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1964 DIGILAW 87 (KER)

N. T. Patel and Co. v. Deputy CAIT. and ST.

1964-03-16

M.MADHAVAN NAIR, M.S.MENON

body1964
Judgment :- 1. The assessment year concerned in T.R.C. No. 7 of 1963 is 1959-60 and the assessment year concerned in T.R.C. No. 8 of 1963 is 1960-61. The controversy relates to sales-tax in respect of "works contracts" and is, to a large extent, covered by the decision of the Supreme Court in South India Corporation (P) Ltd. v. Secretary, Board of Revenue (1964) 15 S.T.C. 74. 2. In the decision above-mentioned the Supreme Court held that during the currency of the agreement dated the 25th February 1950 between the President of India and the Rajpramukh of the State of Travancore-Cochin that State and the State of Kerala which came into existence on the 1st November 1956 had no power to levy sales-tax in respect of "works contracts". The agreement expired only on the 25th January 1960, and so the assessee cannot but be exonerated from the levy of sales-tax in respect of "works contracts" for the period prior to the 26th January 1960. 3. The only question for determination is whether sales-tax in respect of "works contracts" is permissible on and from the 26th January 1960. The Supreme Court did not deal with the question. It said: "We are not concerned here with the legal position after the expiry of the said period, and we do not propose to express our view thereon." 4. We are not satisfied that the provisions of the agreement or the report of the Indian States Finance Enquiry Committee, 1948-49 compels us to hold that the right to levy sales-tax in respect of "works contracts" will not revive on the expiry of the period of ten years provided by the agreement. We are not satisfied that the provisions of the agreement or the report of the Indian States Finance Enquiry Committee, 1948-49 compels us to hold that the right to levy sales-tax in respect of "works contracts" will not revive on the expiry of the period of ten years provided by the agreement. Art.277 of the Constitution provides: "Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that those taxes, duties cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law." The view we take is that the period of ten years was a period of suspension, that the right to levy sales-tax in respect of "works contracts" revived on the 26th January 1960, and that it will continue to subsist'until provision to the contrary is made by Parliament by law'. 5. Counsel for the assessee drew our attention to the following passage in South India Corporation (P) Ltd. v. Secretary, Board of Revenue (1964) 15 S.T.C. 74: "The first contention of learned counsel for the appellant is that Art.277 of the Constitution can only save the levy of a tax that was being lawfully levied by a State immediately before the commencement of the Constitution and that, as the Act came into force only after the Constitution, the levy made thereunder does not satisfy the condition laid down by the Article. To appreciate this contention 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 commencement of the Constitution. If so, it follows that the tax under the Act would not be saved, as the necessary condition that the levy should have been lawfully made before the Constitution was not satisfied."and submitted that the Supreme Court has held that Art.277 will not save the levy. If so, it follows that the tax under the Act would not be saved, as the necessary condition that the levy should have been lawfully made before the Constitution was not satisfied."and submitted that the Supreme Court has held that Art.277 will not save the levy. We do not understand the sentence "If so, it follows that the tax under the Act would not be saved, as the necessary condition that the levy should have been lawfully made before the Constitution was not satisfied" as an expression of opinion by the Supreme Court. 6. According to the learned Advocate-General that sentence is only a part of the statement of the "first contention" of counsel for the appellant before the Supreme Court and does not embody a conclusion of the Supreme Court. We are inclined to agree. The sentence immediately following is: "On the assumption that Art.277 saved the levy of tax under the Act, the further contention 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 Constitutional transference of the B State's power of taxation in respect of certain items to the Union List and that, thereafter, the State ceased to have the power to levy any tax in respect of the subject so transferred." The underlining is ours. 7. That the only question dealt with by the Supreme Court was the interaction of Art.277, 278 and 372 of the Constitution and their impact on the agreement of the 25th February 1950 is clear from the fact that the judgment concludes by saying: "While Art.372 saves all Pre-Constitution valid laws, Art.277 is confined only to taxes, duties, cesses or fees lawfully levied immediately before the Constitution. Therefore, Art.372 cannot be construed 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. ... 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. ... 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.372. In either view, the result is the same, namely, that at any rate during the period covered by the agreement the States ceased to have any power to impose the tax in respect of 'works contracts'. In this view we need not express our opinion on the other contentions raised by Mr. Nambiar." 8. In Gannon Dunkerley and Co., Madras (Private) Ltd. v. Sales Tax Officer, Mattancheri 1957 KLT. 380 this Court had occasion to consider the question of "works contracts" under the Travancore-Cochin General Sales Tax Act, 1125, with special reference to Art.277 of the Constitution. The Court said: "Sales-tax in respect of works contracts was being levied immediately before the commencement of the Constitution under the provisions of the Cochin General Sales-tax Act, XV of 1121, in the Cochin area of the State and under the provisions of the Travancore General Sales-Tax Act, 1124, in the Travancore area of the State. Those Acts were repealed only by S.27 of the Travancore-Cochin General Sales-Tax Act, 1125, when it came into force on the 30th May 1950. It follows that in view of the specific provision of Art.277 also it has to be held that such a tax can continue to be levied after the commencement of the Constitution irrespective of the partition of the legislative power effected by Art.246 and the entries in the three Lists of the Seventh Schedule." 9. It is contended that once that continuance has been disrupted by the agreement of the 25th February 1950, it cannot be resumed. We see no force in this contention. A period of suspension, whether it stems from contractor bounty, does not abrogate the right and extinguish it for ever. 10. Four questions are raised in each of the two Tax Revision Cases. Only the question dealt with above was pressed at the time of hearing. 11. In the light of what is stated above the T.R.Cs. A period of suspension, whether it stems from contractor bounty, does not abrogate the right and extinguish it for ever. 10. Four questions are raised in each of the two Tax Revision Cases. Only the question dealt with above was pressed at the time of hearing. 11. In the light of what is stated above the T.R.Cs. succeed in so far as the assessment to sales-tax in respect of "works contracts" prior to the 26th January 1960 is concerned and fail in all other respects. We decide accordingly; but in the circumstances of the case without any order as to costs.