JUDGMENT The Judgment of the Court was delivered by ANSARI, C.J. - These four petitions challenge the constitutionality of such parts of the General Sales Tax Act, XI of 1125, hereafter referred to as the Act, and of the Rules under it as authorise levy and collection of the sales Tax on transfer of goods in works contracts. The Act was published in the Gazette on 17th January, 1950, as the Travancore-Cochin General Sales Tax Act, but came into force on 30th May, 1950, by notification S.R. 1-353-A/49/RD, which is dated 29th May, 1950, and repealed the Travancore General Sales Tax Act, No. XVIII of 1124, the Cochin Sales Tax Act, No. XV of 1121, and the United States of Travancore-Cochin Sales Tax (Amendment) Act, No. III of 1125. There have since been several amendments, but we are not concerned with these modifications of the Act, because the provisions whose constitutionality are impugned by the petitions had not been altered, and remain as originally enacted. These are firstly the following parts of definition by section 2. "2. (e) 'goods' means all kinds of movable property and includes all materials, commodities and articles including those to be used in the construction, fitting out, improvement or repair of immovable property; or in the fitting out, improvement or repair of movable property; and also includes all growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under a contract of sale, but does not include actionable claims, stocks and shares and securities; 2. (j) 'sale' with all its grammatical variations and cognate expressions, means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods involved in the execution of a works contract, but does not include a mortgage, hypothecation, charge or pledge; 2. (k) 'turnover' means the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, unufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. Subject to such conditions and restrictions, if any, as may be prescribed in this behalf - (i) the amount for which goods are sold shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract less such portion as may be prescribed of such amount, presenting the usual proportion of cost of labour to the cost of materials used in carrying out such contract; 2. (l) 'works contract' means any agreement for carrying out for cash or for deferred payment or other valuable consideration the construction, fitting out, improvement or repair of any building, road, bridge, or other immovable property or the fitting out, improvement or repair of any movable property; Section 3 makes every dealer liable to pay for each year a tax on his total turnover for such year, which tax is to be calculated at the rates specified in column (3) of Schedule I for every rupee in the turnover relating to the goods noted against in column (2); and sub-section (3) exempts a dealer, whose turnover in any year is less than Rs. 10,000. Section 5 permits exemption and reduction of tax in certain cases. Section 6 vests in the Government the power to notify exemption and reduction of tax, and section 24 authorities rules being framed to carry out the purposes of the Act. 10,000. Section 5 permits exemption and reduction of tax in certain cases. Section 6 vests in the Government the power to notify exemption and reduction of tax, and section 24 authorities rules being framed to carry out the purposes of the Act. Out of the rules framed, rule 4(3) is important, and is extracted below :- "For the purposes of sub-rule (1), the amount for which goods are sold by a dealer shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue from time to time for different areas, representing the usual proposition in such areas of the cost of labour to the cost of materials used in carrying out such contract, subject to the following maximum percentages :- per cent. (a) in the case of an electrical contract 20 (b) in the case of a structural contract 30 (c) in the case of sanitary contract 33 1/3 (d) in the case of electroplating contract 27 (e) in the case of textile dyeing and printing 50 works contract (f) in the case of watch and/or clock repair 50 contracts (g) in the case of sculptural contract or contracts 70 relating to arts (h) in the case of other contracts 30." There is nothing on the record to show about the rules having been framed prior to the inauguration of the Constitution, and it is not disputed that they came into operation on 30th May, 1950. The aforesaid provisions clearly authorise the sales tax being collected on transfer of goods in works contract, and one of the points inviting adjudication in these petitions is whether such an authorisation is valid due to the Act having been enacted prior to the Constitution by an authority not controlled by the Government of India Act, 1935. At one time there was divergence of views about levy of sales tax on works contracts being proper; but that divergence has been settled by State of Madras v. G. Dunkerley & Co. At one time there was divergence of views about levy of sales tax on works contracts being proper; but that divergence has been settled by State of Madras v. G. Dunkerley & Co. ([1958] 9 S.T.C. 353; A.I.R. 1958 S.C. 560 at p. 577), where it was held that the authorisation under the Government of India Act, 1935, to levy tax under List II, entry 48, did not justify legislation for taxing transfer of goods in works contracts. Accordingly section 2(h) and (i) of the Madras General Sales Tax Act, IX of 1939, was held ultra vires, and Venkatarama Aiyar, J., in this connection observes as follows :- "To sum up, the expression 'sale of goods' in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible - and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale." Provisions in the Travancore-Cochin General Sales Tax Act authorising levy of the tax on transfer of goods in works contract were earlier challenged before the Travancore-Cochin High Court in Gannon Dunkerley & Co. v. Sales Tax Officer ([1957] 8 S.T.C. 347; 1957 K.L.T. 380), but the Division Bench did not uphold the objection on the ground that the Legislature, which had enacted that law, was not circumscribed by any limitation of powers similar to item 48 of List II of the Government of India Act, 1935. The same view has been reiterated in Subhodhaya Corporation v. Sales Tax Officer ([1959] 10 S.T.C. 356; 1959 K.L.T. 582), which is after the pronouncement of the Supreme Court and on the same ground. The learned Judges have again held that the Legislature and H. H. The Raj Pramuk had prior to the inauguration of the Constitution plenary powers and, therefore, the limitation on Part B States under Entry 54 of List II of the Seventh Schedule to the Constitution would not retrospectively operate to invalidate the earlier law. That was the legal position when these four writ petitions were filed in this Court. That was the legal position when these four writ petitions were filed in this Court. The petitioner in all the four is the same dealer, though the assessment year of each is different. In O.P. 232/57 the assessment year is 1952-53, and the dealer, out of the turnover of Rs. 29,16,524-1-8, claims Rs. 13,16,563-0-6 to be the total of what he had got under works contract, on which, after deducting 30 per cent., sales tax has been levied. It is not controverted that Rs. 30,227-8-3 had already been paid towards the tax assessed, and the balance due is Rs. 21,884,6-3; but having paid part of the tax, which the petitioner now claims to be ultra vires, would not preclude his making the claim due to the payment being under error of law and recoverable under section 72 of the Contract Act. In O.P. 70/60 the dealer out of the turnover of Rs. 1,22,32,430-50 nP., claims Rs. 19,96,702-12 nP. to have been got for works contract and the sales tax on this amounts to Rs. 44,281-42 nP. The balance due towards the entire tax amount is Rs. 33,160-52 nP., which means that part of the liability has been discharged, but that would not preclude the dealer's claiming the tax being ultra vires. The assessment year for the aforesaid tax is 1957-58. In O.P. 71/60, the dealer's turnover is Rs. 1,23,69,417-5-4, out of which the claim on account of works contract is Rs. 17,32,087-6-5. The assessment year is 1956-57 for this petition, and the objection by the dealer to the tax had been disallowed by the taxing authorities. The turnover in the fourth writ petition, O.P. 673/60, amounts to Rs. 40,45,725-57 nP., on which the total tax levied is Rs. 96,050-79 nP., and the total of what is objected to by the dealer as not liable on the ground of having been earned from works contracts, comes to Rs. 10,93,084-21 nP. The assessment year is 1958-59, and the objection to the aforesaid amount being charged has not been sustained by the taxing authorities. In all the four assessment years, the maximum deductions permitted under rule 4(3) from the amounts under the works contracts charged to tax, have been allowed, and the objection to the levy is that after the inauguration of the Constitution the tax has become illegal. In all the four assessment years, the maximum deductions permitted under rule 4(3) from the amounts under the works contracts charged to tax, have been allowed, and the objection to the levy is that after the inauguration of the Constitution the tax has become illegal. A Division Bench of this Court found the points raised in these petitions not to have been adjudicated in the earlier cases, and has, therefore, referred to the Full Bench. Before us the petitioner's learned counsel has urged the following four grounds for the provisions in the Act being inadequate to levy the tax : (1) They are discriminatory and are, therefore, violative of Article 14 of the Constitution; (2) Whatever may have been the earlier position, works contracts, before and after 1956, cannot be taxed in the Malabar area of the Kerala State; and their being taxed in the remaining areas of the same State results in the residents of one area being favoured, which is violative of Article 14; (3) The powers of the State's executive are circumscribed by Article 162, with the result that the State's taxing authorities cannot collect the tax on works contract, inasmuch as such tax is not included in List II or in List III of the Seventh Schedule; (4) Notwithstanding the Acts having been enacted on 17th January, 1950, the rules, under which the liability can be quantified, been framed after 26th January, 1950, with the result of the exercise of delegated powers of legislation beyond items in Lists II and III of the Seventh Schedule to the Constitution, by the State Government, being void and the rule under the Act being legally inoperative. It is not denied that an enactment is not arbitrary if it can be justified as based on rational classification; and to satisfy that test, two things are required. One is an intelligible differentia between those grouped together from those thereby left out, and the next is that the differentia should have a rational relation to the object of the legislation. In this connection, we would refer to Ram Krishna Dalmia v. Justice Tendolkar (A.I.R. 1958 S.C. 538 at p. 547), where Das, C.J., reaffirms what was said in the earlier case of Bhudhan Choudhury v. State of Bihar (A.I.R. 1955 S.C. 191). In this connection, we would refer to Ram Krishna Dalmia v. Justice Tendolkar (A.I.R. 1958 S.C. 538 at p. 547), where Das, C.J., reaffirms what was said in the earlier case of Bhudhan Choudhury v. State of Bihar (A.I.R. 1955 S.C. 191). The quotation in the earlier case, which was again affirmed, reads as follows :- "It is now well established that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order however, to pass the test of permissible classification, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia, which distinguishes persons or things that are grouped together from others left out of the group, and (2) that that differentia must have a rational relation to the object sought to be achieved by he statute in question. The classification may be founded on different bases, namely geographical, or according to the objects or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but also by a law of procedure." The same test has been repeated in Moti Das v. S. P. Sahi (A.I.R. 1959 S.C. 942 at pp. 946-947), where S. K. Das, J., has observed as follows :- "It is enough to say that it is now well settled by a series of decisions of this Court that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation, and in order to pass the test of permissible classification, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from other left out of the group, and (2) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may be founded on different bases, such as, geographical or according to objects or occupations and the like." It follows that the impugned provisions must satisfy the aforesaid test, and the difference between the sale of goods and the contract for work is too well known to require being further emphasised here. The differentia has also travelled deeper into the considerations for these contracts; because, in sales of goods the things sold being more important than in works contracts, where the skill of the persons entrusted with the work looms larger, the payment for such services is bound to be valued in the latter than in the former. In this connection it would be useful to recall that sales of goods have, from very early times, been distinguished from contract of works; and this distinction was observed by the civil lawyers in emptio venditio and locatio conductio operis. These lawyers made the difference hinge on whether the material was supplied by the workmen or the employer, and that test appears to have been accepted in England as well, till it was repudiated in Grafton v. Armitage (2 C.B. 336). There a person was employed by another to devise a method of curving metal tubing for manufacturing lifebuoys, of which the person employing was the patentee; and it was held that he could at all events recover the value of his work and materials, independently of the question whether there was a contract of sale or not. Thereafter, the English law concerning the sale of goods is that the ownership of the material, on which the work is done, is not conclusive of whether the bargain is of contract or for sale. The test in that law for a works contract, very broadly speaking, is that a contract, by which one person promises to make something, which, when made, will not be his absolute property, and by which the other person promises to pay for the work done, is a contract for work, although the payment may be called a price for the thing and although the materials, of which the thing is made, may be supplied by the maker. It is, therefore, obvious that, with such well settled distinction between works contract and sale of goods, there should be intelligible differentia between earnings through the former from those by the latter. It is, therefore, obvious that, with such well settled distinction between works contract and sale of goods, there should be intelligible differentia between earnings through the former from those by the latter. We now come to the nexus between the aforesaid differentia and the object of legislation. It is clear that the enacting authority was desirous of taxing only the amounts got for transfers of ownership in goods; and where such money be mixed, as in cases of works contract, with the consideration for services, rules for separating the two would be required, which would be different to those dealing with ordinary sales. At this stage we are considering how far the objection to the Act being violative of Article 14 is justified; and the authority, which enacted the law is, in these writ petitions, conceded not to be one with limited powers, like those under the Government of India Act, 1935, or under our present Constitution. Such an authority would, therefore, the competent to tax all transfers of ownership in goods for money, even where the bargain be not sale; and the point inviting adjudication is whether, for purposes of such taxation, the distinction between works contract and sales of goods is rationally required. We think it is, because in order to determine the prices of the materials, which are to be taxed, rules how to exclude the consideration for the services are needed. For this purpose, the enacting authority has itself laid in the Act a standard, and has permitted its being amplified by rules, which is obviously a batter approach for separating the costs for the materials from those for the services. Section 2(k)(i), therefore enacts that the amount for which goods are sold shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract, less such portion as may be prescribed of such amount representing the usual proportion of cost of labour to the cost of materials used in carrying out such contract. Section 24 provides for rules being framed, and that responsibility has been discharged by rule 4(3), where we find the authority, vested with the jurisdiction for determining the costs, being allowed to do so within the maximum fixed under the rule for contracts enumerated therein. Section 24 provides for rules being framed, and that responsibility has been discharged by rule 4(3), where we find the authority, vested with the jurisdiction for determining the costs, being allowed to do so within the maximum fixed under the rule for contracts enumerated therein. Such a method of determination has the advantage of changes in the prevailing costs for labour being easily ascertained and incorporated where necessary by the modification of the rules, without the Act being frequently amended. Further, the Government's action in discharging the statutory duty is expected neither to be arbitrary nor in disregarded of the constitutional guarantees; and, should the rules be complained against to be such, the complaints would be justiciable and the rule liable to be struck down on the establishment of such a misuse of power. In such circumstances, we think the Act is not vitiated by any inequality, because, having regard to the difficulty of estimating the cost of labour and the goods, the legislation has to provide the correct standard, which the Government should carry further by framing proper rules. It follows that the distinction is reasonably related to the object of the taxation, and the impugned provisions are based on a rational classification. Moreover, the fixation of the maximum prevailing rates by the rule is not averred before us to be without relation to the then costs of labour. Therefore, the exercise in the case cannot be struck down as discriminatory. The learned counsel for the writ petitioners has, however, relied on three cases in support of the argument that the provisions in the Act and the rules are ultra vires and violative of Article 14. In Jubilee Engineering Co. v. Sales Tax Officer ([1956] 7 S.T.C. 423; A.I.R. 1956 Hyd. The learned counsel for the writ petitioners has, however, relied on three cases in support of the argument that the provisions in the Act and the rules are ultra vires and violative of Article 14. In Jubilee Engineering Co. v. Sales Tax Officer ([1956] 7 S.T.C. 423; A.I.R. 1956 Hyd. 79), one of us has referred to and followed the observations of the learned Judges in Pandit Banarsidas v. State of Madhya Pradesh ([1955] 6 S.T.C. 93), which read thus : "This artificial and palpably unnatural determination of the price of goods cannot be said to square with the powers given by the Constitution Act to levy a tax on the 'sale of goods'." The learned counsel urged that those observations apply to the Travancore-Cochin General Sales Tax Act as well; but we see no force in the argument, because such observations are relevant only where the authorisation to enact be limited and the enacting authority cannot overstep the limits by arbitrary and unnatural provisions for fixing the price. That reasoning would not be available where the competency of the enacting authority be plenary, and it is not disputed that the Act impugned before us was at a time when the Travancore-Cochin Legislature was not circumscribed like the Hyderabad or the Madhya Pradesh or the Madras Legislatures. The counsel next relied on Sarawati Printing Press v. Commissioner of Sales Tax ([1959] 10 S.T.C. 286). But that was also under the Hyderabad Sales Tax Act, which was enacted after the Constitution, and, therefore by a Legislature with competency circumscribed. It was then urged that such objections cannot be raised so far as Kenchappa v. Sales Tax Officer ([1957] 8 S.T.C. 329; A.I.R. 1957 Mys. 45 at p. 48) is concerned, where the Act and the rules were enacted prior to the Constitution and by the Mysore Legislature, which then enjoyed plenary powers. Similar provisions of the Act were held to be violative of Article 14, and the learned Judges in that connection have observed as follows : "Added to this is the incongruity between the definition of 'works contract' and the explanation to turnover and the Explanation to rule 1. The definition is such as to bring within the purview of 'works contract' contracts in which goods or materials may not be supplied or furnished by the contractor sought to be taxed. The definition is such as to bring within the purview of 'works contract' contracts in which goods or materials may not be supplied or furnished by the contractor sought to be taxed. The rule does not afford him as opportunity to show this, and subjects him to liability by imputing use of materials and by requiring valuation of these in a particular manner." With respect, we differ; for, it cannot be disputed that every classification is in some degree likely to produce some inequality, and "mere production of inequality is not by itself enough". On the other hand, the inequality, in order to offend the Constitution, must be actually and palpably unreasonable. Where materials be not furnished by him, the dealer would be getting only costs for labour, with his turnover showing only such sums; and if the Schedule in the rule for such costs be arbitrary, the rule would be liable to attack. We do not see how inequality can arise where the consideration for material exists and the rule for determining costs of labour is also proper. The inequality in any case proceeds on rational classification, and the complaint of its being violative of the Article, fails. Leaving for the present the argument concerning inequality due to the different rule about sales tax on works contract in the Malabar area, we would take the argument that notwithstanding continuance of the Act under Article 372, the taxing authorities in this State cannot collect the tax, because the State's executive powers are circumscribed by Article 162, which limits the exercise to subjects covered by the items in List II of the Seventh Schedule. We feel the argument to be without force, because it overlooks Article 277. It cannot be disputed that the Act was saved by Article 372, because, though it came into operation in May, 1950, yet it was passed before the inauguration of the Constitution, with the result that Explanation 1 to Article 372 becomes applicable. That Explanation says that the words "law in force" in the Article shall include a law passed or made by a Legislature or other competent authority in the territory of India before the commencement of the Constitution and not previously repealed, notwithstanding that it or parts of it may not be then in operation. Therefore, the Act, not having come into operation till after the Constitution, would not help the petitioners' case. Therefore, the Act, not having come into operation till after the Constitution, would not help the petitioners' case. The Act being thus saved, and not being new. Article 277 would be attracted. That would be the position because the Act authorises what was being levied prior to the inauguration of the Constitution, and the Article permits the tax, which, immediately before the commencement of the Constitution, was being lawfully levied by the Government of any State, notwithstanding the tax being mentioned in the Union List, to be levied and to be applied to the same purpose until provisions to the contrary be made by the Parliament. It is obvious that item 97 in List I to the Seventh Schedule, among other things, includes tax not mentioned in either List II or List III, and the Parliament has not otherwise enacted. Therefore, the State can claim the benefits of the Article and continue the tax. The petitioner's learned Advocate then relied on Ramprasad v. W.P. Tax Officer (A.I.R. 1953 M.B. 20), where Dixit, J., has held that the word "levy" in the Article means something other than the imposition of the tax by the Legislature and in the context only collection of tax under the authority of law. He has further relied on Chuttilal v. Bagmal (A.I.R. 1956 M.B. 177), Nageswara Rao v. State of Madras (A.I.R. 1954 Mad. 643), and Liberty Cinema v. Commissioner, Calcutta Corporation (A.I.R. 1959 Cal. 45), in support of the proposition that the Article authorises the tax being realised, which had been collected by the State prior to the inauguration. On assumption of this argument being correct, it is clear that the sales tax on works contract was being levied in the State prior to the inauguration; for, it is not disputed that the Act had repealed the Travancore General Sales Tax Act, XVIII of 1124; and, under the repealed Act, rules had been framed, which had come into operation from 14th May, 1949, Under section 11 of the repealed enactment, a person, who was not a registered dealer, could not collect any amount by way of tax; nor could a registered dealer make such collection except in accordance with such conditions and restrictions made by the prescribed rules. Further, sub-section (2) of the same section provided that the person, who had collected, must pay the Government all amounts so collected. Further, sub-section (2) of the same section provided that the person, who had collected, must pay the Government all amounts so collected. Also rule 9(1) provided : "Every dealer commencing business after the 14th day of May, 1949, whose estimated gross turnover for the first twelve months of the business is not less than Rs. 10,000 shall, within thirty days of commencement his business, submit to the assessing authority of the area in which his principal place of business is situated, a return in Form 1-A showing the estimated gross and net turnover for the first twelve months of his business." It is, therefore, clear that the tax on works contract began to be levied in May, 1949, due to the dealers' being authorised to collect and being bound to pay over what they had collected. Mr. T. N. Subramonia Iyer has argued that such a collection should not be treated as being levied, because the charging section makes a dealer liable to pay the tax on his turnover. With respect, we fail to see what other description can be given to the payments by the dealers, who collected tax money under statutory authorisation; nor how the amounts, when paid by the dealers into the Treasury on account of tax, can be treated not to have been collected. The fact of their being provisional does not convert the realisation into one for a different liability. It follows that there is no constitutional prohibition against the authority to collect the tax, as such acts are permitted by Article 277. The learned counsel then urged that framing the rules under the Act could only be by delegation to legislate; and, where the power to legislate, after a certain date be circumscribed, the delegation can neither be vested nor exceed the limits of the authority to legislate. This argument has been urged in order to make the rules under the Act, which have been framed after the inauguration, ultra vires. We see no force in the argument, because the continuance, under the Constitution, of the levy would entail the incidental power of framing the necessary rules. In any case, the rules under the enactment repealed by the Act, being available, the tax would legally continue to be leviable under the Act, where it is not disputed that under those rules the writ petitioners were liable to pay. In any case, the rules under the enactment repealed by the Act, being available, the tax would legally continue to be leviable under the Act, where it is not disputed that under those rules the writ petitioners were liable to pay. In such circumstances, substituting one set of rules without change of substance, does not affect the liability to pay the tax, and the argument can be of no advantage to the petitioners. We now come to the complaint of the levy being illegal, due to the dealers in the Malabar area not being chargeable with the tax. Obviously Article 14 is not violated where discrimination is due to the territorial classifications. In this connection, we need refer only to Kangshari Haldar v. State of West Bengal (A.I.R. 1960 S.C. 457), where it was held that the provisions concerning the Special Tribunals in criminal cases to try scheduled offences in disturbed areas proceeded on rational classification. The territorial classification in the cases before us has arisen because of a constitutional permission; and, therefore, the tax not being levied in the area, to which the permission does not extend, though the area be part of the same State, cannot be held to be discriminatory. The inequality rests on territorial classification, which, in the circumstances of the case, is proper. Mr. Subramonia Iyer has argued that the continuance of the Act was contrary to Article 254; but the Article contemplates two laws being operative in the same filed, and we are not aware of any Central enactment, dealing with taxation, which clashes with the provisions impugned in these petitions. It follows that the writ petitions fail, and are dismissed with costs. We fix Rs. 200 in each petition as the counsel fee. Petitions dismissed.