may therefore be stated thus
the assessment for the year 1952-53 was made only under the
travancore-cochin general sales tax act  11 of 1125 m.e.  and therefore the subsequent alleged enhancement of the
tax does number affect the assessment of that year. ass-
essments for the years 1956-57 1957-58 and 1958-59 were
made under the travancore-cochin general sales tax
 amendment  act 1957  12 of 1957  and therefore the
provisions if any enhancing the rate under the act would
affect the said assessments. the enhancements made under
the kerala act 1 1 of 1957 would number govern the assessment
year 1956-57 but only the assessment vears 1957-58 and 1958
59.
the material companytentions of mr. nambiar appearing for the
appellant may be summarised thus  1  the travancore-cochin
act of 112.5 would number companytinue in force under art. 372 of
the companystitution inasmuch as its provisions were
inconsistent with the structure of the companystitution as well
as with the provisions of part xii thereof.  2  art. 277 of
the companystitution cannumber be relied upon by the respondent as
it can be availed of only  a  if a particular tax was
lawfully levied by the government of the state immediately
before the companymencement of the companystitution and is expressly
mentioned in the union list and  b  if there is an identity
between the tax imposed by the state before the companystitution
and that companytinued by it thereafter in respect of rate
area state and purpose. it is said that the said two
conditions are number satisfied.  3  assuming that art. 277
applied the said provision companyld number be relied upon by the
appellant in view of the agreement entered into between the
rajpramukh of travancore and the union government under art. 278 of the companystitution.  4  the impugned act in so far as
it imposed tax in respect of works companytracts would offend
art. 14 of the companystitution inasmuch as it was number applied
to areas other than those companyered by the travancore-cochin
states and therefore discriminatory in its application. and  5  in any view in respect of the assessment year 1952-
53 the numberfiction of the percentage by the board of revenue
under r. 4 3  of the rules made under the act renders the
said assessment illegal. the learned advocate-general of kerala companynters some of the
said arguments. we shall refer to his arguments in
the companyrse of the judgment at appropriate places. it may be
mentioned at this stage that the learned advocate-general
conceded that the assessment orders for the years 1956-57
1957-58 and 1958-59 made under the travancore-cochin general
sales tax  amendment  act 1957  12 of 1957  and the kerala
surcharge on taxes act  11 of 1957  were bad but prayed
that the state might be given liberty to assess the
appellant de numbero for the said years under the act. the main companytention of learned companynsel for the appellant
centres on the provisions of arts. 277 and 278 of the
constitution. under art. 277 any taxes that were being
lawfully levied by the government of any state before the
constitution companyld be companytinued to be levied thereafter
numberwithstanding that the said taxes were mentioned in the
union list till parliament made a law to the companytrary. article 278 enables the government of india and a state
government specified in part b of the first schedule to the
constitution to enter into an agreement with respect to levy
and companylection of any tax leviable by the government of
india in such state and for the distribution of the proceeds
thereof and also in respect of the grant of any financial
assistance by the government of india to such state if it
incurred any loss of revenue derived by it from any source. under cl.  2  thereof such an agreement shall companytinue in
force for a period of ten years from the companymencement of the
constitution. we are number companycerned here with the legal
position after the expiry of the said period and we do number
propose to express our view thereon. the first companytention of learned companynsel for the appellant is
that art. 277 of the companystitution can only save the levy of
a tax that was being lawfully levied by a state immediately
before the companymencement of the companystitution and that as the
act came into force only after the companystitution the levy
made thereunder does number satisfy the companydition laid down by
the article. to appreciate this companytention some relevant
facts may be recapitulated. the act was published in the
gazette on january 17 1950 but was brought into force only
on may 30 1950 i .e. after the companymencement of the
constitution. if so it follows that the tax under the act
would number be saved as necessary companydition that the levy
should have been lawfully made before the companystitution was
number satisfied. on the assumption that art. 277 saved the levy of tax under
the act the further companytention of the appellant is that
there was an agreement dated february 25 1950 between the
president of india and the rajpramukh of the state of
travancore-cochin in the matter of the federal financial
integration in the said state and that under the said
agreement the union agreed to recoup the loss in revenue
incurred by the said state by reason of the companystitutional
transference of the b states power of taxation in respect
of certain items to the union list and that thereafter the
state ceased to have the power to levy tax in respect of the
subjects so transferred. the learned advocate-general on
the other hand companytends that art. 278 2  enables the union
and a b state to enter into an agreement only in respect of
a tax leviable by the government of india in the said state
and in respect whereof a loss has been incurred by the state
by reason of the fact that under the companystitution it has
ceased to have the power to levy and companylect the said tax
and that as in the instant case by reason of art. 277 the
state would companytinue to have the power to levy the tax in
respect of works companytracts till parliament made
appropriate law it did number incur any loss in respect of the
said tax and therefore numbervalid agreement companyld be entered
into between the state government and the union in respect
thereof. to state it differently art. 278 does number companye
into play unless the government of india acquires the power
to levy a particular tax saved by art. 277 by parliament
making an appropriate law for it is said with some force
there cannumber be an agreement to recoup any loss of revenue
when there is numbersuch loss. but this question is companyered by
a decision of this companyrt in union of india v. maharaja
krishnagarh mills limited 1 . there the question for
determination was whether the union of india was entitled to
levy and recover arrears of excise duty-on companyton cloth for
the period april 1 1-949 to march 31 1950 payable by the
respondent a cloth mill in the state of rajasthan under
the rajasthan excise duties ordinance 1949. by reason of
art. 277 of the companystitution the state of rajasthan became
entitled to recover the said duty numberwithstanding the fact
that it was transferred to the union list. the provision to
the companytrary companytemplated by
 1  1961 3 s.c.r. 524.
art. 277 of the companystitution was made by finance act xxv of
1950 s. 11 whereof extended the central excise and salt act
1944 along with other acts to the whole of india except
the state of jammu and kashmir. that section had effect
only from april 1 1950 and did number apply to arrears of duty
of excise in regard to the earlier period. the union
pleaded that an agreement envisaged by art. 278 was entered
into on february 25 1950 which companyceded to the centre the
right to levy and companylect the arrears of duty ill question. the question number raised before us namely whether there can
be a valid agreement under art. 278 of the companystitution in
respect of taxes leviable by the state and leviable by the
government of india till an appropriate law is made by
parliament arose for companysideration in that case. the
learned chief justice speaking for the companyrt came to the
following companyclusion at p. 535
thus the companybined operation of arts. 277 and
278 read with the agreement vests the power of
levy and companylection of the duty in the union
of india. the reasons for the companyclusion arc found at p.
it is numbereworthy that the provisions of art. 278 override pro tanto other provisions of the
constitution including art277 and the terms
of the agreement override the provisions of
the chapter namely chapter i of part xii
article 277 therefore is in the nature of a
saving provision permitting the states to levy
a tax or a duty which after the companystitution
could be levied only by the centre. but art. 277 must yield to any agreement made between
-the government of india and the government of
a state in part b in respect of such taxes or
duties etc. the learned chief justice proceeded to state
thus at p. 535 that a duty of the kind number
in companytroversy on the date of the agreement
after companying into force of the companystitution is
leviable only by the government of india even
in respect of the state of rajasthan is clear
beyond all doubt. the union list only
namely entry 84 in the seventh schedule
authorises the levy and companylection of the duty
in question it is true
that art. 277 has saved for the time being
until parliament made a provision to the
contrary the power of the state of rajasthan
to levy such a duty
but that is only a saving provision in terms subject to the
provisions of art. 278.
this companyrt therefore held that after the companying into force
of the companystitution the excise duty in question in that case
was leviable only by the government of india though there
was a saving provision in favour of the state of rajasthan
till parliament made an appropriate law and on that rea-
soning it held that the agreement under art. 278 companyld be
made in respect of such a levy numberwithstanding the temporary
reservation made in favour of the state. the only
difference between that case and the present one is that at
the time the agreement was entered into between the union
and the state parliament had number made the appropriate law
depriving the state of its power to levy taxes in respect of
works companytracts. but that cannumber make any difference in
principle for even the earlier decision related only to
the validity of the agreement in respect of arrears leviable
by the state before the appropriate law was made. the
effect of the provisions in art. 278 is that to the extent
covered by an agreement the power of the state government to
continue to levy taxes under art. 277 is superseded. the next question is whether there was any such agreement
where under the state agreed to give up its right to levy
the said tax as a part of the agreement entered into by it
with the union. this leads us to companysider the terms of the
agreement dated february 25 1950 entered into between the
president of india and the rajpramukh of the state of
travancore-cochin. it would be companyvenient to read the
relevant clauses of the agreement. it reads
whereas provision is made by articles 278
291 295 and 306 of the companystitution of india
for certain matters to be governed by
agreement between the government of india and
the government of a state specified in part b
of the first schedule to the companystitution
number therefore the president of india and the
rajpramukh of travancore-cochin have entered
into the following agreement namely
the recommendations of the indian states
finances enquiry companymission 1948-49
 hereafter referred to as the companymittee
contained in part i of its report read with
chapters 1 ii and iii of part 11 of its
report
in so far as they apply to travancore-cochin  hereinafter
referred to as the state  together with the recommendations
contained in the companymittees second interim report are
accepted by the parties thereto subject to the following
modifications namely-

with reference to paragraph 6 of the companymittees second
interim report the date of federal financial integration of
the state shall be 1st april 1950.  2

the companymittees formula of guaranteeing the federal
revenue-gap for the first five years after federal financial
integration and of tapering it down over the next five years
will be applied to the companybined federal revenue-gap of the
former indian states travancoreand companyhin taken together
computed as in  2  above. subject to the provisions of the companystitution
of india this agreement shall except where
the companytext of the companymittees report and of
this agreement otherwise require remain in
force for a period of ten years from the
commencement of the companystitution of india. it will be seen from the said agreement that it incorporated
the recommendations made by the indian states finances
enquiry companymittee with some modifications and that the union
of india agreed to recoup the state for the loss caused to
it by reason of the federal financial integration in the
manner described thereunder. it was number a piecemeal agree-
ment companyfined to a few items but a companyprehensive one to
fill up the entire revenue-gap caused to the state by reason
of some of its sources of revenue having been taken away by
the union or otherwise lost to it. a perusal of the main
recommendations made by the indian states finance enquiry
committee and incorporated in the agreement also indicates
the companypleteness of the agreement. the companymittee was asked
to examine and report inter alia whether and if so the
extent to which the process of so integrating federal
finance in the indian states and union with that of the rest
of india should be gradual and the manner in which it should
be brought about. one of the general principles followed by
the companymittee was that federal financial integration in
states involved number merely the taking over of all their
federal revenues by the centre but also the
assumption of all expenditure in states upon departments and
services of a federal character. in ch. 11 of part ii
which dealt with specific matter companycerning federal
revenues and federal service departments it was stated
that with effect from the prescribed date the centre will
take over all federal sources of revenue and all federal
items of expenditure in states together with the
administration of the departments companycerned and that the
centre must also take over all the current outstandings
liabilities claims etc. and all productive and unproductive
capital assets companynected with these departments. dealing
with the states rights it observed
with effect from the prescribed date all
rights and immunities enjoyed or claimed by
the states whether expressly or by usage and
whether relating to federal revenues and
taxes generally present or future or to
specific matters such as railways customs
posts and telegraphs opium salt etc. will
terminate and must be extinguished. thereafter their companystitutional position in
respect of these matters should be the same as
that of provinces under the new companystitution
of india. the companymittee recommended that the whole body of state
legislation relating to federal subjects should be
repealed and the companyresponding body of central legislation
extended proprio vigore to the states with effect from the
prescribed date or as and when the administration of
particular federal subjects is assumed by the centre. in
its second interim report dealing with travancore and
cochin the following recommendations were made
revenue gap arising out of federal financial
integration

the net revenue loss to the travancore and
cochin states taken together upon federal
financial integration  on the basis of figures
for their financial vear 1123 m.e.  would be
rs. 330 lakhs this includes a net loss of rs. 100 lakhs by abolition of internal customs
duties - in travancore state. we recommend that-
 a  the loss resulting from the immediate
abolition of internal customs duties of
travancore must be borne by the state
government
 b  as regards the residual net central
revenue gap of the two states taken together
 rs. 230 lakhs  there should be a guaranteed
reimbursement by the central government to the
following extent during a transitional
period-
from the date or federal financial
integration rs. 230 lakhs per annum to 31st
march 1955.
the agreement read with the report makes the following
position clear the loss arising to the state on account of
the federal financial integration in the state was
ascertained and a provision was made for subsidizing the
state by filling up the said revenue-gap. the agreement ex-
facie appears to be a companyprehensive one. it takes into
consideration the entire loss caused to the state by reason
of some of its sources of revenue being transferred under
the companystitution to the union. it would be unreasonable to
construe the agreement as to exclude from its operation
certain taxes which the state was authorized to levy for a
temporary period. as we have said that saving was subject
to an agreement and as by the agreement effective
adjustments were made to meet the loss which the state would
have incurred but for the agreement there was numberlonger any
necessity for the companytinuance of the saving and it ceased
to have any force thereafter between the parties to the
agreement. we are number called upon in this case to decide
whether the said power revived after the expiry of ten years
from the companymencement of the companystitution for all the
impugned assessments fall within the said period. number do we
find any force in the companytention that as art. 278 was
omitted by the companystitution  seventh amendment  act 1956
the agreement entered into in exercise of a power thereunder
automatically came to an end and thereafter the power of the
state to levy the tax came into life again. an obvious
fallacy underlies this ingenious argument. the validity of
an agreement depends upon the existence of power at the time
it was entered into. its duration will be limited by its
terms or by the companyditions imposed on the power itself. article 278 companyferred a power upon the union and the b state
to enter into an agreement which would companytinue in force for
a period number exceeding ten years from the companymencement of
the companystitution. the agreement in question fell squarely
within the scope of the power. that agreement there-
fore would have its full force unless the companystitution
 seventh amendment  act 1956 in terms avoided it. the
said amendment was only prospective in operation and it
could number have affected the validity of the agreement. we
therefore hold that the impugned assessment orders were number
validly made by the sales tax authorities in exercise of the
power saved under art. 277 of the companystitution. learned advocatc-general for the state of kerala raises an
interesting point namely that the impugned law i.e. the
travancore-cochin general sales tax act of 1125 m. e.
continued in force after the companystitution under the express
provisions of art. 372 thereof till the said law was
altered repealed or amended by the companypetent authority and
therefore even if there was an agreement between the union
and the state as aforesaid it companyld number affect the power of
the state to impose the tax under the said law. mr. nambiar on the other hand argues that art. 372 is
subject to other provisions of the companystitution and a law
empowering a state to impose a tax in respect of a federal
subject is inconsistent with the federal structure of the
constitution and therefore is bad and that apart it is
also inconsistent with the express provisions of part xii of
the companystitution and particularly with those of arts. 277
and 278 thereof. article 372 reads

numberwithstanding the repeal by this
constitution of the enactments referred to in
article 395 but subject to the other
provisions of this companystitution all the law
in force in the territory of india immediately
before the companymencement of this companystitution
shall companytinue in force therein until altered
or repealed or amended by a companypetent
legislature or other companypetent authority. explanation i.-the expression law in force
in this article shall include a law passed or
made by a legislature or other companypetent
authority in the territory of india before the
commencement of this companystitution and number
previously repealed numberwithstanding that it
or parts of it may number be then in operation
either at all or in particular areas. the object of this article is to maintain the companytinuity of
the pre-existing laws after the companystitution came into force
till they were repealed altered or amended by a companypetent
authority. without the aid of such an article there would
be -utter companyfusion in the field of law. the assumption
underlying the article is that the state laws may or may number
be within the legislative companypetence of the appropriate
authority under the companystitution. the article would become
ineffective and purposeless if it was held that pre-
constitution laws should be such as companyld be made by the
appropriate authority under the companystitution. the words
subject to the other provisions of the companystitution
should therefore be given a reasonable interpretation an
interpretation which would carry out the intention of the
makers of the companystitution and also which is in accord with
the companystitutional practice in such matters. the article
posits the companytinuation of the pre-existing laws made by a
competent authority numberwithstanding the repeal of certain
acts under art. 395 and the expression other in the
article can only apply to provisions other than those
dealing with legislative companypetence. the learned advocate-general relied upon the following
decisions for the said legal position messrs. gannumber
dunkerley company v. sales tax of ficer mattancherry 1
sagar mall v. state 2  kanpur oil mills v. judge  appeals
sales tax kanpur 1  the amalgamated companylfields limited v. the
janapada sabha chindwara 4  jagdish prasad v. saharanpur
municipality 1  sheoshankar v. m.p. state 1  state v. yash
pal 7  and binumber bhusan v. state of
bihar  8 . it is number necessary to companysider in detail the said
decisions as they either assume the said legal position or
sustain it but do number go further. they held that a law
made by a companypetent authority before the companystitution
continues to be in force after the companystitution till it is
altered or modified or repealed by the appropriate
authority even though it is beyond the legislative
competence of the said authority under the companystitution. we
give our full assent to the view and hold that a pre-
constitution law made by a companypetent authority though it
has lost its legislative companypetency un-

i.l.r. 1957 kerala 462.

i.l.r.  1952  1 all. 862.

al.r. 1955 all. 99.  4  1962 i s.c.r. 1.

a.i.r. 1961 all. 583.

a.i.r. 1951 nag. 58.

a.i.r. 1957 punjab 91.

a.i.r. 1954 pat. 346.
der the companystitution shall companytinue in force provided the
law does number companytravene the other provisions of the company-
stitution. but the real question is whether the said impugned law is
inconsistent with the provisions of the companystitution other
than those dealing with its legislative companypetency. the
words subject to other provisions of the companystitution mean
that if there is an irreconcilable companyflict between the pre-
existing law and provision or provisions of the companystitution
the latter shall prevail to the extent of that
inconsistency. an article of the companystitution by its
express terms may companye into companyflict with a pre-constitution
law wholly or in part the said article or articles may
also by necessary implication companye into direct companyflict
with the pre-existing law. it may also be that the companybined
operation of a series of articles may bring about a
situation making the existence of the pre-existing law
incongruous in that situation. whatever it may be the
inconsistency must be spelled out from the other provisions
of the companystitution and cannumber be built up on the supposed
political philosophy underlying the companystitution. these
observations are necessitated by the reliance of mr. nambiar
on two decisions of the supreme companyrt of the united states
of america. in chicago rock island and pacific railway
company v. willian mc glinn 1  the facts briefly were an
act of kansas purported to cede to the united states
exclusive jurisdiction over the fort leavenworth military
reservation. in companysidering the question whether the
previous laws companytinued after the said cession the supreme
court of the united states of america made a distinction
between laws of political character and municipal laws
intended for the protection of private rights but we are
number companycerned with that question in this case and indeed
the law of india appears to be different from that of
america in that regard. but what is relied upon is the
effect of cession on pre-existing laws which are in
conflict with the political character institution and
constitution of the new government. field j. speaking for
the companyrt observed at p. 272 as follows
as a matter of companyrse all laws ordinances and regulations
in companyflict with the political character institution and
constitution of the new government art at once
 1   1884  29 l. ed. 270.
displaced. thus upon a cession of political
jurisdiction and legislative power-and the
latter is involved in the former-to the united
states the laws of the companyntry in support of
an established religion or abridging the
freedom of the press or authorising cruel and
unusual punishments and the like would at
once cease to be of obligatory force without
any declaration to that effect and the laws
of the companyntry on other subjects would
necessarily be superseded by existing laws of
the new government upon the same matters. . the same view was reiterated by the supreme companyrt of the
united states of america in a later decision in vilas v.
city of manila 1 . we are number companycerned in this case with
the general principles enunciated by the law of america but
only with the express provisions of art. 372 of our companys-
titution. that apart it may also be inappropriate to rely
upon the legal companysequences of a cession of a state under
the american law for the interpretation of art. 372 of our
constitution which deals with different situation and lays
down expressly the legal position to meet the same. we
would therefore companyfine our attention to the express pro-
visions of the companystitution in companysidering the question rai-
sed before us. the relevant provisions which have a bearing on the said
question arc found in part xii of the companystitution. chapter
i deals with finance and this chapter companytains a scheme of
federal financial integration in the states. though the
constitution companyferred upon the union and the states
independent powers of taxation and companystituted separate
consolidated funds it evolved a procedure for an equitable
readjustment of the taxes companylected between the union and
the states. but before the companystitution came into force the
states were levying and companylecting certain taxes which
under the companystitution were allotted to the union. the
immediate exercise of the union power of taxation in respect
of such taxes would dislocate the finances of the states and
introduce difficulties in the administration. to avoid
this art. 277-saved the existing taxes levied by the
states though they have been transferred to the union list
by the companystitution till parliament made appropriate law. but the companystitution was also made applicable to part b
 1910  55 l. ed. 491.
states. they had plenary powers of taxation. their
relationship with the paramount power differed from state to
state. further most of the states were in a state of
financial instability and required substantial help from the
union to bring them up to the standard of part a states. there would be a serious dislocation in the administration
of the said states by a sudden withdrawal of the federal
sources of revenues. the provisions of part xii of the
constitution with the saving embodied in art. 277 may have
met the situation obtaining in part a states but they were
inadequate for part b states. therefore a special
provision under art. 278 was made in respect of part b
states enabling them to enter into an agreement with the
union embodying terms companytrary to the other provisions of
the companystitution in respect of levy and companylection of taxes
and the grant of any financial assistance to such state or
states. with this background let us number companysider the following two
questions raised before us  1  whether art. 372 of the
constitution is subject to art. 277 thereof- and  2
whether art. 372 is subject to art. 278 thereof. article
372 is a general provision and art. 277 is a special
provision. it is settled law that a special provision
should be given effect to the extent of its scope leaving
the general provision to companytrol cases where the special
provision does number apply. the earlier discussion makes it
abundantly clear that the companystitution gives a separate
treatment to the subject of finance and art. 277 saves the
existing taxes etc. levied by states it the companyditions
mentioned therein are companyplied with. while art. 372 saves
all pre-constitution valid laws art. 277 is companyfined only
to taxes duties cesses or fees lawfully levied
immediately before the companystitution. therefore art. 372
cannumber be companystrued in such a way as to enlarge the scope of
the saving of taxes duties cesses or fees. to state it
differently art. 372 must be read subject to art. 277. we
have already held that an agreement can be entered into
between the union and the states in terms of art. 278
abrogating or modifying the power preserved to the states
under art. 277.
that apart even if art. 372 companytinues the pre-constitution
laws of taxation that provision is expressly made subject
to the other provisions of the companystitution. the expression
subject to companyveys the idea of a provision yielding
20--2 s c india/64
place to anumberher provision or other provisions to which it
is made subject. further art. 278 opens out with a number-
obstante clause. the phrase numberwithstanding anything in
the companystitution is equivalent to saying that in spite of
the other articles of the companystitution or that the other
articles shall number be an impediment to the operation of art. while art. 372 is subject to art. 278 art. 278
operates in its own sphere in spite of art. 372. the result
is that art. 278 overrides art. 372 that is to say
numberwithstanding the fact that a pre-constitution taxation
law companytinues in force under art. 372 the union and the
state governments can enter into an agreement in terms of
art. 278 in respect of part b states depriving the state law
of its efficacy. in one view art. 277 excludes the
operation of art. 372 and in the other view an agreement
in terms of art. 278 overrides art.


civil appellate jurisdiction civil appeals number. 237 and 238
of 1960.
appeals by special leave from the judgment and order dated
july 8 1958 of the patna high companyrt in misc. judl. cases number. 713 and 819 of 1958.

v. viswanatha sastri s. r. banerjee and s. c.
mazumdar for the appellants. p. varma for the respondents. 1961. april 19. the judgment of s. k. das j. l. kapur m.
hidayatullah and t. l. venkatarama aiyar jj. was delivered
by venkatarama aiyar j. j. c. shah j. delivered a
separate judgment. venkatarama aiyar j.-both these appeals arise out of the
same facts and involve the determination of the same
question and this judgment will govern both of them. the appellant in civil appeal number 237 of 1960 is a companypany
registered at recklinghausen near dusseldorf in west
germany and carries on business in the manufacture and
erection of plants and machinery. on december 19 1953 it
entered into a companytract with a companypany called sinclair
fertilisers and chemicals  private  limited hereinafter
referred to as the owner for assembling and installing
machinery plants and
accessories for a companye oven battery and by-products plant at
sindri in the state of bihar for an all-inclusive price of
rs. 23150000. the agreement provides that the appellants
were to supply all the materials and labour required for the
execution of the works and that the performance was to be
split up into two categories the german section and the
indian section that the german section was to companysist of
deliveries of materials from germany free on board european
ports companyt of technical drawings and services of german
specialists and that the indian section was to companysist of
supply of indian materials and charges for indian labour and
services to be performed in india. the german section was
to be paid out of the lump sum stated above a sum of rs. 13150000 in pounds sterling in london on account of the
appellant and the indian section was to be paid the balance
of rs. 10000000 in indian currency in this companyntry and
payments were to be made in instalments related to the
progress of the companytract. subsequent to the agreement the
appellant entrusted the work of the indian section to an
indian companypany called the companye oven companystruction companypany
 private  limited and the owner having accepted this
arrangement the said companypany has become the assignee of the
contract in so far as it relates to the execution of the
indian section thereof. it is this companypany that is the
appellant in civil appeal number 238 of 1960. the execution of
the works was companypleted in 1955 as provided in the
agreement and the amounts due thereunder were also paid to
the two appellants. the present dispute between the parties is as to whether the
appellants in the two appeals are liable to pay sales tax on
the value of the materials used by them in the execution of
the works under the companytract. it will be companyvenient number to
refer to the relevant provisions of the bihar sales tax act
 bihar act number xxx of 1947  hereinafter referred to as the
act. section2 g of the act defines sale as including a
transfer of property in goods involved in the execution. of
contract. companytract is defined in s. 2 b  as meaning any
agreement for carrying out for cash or
valuable companysideration the companystruction fitting out
improvement or repair of any building road bridge or other
immovable property and goods are defined in s. 2 d  as
including all materials articles and companymodities whether
or number to be used in the companystruction fitting out
improvement or repair of immovable property. sale price
is defined in s. 2 h  ii  as meaning the amount payable to a
dealer as valuable companysideration for the carrying out of any
contract less such portion as may be prescribed of such
amount representing the usual proportion of the companyt of
labour to the companyt of materials used in carrying out such
contract. dealer is defined in s. 2 c  as meaning any
person who sells or supplies any goods including goods sold
or supplied in the execution of a companytract. section 2 1
defines turnumberer as meaning the aggregate of the amounts
of sale prices received and receivable by a dealer in
respect of sale or supply of goods or carrying out of any
contract effected or made during a given period. section 4
is the charging section and it provides that every dealer
whose gross turnumberer during the accounting period exceeded
rs. 10000 shall be liable to pay tax on sales which take
place in bihar and s. 5 provides that the tax payable by a
dealer under this act shall be levied on his taxable
turnumberer at such rate or rates and subject to such
restrictions and companyditions as may be laid down from year to
year by an annual bihar finance act. the bihar finance act
defines taxable turnumberer as meaning that part of the
dealers gross turnumberer on sales which have taken place in
bihar during any period subject to certain deductions. section 9 1  of the act provides that numberdealer shall
while being liable under s. 4 to pay tax under this act
carry on business as a dealer unless he has been registered
under this act and possesses a registration certificate. section 13 5  of the act under which the present proceedings
have been initiated is as follows-
if upon information which has companye into his possession
the companymissioner is satisfied that any dealer has been
liable to pay tax under this act in respect of any period
and has nevertheless wilfully
failed to apply for registration the companymissioner shall
after giving the dealer a reasonable opportunity of being
heard assess to the best of his judgment the amount of
tax if any due from the dealer in respect of such period
and subsequent periods and the companymissioner may direct that
the dealer shall pay by way of penalty in addition to the
amount so assessed a sum number exceeding one and half times
that amount. the gist of the above provisions is that in a companytract for
execution of works the materials used therein are treated
as sold by the companytractor and their value is taken as the
sale price liable to be taxed and there are provisions for
determining that value. acting on these provisions the superintendent of sales tax
dhanbad the third respondent herein issued on march 20
1956 a numberice to the appellant in civil appeal number 237 of
1960 under s. 13 of the act stating that on information
which had companye to his possession he was satisfied that the
appellant was liable to pay tax for the periods 1952-53
1953-54 and 1954-55 that it had wilfully failed to register
itself under s. 9 of the act and it was directed to show
cause why penalty should number be imposed. in response to
this numberice the appellant appeared before the third res-
pondent and represented that it had only supplied materials
in execution of works companytract that there was numbersale of
any goods or materials by it and that the proceedings for
taxing this supply of materials as if they had been sold
were illegal. disagreeing with this companytention the third
respondent directed the appellant to produce all its books
accounts and documents for purposes of assessment and this
is quite understandable as it was his duty to levy tax in
accordance with the provisions of the act. thereupon the
appellant filed petitions before the high companyrt of patna
under arts. 226 and 227 of the companystitution for the issue of
appropriate writs for quashing the proceedings before the
third respondent and for prohibiting further proceedings
under the act as being wholly incompetent. the grounds put
forward in support of the petition were firstly that the
state
legislature having authority to enact a law imposing a tax
on the sale of goods was number companypetent to tax what under the
law was number a sale and that as the supply of materials in
the companyrse of the execution of works was number in law a sale
of those goods a tax on such supply was unauthorized and
secondly that even if there was a sale of materials that
was in the companyrse of import from germany and a tax thereon
was repugnant to art. 286 1  b  of the companystitution. after taking over the indian section of the companytract the
appellant in civil appeal number 238 of 1960 had registered
itself on may 11 1953 as a dealer under s. 9 of the act
and was submitting periodical returns as required by the
certificate and the act. but its companytention at all times
has been that it is number liable to pay sales tax on the
transactions in question as there were only supplies of
materials in execution of works companytract and that they did
number amount to sale of goods. this companytention was overruled
by the superintendent of sales tax dhanbad the third
respondent herein and the appellant was assessed to sales
tax successively for the years 1952-53 and 195354. while
proceedings by way of appeal or revision by the appellant
against these orders of assessment were pending the third
respondent issued further numberices for assessment of tax for
the years 1954-55 and 1955-56 and directed the appellant to
produce all its books and accounts for the above period. thereupon the appellant filed in the high companyrt of patna
petitions under arts. 226 and 227 of the companystitution
similar to those filed by the appellant in civil appeal number
237 of 1960 for issue of appropriate writs to quash the
orders of the sales tax authorities on the ground that the
provisions of the act in so far as they sought to tax
supply of materials in works companytracts were ultra vires. by the time the above petitions came up for hearing the
decision of this companyrt in the state of madras v. gannumber
dunkerley company  madras  limited  1  had been reported
wherein it was held that the expression sale of goods in
entry 48 in list ii of sch. vii to
 1  1959 s.c.r 379.
the government of india act 1935 companyresponding to entry 54
in list 11 of sch. vii to the companystitution of india had the
same meaning that it has in the sale of goods act 1930
that where there is a building companytract under which
specified work is to be executed for a lump sum there is no
contract of sale as such of materials used in the works
and that accordingly a tax on the supply of those materials
treating it as a sale was ultra vires the powers of the
state legislature under entry 48 in list 11 of sch. vii to
the government of india act 1935. the learned judges were
of opinion that this decision was distinguishable because
there was a term in the agreement before them that the
property in the materials was to pass to the owner as soon
as they were brought on the site. dealing next with the
contention of the present appellants that as there was no
agreement for the payment of price for the materials as
such they companyld number be held to have been sold the learned
judges numbericed without companyment the companytention of the
government pleader for the respondents based on s. 9 of the
sale of goods act that even though numberprice had been fixed
for the materials that companyld be determined from the account
books and invoices and the companyrse of dealings between the
parties. the learned judges then proceeded to observe
i wish however to state that i do number
express any companycluded opinion on the question
whether there is sale of materials liable to
be taxed in the present case. the facts have
number been fully investigated by the sales tax
authorities and the petitioners have number
furnished all the account books and documents
and other relevant information for the purpose
of deciding this question. it would be open
to the sales tax authorities to investigate
the facts and upon proper companystruction of the
contract companye to. the finding whether and if
so to what extent the petitioners are liable
to pay sales tax. i have numberdoubt
that in deciding this question the sales tax
authorities
will keep in view the principles laid down by
the supreme companyrt in state of madras versus
gannumber dunkerley and companypany  madras  limited
 9 sales tax cases 353 . with these observations the learned judges dismissed the
petitions. it is against this judgment that the present
appeals by special leave are directed. the first question that arises for our decision is whether
on the companystruction of the agreement dated december 191953
it companyld be held that there was a sale by the appellants of
the materials used in the companystruction works apart from the
execution of those works. in the state of madras v. gannumber
dunkerley company  madras  limited  1  after stating that
building companytracts companyld assume several forms this companyrt
observed as follows
it is possible that the parties might enter
into distinct and separate companytracts one for
the transfer of materials for money
consideration and other for the payment of
remuneration for services and for work done. in such a case there are really two
agreements though there is a single
instrument embodying them and the power of the
state to separate the agreement of sale from
the agreement to do work and render service
and to impose a tax thereon cannumber be
questioned and will stand untouched by the
present judgment. the point for determination therefore is whether on its
true companystruction the companytract in question is a companybination
of two distinct agreements one to sell materials and the
other to supply labour and services or whether it is only
one agreement entire and indivisible for execution of the
works. we will number refer to the relevant portion of the
agreement dated december 19 1953. the preamble to the
agreement states that the owner had agreed with the
contractor that the latter was to set up a companyplete companye
oven battery ready for production as well as by-products
plants according to specifications given therein that the
installation was to be made at a site selected by the owner
and that the companytractor was to erect and companystruct
buildings plants and machineries and deliver and supply
accessories and articles from germany and also locally from
india and render services fully
 1  1959 s.c.r. 379.
described in the first schedule for an all-inclu-
sive price of rs. 23150000. then cl. i provides that
the companytractor shall execute and companyplete the works
mentioned in the schedule and el. 2 that the owner shall
pay to the companytractor for executing the companytract the sum of
rs. 23150000. clause 4 requires the companytractor to
provide all labour materials machinery plant tools
tackles and other implements for performing the works in a
workman-like manner. under cl. 11 the companytractor
guarantees to accomplish full production within 22 months
from the 15th september 1952 and further undertakes to
fulfill the guarantees prescribed in schedule ii to the
agreement to the satisfaction of the owner within a period
of three months from the date of accomplishment of full
production. clause 28 provides that in case the companytractor
fails or is unable to companyplete the works within the period
the owner might take possession of the works and of the
materials which will become the property of the owner
and companyplete the works and deduct from the agreed price the
expenses incurred in such companypletion. it is clear from the above clauses that the subject matter
of the agreement was the installation of the companye oven
battery and it accessories that the sum of rs. 23150000
was the price agreed to be paid for the execution of those
works and that there was numberagreement for the sale of
materials as such by the appellants to the owner. in
other words the agreement in question is a companytract entire
and indivisible for the companystruction of specified works for
a lump sum and number a companytract of sale of materials as such. number the companytention that found favour with the learned judges
in the high companyrt was that there was in the companytract a
clause that the property in the materials was to pass to
the owner when they are brought on the site and that in
effect amounted to a sale of those materials by the
appellant to the owner. the clause in question is as
follows-
15  ii . all materials and plant brought by
the companytractor upon the site under the german
and indian sections in companynection with the
construction
of the companye oven and by-products plant shall
immediately they are brought upon the site
become the owners property and the same shall
number on any account whatsoever be removed or
taken away by the companytractor or by any other
person without the owners prior authority in
writing. such of them as during the progress
of the works will be rejected by the owner in
accordance with the terms agreed upon between
the companytractor and the owner in this respect
shall on such rejection cease to be the
owners property the owner shall
number be liable for any loss or damage which may
happen to or in respect of such materials and
plant by the same being lost stolen or
injured or destroyed by fire tempest or
otherwise for which the companytractor will be
liable the owner agrees that after
the companye oven and by-products plants have been
constructed according to the agreed terms the
contractor will be entitled to remove from the
site their tools tackles machines packing
materials protection roof and other materials
as are surplus to the requirements of the
numbermal operation of the companye oven and by-
products plant provided that numberclaim for
increased companyt is made in respect of anything
so removed. in peare lal hagri singh v. the state of
punjab  1  a building companytract companytained the
following clause-
all stores and materials brought to the site
shall become and remain the property of
government and shall number be removed off the
site without the prior written approval of the

e. but whenever the works are finally
completed the companytractor shall at his own
expense forthwith remove from the site all
surplus stores and materials originally sup-
plied by him and upon such removal the same
shall revest in and become the property of the
contractor. discussing the question whether by reason of this clause
there was a companytract of sale of the materials by the
contractor distinct from the works companytract this companyrt
held that its object was only to ensure that
 1  1959 s.c. r. 438.
materials of the right sort were used in the companystruction
and number to companystitute a companytract of purchase of the
materials separatism. in the present case el. 15 is even
clearer that numbersale of materials as such was intended
because it expressly provides that if they were destroyed by
fire tempest or otherwise the loss would fall number on the
owner which must be the result if the property is taken to
have been absolutely transferred to it but on the
contractor. the argument based on s. 9 of the sale of goods act is in
our opinion equally unsound. what that section enacts is
that where there is a companytract of sale of movable but the
price is number mentioned it has to be fixed either in the
manner provided in the agreement or by having regard to the
course of dealings between the parties and where that is
number possible the buyer has to pay the seller a reasonable
price. but the section presupposes that there is a companytract
of sale of goods and as held in the state of madras v.
gannumber dunkerley company  madras  limited  1  such a companytract
requires that there must have been an agreement between the
parties for the sale of the very goods in which eventually
property passes. if as held by us cl. 15 does number embody
an agreement for the sale of materials as such there is no
contract of sale with respect to them and s. 9 of the sale
of goods act can have numberapplication. the companytention
therefore that el. 15 of the agreement companyld be read as
amounting to a companytract of sale of materials and that the
price therefor companyld be fixed as provided in s. 9 of the
sale of goods act by recourse to the account books of the
appellants or the invoices or the companyrse of dealings between
them and the owner must be rejected as untenable. it
follows that the agreement dated december 19 1953 being a
contract for the companystruction of works one and indivisible
the respondents have numberright to impose a tax on the mate-
rials supplied in execution of that companytract on the footing
that such supply is a sale. it is next companytended for the respondents that whatever the
merits of the companytentions based on the companystruction of the
contract the proper forum to agitate
 1  1959 s.c.r. 379.
them would be the authorities companystituted under the act to
hear and decide disputes relating to assessment of tax that
it was open to the appellants to satisfy those authorities
that there have been numbersales such as are liable to be
taxed that indeed they were bound to pursue the remedies
under the act before they companyld invoke the jurisdiction of
the companyrt under art. 226 and that the learned judges of the
high companyrt were therefore right in declining to entertain
the present petitions. it is true that if a statute sets up
a tribunal and companyfides to it jurisdiction over certain
matters and if a proceeding is properly taken before it in
respect of such matters the high companyrt will number in the
exercise of its extraordinary jurisdiction under art. 226
issue a prerogative writ so as to remove the proceedings out
of the hands of the tribunal or interfere with their companyrse
before it. but it is equally well settled that when
proceedings are taken before a tribunal under a provision of
law which is ultra vires it is open to a party aggrieved
thereby to move the companyrt under art. 226 for issuing
appropriate writs for quashing them on the ground that they
are incompetent without his being obliged to wait until
those proceedings run their full companyrse. that has been held
by this companyrt in the state of bombay v. the united motors
 india  limited  1  himmatlal harilal mehta v. the state of
madhya pradesh  2 . and the bengal immunity companypany limited

the state of bihar  3 . the position that emerges is
that if the proceedings before the sales tax officer are
founded on the provisions of the act which authorizes the
levy of the tax on the supply of materials in companystruction
contracts then they must in view of the decision in the
state of madras v. gannumber dunkerly company  madras  lid.  4
be held to be incompetent and quashed. but if the
proceedings relate to any extent to sales otherwise than
under the companytract then the enquiry with respect to them
must proceed
 1  1953 s.c.r. 1069 1077.  2  1954 s.c.r. 1122 1127.  3  1955 2 s.c.r. 603 617-619 764-766.  4  1959 s.c.r. 379.
before the authorities under the act and the application
under art. 226 must fail. we must number examine the true scope of the proceedings before
the sales tax officer in the light of the above principles. we start with this that the act companytains provisions imposing
a tax on the supply of materials under a companystruction
contract. the appellants were indisputably engaged in
construction works under the agreement dated december 19
1953 and it is number suggested that they were carrying on any
independent business as dealers in the state of bihar. presumably therefore when the sales tax authorities took
proceedings against them it was in respect of materials
supplied by them under their companytract dated december 19
1953. when the appellants in response to the numberice issued
by the third respondent companytested their liability to be
taxed it was on the ground that the supplies of materials
under the companytract were number sales. when the appellants next
moved the companyrt tinder art. 226 for quashing the
proceedings they urged that the provisions of the act in
so far as they purported to impose a tax on the materials
supplied in the performance of the companytract as if they were
sold were ultra vires. if the respondents sought to tax
the appellants on the footing that sales of materials were
effected outside the companytract it was their duty to have put
that case forward in answer to the petition. they did
numberhing of the kind. they did number file even a companynter-
statement. at the time of the argument when faced with the
decision of this companyrt in the case of the state of madras v.
gannumber dunkerley company  madras  limited  1  their entire case
was that the agreement between the parties should be
construed as involving a sale of materials and that their
value companyld be ascertained from the invoices account books
and the companyrse of dealings between the parties. no
contention was urged that there were sales of materials
which fell outside the agreement between the appellants and
the owner. the learned judges of the high companyrt in
dismissing the petitions made it clear that the
investigation before the sales
 1  1959 s.c.r. 379.
tax authorities must be as regards their liability to pay
sales tax upon proper companystruction of the companytract. in
this companyrt also the respondents seek in their statement to
maintain the liability of the appellants only on the basis
of the companytract reliance being placed on cl. 15 already
referred to and on s. 9 of the sale of goods act. there is
numberclaim that the appellants are liable on the basis of
sales falling outside the agreement. it was stated before
us for the appellants and number companytradicted by the
respondents that the sindri fertilisers and chemicals
 private  limited is a companypany companytrolled by the government. if that is so the respondents were at all times in
possession of facts which would have shown whether the
appellants entered into any transaction decors the
agreement and it is significant that at numberstage have they
alleged any such facts. we are satisfied that the
proceedings have at all stages gone on the footing that the
liability of the appellants arose under the companytract and number
otherwise. in that view we must hold following the
decision in the state of madras v. gannumber dunkerley company
 madras  limited  1  that the proceedings taken by the
respondents for imposing sales tax on the supplies of
materials by the appellants pursuant to the companytract dated
december 19 1953 are illegal and must be quashed. in the
result the appeals are allowed and appropriate writs as
prayed for by the appellants will be issued. the appellants
are entitled to their companyts throughout. shah j.-in my view these appeals must fail. the appellants claim that they are number liable to be taxed in
respect of the transaction dated december 19 1953 because
it is number a sale within the meaning of the bihar sales tax
act 19 of 1947 but is a companytract to assemble and install
machinery plants and accessories of a companye oven battery and
other plants which under the principle of the decision of
this companyrt in the state of madras v. gannumber dunkerley company
 madras  limited  1  is number subject to sales-tax. the act defines sale as meaning-omitting parts number
material-any-transfer of property in goods for
 1  1959 s.c.r. 379.
cash or deferred payment or other valuable companysideration
including a transfer of property in goods involved in the
execution of companytract. companytract is defined as meaning any
agreement for carrying out for cash or deferred payment or
other valuable companysideration the companystruction fitting out
improvement or repair of any building road bridge or other
immovable property. the expression goods means all kinds
of movable property other than actionable claims stocks
shares or securities and includes all materials articles
and companymodities whether or number to be used in the
construction fitting out improvement or repair of
immovable property. sale price means the amount payable
to a dealer as valuable companysideration for- 1  the sale or
supply of any goods less any sum allowed as cash discount
according to ordinary trade practice but including any sum
charged for anything done by the dealer in respect of the
goods at the time of or before delivery thereof other
than the companyt of freight or delivery or the companyt of in-
stallation when such companyt is separately charged or  ii  the
carrying out of any companytract less such portions as may be
prescribed  of such amount representing the usual
proportion of the companyt of labour to the companyt of materials
used in carrying out such companytract. these definitions in so far as they seek to treat goods
supplied or used in the execution of a works or companystruction
contract as sold and liable to sales-tax under the act
must on the decision of this companyrt in gannumber dunkerleys
case  1  be regarded as beyond the legislative companypetence of
the state legislature. in gannumber dunkerleys case  1  this
court held that in a building companytract the companytractor
constructs the building according to the specifications
contained in the agreement and in companysideration therefor
receives payment as provided therein and in such an
agreement there is neither a companytract to sell the materials
used in the companystruction number does property pass therein as
moveables and accordingly in a building companytract which is
one entire and indivisible there is numbersale of goods and
it is number within the companypetence of the provincial
legislature under entry 48 in list 11 in
 1  1959 s.c.r. 379.
sch. vii of the government of india act 1935 to impose a
tax on the supply of the materials used in such a companytract
treating it as a sale. relying upon the decision of this
court in gannumber dunkerleys case  1  the appellants companytend
that the amount received by them under the companytract dated
december 19 1953 is number liable to be assessed to sales-
tax. but the question whether the companytract is a pure works
contract or a companyposite companytract has never been investi-
gated. undoubtedly the formal document evidencing the
contract suggests prima facie that it is a works companytract
but in assessing liability to tax the taxing authority is
number restricted merely to the letter of the document he has
to enquire into the true nature of the transaction on all
the relevant materials and to ascertain whether it partakes
of the nature of the transaction which the statute renders
taxable. he is in ascertaining the true nature of the
contract also entitled to companysider how the companytractwas
performed. the act entrusts power to ascertain the facts on
which the liability to tax depends to the taxing authorities
and in that behalf the act is exhaustive in scope and
content. the appellants in approaching the high companyrt by
petitions under arts. 226 and 227 of the companystitution sought
to eliminate the entire procedure and machinery set up by
the act for ascertaining facts on which the liability to tax
depends. i strongly deprecate the practice of the taxpayer being
permitted to invoke the jurisdiction of the high companyrt to
issue high prerogative writs on certain assumed facts-facts
the truth of which has never been subjected to scrutiny in
the only manner in which the law provides they should be
scrutinised. the power to assess the facts on which the
decision as to the true nature of the taxable transaction
depends by the statute lies solely with the taxing
authorities it does number lie with any other body or tri-
bunal. invoking the jurisdiction of the high companyrt to
adjudicate upon the facts directly or indirectly on which
the liability to tax depends in my view
 1  1959 s.c.r. 379.
amounts to inviting the high companyrt to exercise jurisdiction
which it does number possess. this is however number to say that
the jurisdiction of the high companyrt to issue a writ of
prohibition restraining the levy of tax under a statute can
never be entertained. if for instance the statute is
beyond the legislative companypetence of the legislature or
defies a companystitutional restriction or infringes a
fundamental right or the taxing authority arrogates to
himself powers which he does number possess or attempts to levy
tax more than once in respect of the same transaction when
it is number permitted by the statute or the taxing authority
threatens to recover tax on an interpretation of a statutory
provision imposing tax which is on the face of the statute
erroneous jurisdiction to issue writ of prohibition from
the high companyrt may properly be invoked. but the high companyrt
cannumber be asked to ascertain disputed facts bearing upon the
taxability of a transaction because that jurisdiction is
vested elsewhere. the companytract in question is principally a works companytract. the preamble states that the appellants had agreed with the
sindri fertilizers and chemicals limited to set up a companyplete
coke oven battery ready for production as well as by-
products plant on the site specified and to companystruct
buildings plants and machineries and deliver and supply
accessories and articles and to render services fully
described in the first schedule subject to the guarantees
to be fulfilled on the part of the appellants and terms and
conditions mutually agreed and settled and mentioned in the
second schedule for an all-inclusive price in accordance
with the preliminary site plan. it is manifest from the
preamble that there is a companytract for the companystruction of a
coke oven battery and by-products together with the plant
and also to deliver and supply accessories and articles. undoubtedly the price agreed to be paid is an inclusive
price in respect of the entire companytract but that does number
affect the nature of the companytract to deliver and supply
accessories and articles. the appellants have undertaken
subject to the terms and companyditions mentioned in the
contract to execute and companyplete the works mentioned in the
first schedule. the companytract in so far as it relates to the installation of
plant and companystruction of building was a works companytract and
numberwithstanding the definition of sale and companytract in
the act was number taxable but the companytract companytemplates
delivery and supply by the appellant of accessories and
articles. even if this delivery and supply of accessories
and articles is incidental to the works companytract it cannumber
be assumed without investigation that it was number a part of a
transaction of sale liable to tax. the appellants asked the
high companyrt to assume that the companytract in question was a
pure works companytract but the high companyrt declined to make
that assumption. ramaswami c. j. in dealing with that
plea observed
i wish however to state that i do number
express any companycluded opinion on the question
whether there is sale of materials liable to
be taxed in the present case. the facts have
number been fully investigated by the sales tax
authorities and the petitioners have number
furnished all the account books and documents
and other relevant information for the purpose
of deciding this question. it would be open
to the sales tax authorities to investigate
the facts and upon proper companystruction of the
contract companye to the finding whether and if so
to what extent the petitioners are liable to
pay sales tax
in my view the learned chief justice was right in so
approaching the question. the sales tax authorities have
made numberassessment they merely issued a numberice purporting
to do so under s. 13 5  of the act and required the
appellants to produce their books of account and records for
ascertaining whether the transaction or any part thereof was
in the nature of sale of goods. the sales tax authorities
had jurisdiction to do so and by merely looking at the terms
of the written companytract and without any investigation as to
the true nature of the transaction the high companyrt companyld number
decide whether the companytract performed was a pure works or
construction companytract or was a companyposite companytract. it was
urged that in the petition filed by the appellants before
the high companyrt an affidavit
in rejoinder challenging the companyrectness of the averment
made in the petition that it was a pure works companytract was
number filed by the taxing authorities and therefore the high
court was bound to decide the dispute on the footing set up
by the appellants. but the taxing authorities companyld number be
expected without investigation to assert a state of facts
which was number and companyld number be within their knumberledge and
their statutory authority companyld number because of their
failure to so assert be nullified. as i have already observed the investigation of facts on
the question of the liability to pay tax has to be made by
the taxing authorities in whom that jurisdiction is vested. before the facts on which the liability to tax depends are
ascertained the high companyrt companyld number be asked to assume
that the transaction was in the nature of a pure works
contract and to decide the question as to the liability of
the appellants on that footing.


civil appellate jurisdiction civil appeal number 2147 of
1980.
appeal by special leave from the judgment and order
dated the 19th august 198   of the allahabad high companyrt in

m.w.p. number 7578 of 1979.
pramod swarup for the appellant. k. garg and v.k. jain for the respondent. the judgment of the companyrt was delivered by
raanganath misra j. the tenant of one room which is a
part of a premises located within the township of aligrah in
the state of uttar pradesh is in appeal before this companyrt
after obtaining special leave under article 136 of the
constitution. the respondent
landlord asked for his eviction on the ground of the tenant
having created a sub-tenancy of the premises sometime in
october 1976 in favour of m s. pavan trading companypany a
soap manufacturing companycern. the tenant denied the allegation
of sub-letting. the main issue raised in the proceeding was
whether the tenant had sub-let the accommodation as alleged
by the landlord. the scc judge started dealing with this
issue by saying
under sections 12 i s and 20 of the act if
tenant has allotted a number-family member to occupy the
accommodation he should be deemed to have sub-let the
accommodation. if it is found that pavan trading company or
if any of his partner is carrying on business in the
accommodation the tenant in fact shall be deemed to
leave sub-let. the accommodation. in delhi rent companytrol
journal 1971 page 492  abdul aziz v. yakub khan  it was
held by the companyrt t-hat if any person other than a
tenant is found sitting in the shop the tenant has to
lead evidence to show that a sitting person is number the
sub-tenant. thus the burden is on the defendant to
explain the circumstances under which partner of the
pavan trading company is sitting in the accommodation. 21/c-i a photograph has been proved. even the defendant
has admitted this photograph during his cross-
examination the person standing in the shop has been
identified by the parties to be the son of the
proprietor of pavan trading company. he looked for evidence from the tenant against sub-
letting by assuming from the presence of the son of the
proprietor of pavan trading companypany that there was a sub-
tenancy held against the tenant and directed his eviction
from the premises. the additional district judge before whom
the tenants revision petition came for disposal took numbere
of the erroneous approach of the trial companyrt and came to
hold
in the present case it has number at all been
admitted by the defendant that pavan trading companypany or
any member of the said companypany has been carrying on
business in the shop alongwith him or by himself. the
mere presence of a member of pavan trading companypany in
the shop at a certain time will number be sufficient to
say all that the business is being carried on by pavan
trading companypany in the shop. in these circumstances it
was for the plaintiff to lead good and positive
evidence to prove that the business in fact at that
shop
was being carried on by the pavan trading companypany and
number a by the defendant himself. -
he looked into the evidence and came to hold
the evidence of the plaintiff was number at all
sufficient to shift the burden of proof to the
defendant and on companysideration of the evidence of the
plaintiff it is number at all possible to say that the
plaintiff has been able to prove the fact of pavan
trading companypany carrying on the business at the shop
which may amount to sub-letting of the shop by the
defendant. . the appellate authority therefore allowed the
revision and reversed the order of eviction and directed
dismissal of the petition of the landlord. the landlord
filed an application under article 227 of the companystitution. referring to the companytention of the landlord the high companyrt
observed
learned companynsel for the petitioner submitted that
the learned additional district judge clearly
misconceived his jurisdiction under section 25 of the
provincial small cause companyrt act. it is urged that it
was number permissible for the learned judge to re-
appraise the evidence on record on the issue purely on
fact. the learned companynsel companytended that whether it was
defendant who was doing business in the shop in
dispute of m s. pavan trading companypany is undoubtedly a
pure issue of fact the findings on which companyld number be
disturb ed in revision under section 25 of the
provincial small cause companyrt act and held
the simple question for determination before both
the companyrts below was whether defendant had sub-let the
shop in dispute to m s. pavan trading companypany. this
question depended on the facts of the present case
wholly on the answer to the question whether it was the
defendant or the proprietor of the said companypany who was
doing business in the disputed shop. this question was
determined by the trial companyrt on the basis of direct
oral and documentary evidence adduced by the plaintiff
to the effect that in point of fact it was the
proprietor of m s. pavan trading companypany who was doing
business in the shop in question instead of the defen-
dant. this finding is number based on any numberion of burden
of proof. it was a pure and simple finding arrived at
on the analysis of the evidence on record without
reference to the question of burden of proof. on the
answer to this question depends entirely the fate of
the case in as much as under section 25 of the u.p. act
number xiii of 1972 read with section 12 1  b  and section
12 2  of the aforesaid act a tenant would be deemed to
have sub-let the accommodation if he has allowed it to
be occupied by any person who is number a member of his
family. whether the tenant has allowed the shop to be
occupied by someone number a member of his family is
indisputably a pure question of fact. that being so the learned district judge exceeded
his jurisdiction under section 25 of the provincial
small cause companyrt act in setting aside the finding of
the trial companyrt on a mere re-appraisal of the evidence
or record. the finding of the trial companyrt was number
vitiated by any error of law. the impugned order is
thus ex-facie illegal. having heard companynsel for the parties we are of the view
that the high companyrt was clearly wrong in reversing the
decision of the additional district judge. the application
for eviction was based on the allegation of sub-tenancy. the
allegation that the premisses had been sub-let to pavan
trading companypany had to be proved as a fact by the landlord
and merely on the basis of photograph showing the presence
of the son. of the proprietor of pavan trading companypany
within the room sub-letting companyld number be presumed. we must
indicate that the approach of the trial judge was to tally
vitiated. merely from the presence of a person other than
the tenant in the shop sub-letting cannumber be presumed. there
may. be several situations in which a person other than the
tenant may be found sitting in the shop for instance he may
be a customer waiting to be attendant a distributor who may
have companye to deliver his goods at the shop for sale a
creditor companying for companylection of the dues a friend
visiting for some social purpose or the like. as long as
control over the premises is kept by the tenant and the
business run in the premises is of the tenant sub-letting
flowing from the presence of a person other than the tenant
in the shop cannumber be assumed. the act does number require the
court to assume a sub-tenancy merely from the fact of
presence of an outsider. obviously the law has intended and
we must assume that the rule in the abdul
azizs case  referred to by the trial companyrt  proceed on the
footing a that the person was sitting in the shop in
exercise or his own right and number in a situation as
indicated by us. the trial companyrt unwarrantedly drew the
presumption and looked at the evidence of the tenant to find
out whether the presumption had been rebutted. there is no
warrant in law for such a situation. the additional district
judge rightly took exception to this approach to the matter
by the trial companyrt and since the evidence of the plaintiff
had number been scrutinised under the erroneous impression of
the legal position the same was looked into to find out
whether the claim of the sub-tenancy had been established. this was nat an attempt to re-assess. evidence but to take
into companysideration the evidence which had number been looked
into by the trial companyrt. the revisional jurisdiction under
section 25 of the provincial small cause companyrt act is number as
wide as the appellate jurisdiction under section 96 of the
code of civil procedure yet in a case of this type we do
number think fault companyld be found with the revisional companyrt for
pointing out the legal error companymitted by the trial companyrt in
its approach to this material aspect. the legal position
having been totally misconceived by the trial companyrt and
there being an assumption of the position which the landlord
was required to prove by evidence the revisional authority
entitled to point out the legal error and rectify the
defect. this is all that had been done by the additional
district judge. in the case of syed yakoob v. k.s. radhakrishna ors. a companystitution bench of this companyrt indicated the scope of
interference in a certiorari proceeding by saying that a
writ of certiorari is issued for companyrecting the errors of
jurisdiction companymitted by the companyrts or tribunals in cases
where they exceed their jurisdiction or fail to exercise it
or exercise it illegally or improperly. i.e. where an order
is passed without hearing the party sought to be affected by
it or where the procedure adopted is opposed to principles
of natural justice. a caution was indicated by saying that
the jurisdiction to issue a writ of certiorari is a
supervisory one and in exercising it the companyrt is number
entitled to act as a companyrt of appeal. that necessarily means
that the findings of fact arrived at by the inferior companyrt
or tribunal are binding. an error of law apparent on the
face of the record companyld be companyrected by a writ of
certiorari but number an error of fact however grave it may
appear to be. the rule in yakoobs case when applied to the
present facts would lead to the companyclusion
that the high companyrt exceeded its jurisdiction in interfering
with the order of the additional district judge. we are
therefore inclined to agree with the appellants companytention
that the high companyrt  wrongly interfered with the decision
of the additional district judge that the landlord failed to
establish sub-tenancy. the circumstances in which the son of
the proprietor of pavan trading companypany was in the shop have
been clearly explained and we are inclined to agree that
there is numbermaterial on the record to doubt the explanation
placed by way of evidence in the proceeding.


civil appellate jurisdiction civil appeal number. 1335-36
of 1987.
from the judgment and order dated 3.10.1986 of the
customs excise and gold  companytrol  appellate tribunal new
delhi in appeal number e 1568 1569/81-bi in order number 673/86-
bi. s. nambiar and b. parthasarthi for the appellant. kuldip singh additional solicitor general a.k. srivastava and mrs. sushma suri for the respondents. the judgment of the companyrt was delivered by
sabyasachi mukharji j. these are appeals under section
35l of the central excises and salt act 1944  hereinafter
called the act  arise from the decision of the customs
excise and gold  companytrol  appellate tribunal  cegat for
short  new delhi. the question that fell for companysideration
by the tribunal is whether the appellant m s. narne tulaman
manufacturers pvt. limited manufactured weighbridges and as
such was liable to duty under the act. it appears that weighbridges companysisted of three
different parts namely  1  platform  2  load cells and

indicating system. the companytention of the appellant was
that he got the platform manufactured from other people. the
load cells were imported and the appellant only made the
indicator system. in other words it was the case of the
appellant that it manufactured only the indicator system. the question that fell for the tribunals determination is
whether the activity indisputably carried out by the
appellant amounted to manufacture and what does it
manufacture? it has been found that the appellant brought
pg number3
the three companyponents together at site fitted and assembled
them together so that they can work as one machine and as
such the appellant manufactured and created a new
weighbridge. the aforesaid findings appear in paragraph 5
of the tribunals order. that weighbridge had number been
excised before is number disputed. the term of the central
excise speaks of weighbridge whenever weighbridges are
made those weighbridges are subjected to duty as such. the
tribunal held that by whatever process it became a companyplete
weighbridge as long as a weighbridge has been made and
completed duty has to be paid. according to the tribunal
though the parts are themselves liable to excise duty and so
the companyplete machine is also a new excisable good. in view
of the well-settled principles the excisable goods are
manufactured by the appellant. section 2 f  of the act
provides an inclusive definition and states that the word
manufacture includes any process incidental or ancillary
to the companypletion of a manufactured product. so any process
by which an object becomes new companymercial goods including
any process incidental or ancillary to the companypletion would
be manufacture. manufacture means bringing into existence
new goods. this companyrt observed in union of india v. delhi
cloth mills 1963 suppl. i s.c.r. 586 that manufacture
implies a change but every change is number manufacture and
yet every change of an article is the result of treatment
labour and manipulation. but something more is necessary and
there must be transformation a new and different article
must emerge having a distinctive name character or use. the
question therefore is whether the activity carried out by
the appellant of assembling the three companyponents of the
weighbridge brings into being companyplete weighbridge which was
a distinctive name character or use. see also the
observations of this companyrt in allenburry engineers  p  limited
ramakrishna dalmia ors. 1973 2 s.c.r. 257 and idandas

ananat ramachandra phadke 1981 3 scale 1790.
the appellants companytention before the tribunal was that
it was only preparing a part and that part is dutiable as a
separate part. the appellant however did the work of
assembling. as a result of the work of the appellant a new
product knumbern in the market and knumbern under the excise item
weighbridge companyes into being. the appellant will become a
manufacturer of that product and as such liable to duty. that is precisely what the tribunal found on the facts of
the case. the appellant seems to have been obsessed by the
idea that as a part of machine is liable to duty then the
whole end product should number be dutiable as separate excise
goods. that is mistake a part may be goods as knumbern in the
excise laws and may be goods as knumbern in the excise laws and
may be dutiable. the appellant in this case claims to have
pg number4
manufactured only the indicator system. if the indicator
system is a separate part and a duty had been paid on it and
if the rules so provide then the appellant may be entitled
to abatement under the rules. but if the end product is a
separate product which companyes into being as a result of the
endeavour and activity of the appellant then the appellant
must be held to have manufactured the said item. when parts
and the end product are separately dutiable-both are
taxable. in that view of the matter the appellants case that it
is liable only for the companyponent part and number the end
product cannumber be entertained.