State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.

Madras taxed the value of materials that a building contractor used in its works contracts, treating them as a sale of goods. The Supreme Court asked what a sale of goods means in Entry 48 of the Provincial List. It held that a sale needs an agreement to sell the very goods that pass, and a normal building contract has neither.

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Parties

State of Madras — appellant; the State that sought to include the value of construction materials in the contractor's taxable turnover.

Gannon Dunkerley & Co. (Madras) Ltd. — respondent; a private limited company doing business in the construction of buildings, roads and other works, and in the sale of sanitary wares and sundry goods.

Interveners for the appellant — the States of Bihar, Punjab, Mysore, Kerala and Andhra Pradesh. Similar tax provisions exist in their laws.

Interveners for the respondent — the contractors Gurbax Singh, Messrs. Uttam Singh Duggal & Co. and United Engineering Company.

Procedural History

1. Sales Tax Appellate Tribunal, Madras (T.A. No. 863 of 1951). By order dated 11 August 1952, it rejected both contentions of the respondent. It held that both sums were in the taxable turnover (Venkatarama Aiyar, J.).
2. Madras High Court (Civil Revision Petition No. 2292 of 1952). Satyanarayana Rao and Rajagopalan, JJ. decided both points for the respondent by judgment and order dated 5 April 1954. It directed that both amounts, Rs. 29,51,528-7-4 and Rs. 1,98,929-0-3, be excluded from the taxable turnover of the respondents (Venkatarama Aiyar, J.).
3. The High Court held that sale of goods has the same meaning in Entry 48 as in the Indian Sale of Goods Act, 1930. It held that the construction contracts were agreements to execute works, paid by measurement at scheduled rates. They were not contracts for sale of the materials, and they were entire and indivisible (Venkatarama Aiyar, J.).
4. It held that the 1947 provisions were ultra vires the Provincial Legislature. It also held that the foodgrains sold to workmen were not sold in the course of business, with no profit motive, and that the respondents were not dealers under Section 2(d) (Venkatarama Aiyar, J.).
5. Supreme Court. The State appealed on a certificate granted by the High Court under Article 133(1) of the Constitution (Civil Appeal No. 210 of 1956). The appeal was heard on 22, 23 and 24 January and 4, 5, 6, 7, 10 and 11 February 1958, and decided on 1 April 1958 (Venkatarama Aiyar, J.).
6. The Advocate-General of Madras did not press the appeal on the Rs. 1,98,929-0-3 for foodgrains. Only the validity of the 1947 provisions survived (Venkatarama Aiyar, J.).

Facts

1. The respondents are a private limited company registered under the Indian Companies Act. They do business in construction of buildings, roads and other works, and in the sale of sanitary wares and other sundry goods (Venkatarama Aiyar, J.).
2. The appeal arises from the assessment of sales tax for the year 1949-1950. Two items were disputed before the tax authorities (Venkatarama Aiyar, J.).
3. The first was Rs. 29,51,528-7-4, the value of materials used in the respondents' works contracts, calculated by the statutory provisions (Venkatarama Aiyar, J.).
4. The second was Rs. 1,98,929-0-3, the price of foodgrains the respondents supplied to their workmen. The respondents said they were not in the business of selling foodgrains. They supplied them to workmen in out-of-the-way places and adjusted the price against wages (Venkatarama Aiyar, J.).
5. Section 2(h) of the Madras General Sales Tax Act, 1939 originally defined sale as every transfer of property in goods by one person to another, in the course of trade or business, for cash, deferred payment or other valuable consideration (Venkatarama Aiyar, J.).
6. Madras Act No. XXV of 1947 amended the Act. Section 2(c) defined goods as all movable property other than actionable claims, stocks, shares and securities. It was amended to include materials used in construction, fitting out, improvement or repair of immovable property or of movable property (Venkatarama Aiyar, J.).
7. The definition of sale in Section 2(h) was enlarged to include a transfer of property in goods involved in the execution of a works contract (Venkatarama Aiyar, J.).
8. Explanation (1)(i) to the definition of turnover in Section 2(i) was added. For a works contract, the amount for which goods are sold is deemed to be the amount payable to the dealer, less a prescribed portion for the usual proportion of labour cost to material cost (Venkatarama Aiyar, J.).
9. A new provision in Section 2(ii) defined works contract as any agreement for carrying out, for consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property. It also covered fitting out, improvement or repair of movable property (Venkatarama Aiyar, J.).
10. Rule 4(3) provided that, for a works contract, the amount for which goods are sold is the amount payable less a percentage fixed by the Board of Revenue. It was subject to maximum percentages on a scale that varied with the nature of the contract (Venkatarama Aiyar, J.).
11. The State relied on these provisions to include Rs. 29,51,528-7-4 in the respondents' turnover, valued under rule 4(3) (Venkatarama Aiyar, J.).
12. The respondents contested this. They said the Madras Legislature's power to tax sales under Entry 48 did not extend to the value of materials used in works, as there is no sale of those goods. They said the 1947 provisions were ultra vires (Venkatarama Aiyar, J.).

Issues Raised

1. Are the provisions introduced by the Madras General Sales Tax (Amendment) Act, 1947 ultra vires the Provincial Legislature, in so far as they tax the supply of materials in a works contract as a sale of goods by the contractor?
2. What does sale of goods mean in Entry 48, List II, Schedule VII of the Government of India Act, 1935: the popular or the legal sense, and the wide or the narrow legal sense?
3. Does a building contract contain a sale of the materials used, so that the State can split the contract and tax that part?
4. Even if the wider sense were adopted, are the provisions void under Section 107 of the Government of India Act for repugnancy with the Sale of Goods Act?

Arguments Contended

For the appellant, the State of Madras (V.K.T. Chari, Advocate-General, and R.H. Dhebar), and its supporting interveners:

• Provisions of a Constitution Act that confer legislative powers must be construed liberally. He cited Navinchandra Mafatlal v. The Commissioner of Income Tax ([1955] 1 SCR 829), Broken Hill South Ltd. v. Commissioner of Taxation and Love v. Norman Wright (Builders) Ltd. ([1944] 1 KB 484). He also cited In re the Central Provinces and Berar Act No. XIV of 1938 ([1939] FCR 18) (Venkatarama Aiyar, J.).
• The words sale of goods in Entry 48 must be read widely and not in the narrow sense of the Indian Sale of Goods Act, 1930. He cited Irving's Commonwealth Sales Tax Law and Practice, The Deputy Federal Commissioner of Taxation v. Stronach and M.R. Hornibrook (Pty.) Ltd. v. Federal Commissioner of Taxation (Venkatarama Aiyar, J.).
• Legislative history should not be pushed too far. A works contract can be split up. Viewed from the contractor's side, he sells materials and renders service, so there is a sale of goods in the contract (V.V. Raghavan, in reply) (Venkatarama Aiyar, J.).
• Bihar (Mahabir Prasad and R.C. Prasad): the question is whether the Sales Tax Act's definition enlarges the concept in the Sale of Goods Act. The only requirement is a transfer of property in goods for valuable consideration. Building contracts involve sale of materials (Hudson on Building Contracts, 7th Edn., p. 386) (Venkatarama Aiyar, J.).
• Punjab (S.M. Sikri, N.S. Bindra and T.M. Sen): taxes on the sale of goods means taxes on a transaction that transfers to a person, for valuable consideration, all the rights of an owner. A sale need not follow a contract. An auction sale and an exchange are sales. He cited Blackstone, Chalmers, Benjamin, Halsbury and Williston (Venkatarama Aiyar, J.).
• Punjab: sale has a wider meaning, and a prior agreement to sell is not needed. He cited Great Western Railway Co. v. Commissioners of Inland Revenue, Kirkness v. John Hudson & Co. Ltd., Nalukuya v. Director of Lands, Ex parte Drake, In re Ware and Blome Co. v. Ames. A contrary view was taken in Herlihy Mid-Continent Co. v. Nudelman. He also cited Morgan v. Deputy Federal Commissioner of Land Tax (Venkatarama Aiyar, J.).
• Punjab: entries conferring legislative power are flexible and elastic. Entry 48 should cover what was understood as sale in 1935 and whatever may be regarded as sale later. He cited In re Regulation and Control of Radio Communication in Canada, The King v. Brislan: Ex parte Williams, Toronto Corporation v. Bell Telephone Company of Canada, Attorney General v. Edison Telephone Company of London and Nevile Reid and Company Ltd. v. The Commissioners of Inland Revenue (Venkatarama Aiyar, J.).
• Punjab: he also cited Edwards v. A.G. for Canada, Attorney-General for Alberta v. Attorney-General for Canada and Newcastle Breweries Ltd. v. Inland Revenue Commissioners (Venkatarama Aiyar, J.).
• Punjab: it is a fallacy to reason that because a contract is one of work and labour, there is no sale of goods. A works contract is a composite transaction that the State can split, and it can tax the sale of goods found in it. He cited Benjamin on Sales, Seath v. Moore, Reid v. Macbeth & Gray and Langford Property Co. Ltd. v. Batten (Venkatarama Aiyar, J.).
• Punjab (with permission): the grant of legislative power has been widely interpreted. He cited Continental Illinois National Bank & Trust Co. of Chicago v. Chicago Rock Island & Pacific Railway Co. and South Carolina v. United States (Venkatarama Aiyar, J.).
• Punjab: legislative history cannot cut down the meaning of the Entry, but can only enlarge it (Lefroy's Canadian Federal System). There is no legislative practice on taxes on sale of goods (Venkatarama Aiyar, J.).
• Mysore (C.K. Daphtary, Solicitor-General, and T.M. Sen): sale of goods is nothing but a transfer of property for a price. There need be no bargain or contract to sell, but the sale must be voluntary. He cited Appleby v. Myres and Reeves v. Barlow. The composite works contract can be split up (Venkatarama Aiyar, J.).
• Kerala (Sardar Bahadur) supported the appellant (Venkatarama Aiyar, J.).

For the respondent, Gannon Dunkerley & Co. (A.V. Viswanatha Sastri, R. Ganapathy Iyer and G. Gopalakrishnan), and its supporting interveners:

• The powers of the legislatures are limited and the Entries fix the bounds of legislation. He cited The Queen v. Burah, James v. Commonwealth of Australia and In re the Central Provinces and Berar Act XIV of 1938 (Venkatarama Aiyar, J.).
• Without a positive direction in the Constitution Act or a compelling context, entries must be read in the light of existing law. Sale of goods was, in 1935, a term of well-recognised legal import. It must mean what it means in the Sale of Goods Act, 1930 (Venkatarama Aiyar, J.).
• He cited L'Union St. Jacques De Montreal v. Belisle, Royal Bank of Canada v. Larue, Wallace Brothers and Co. Ltd. v. Commissioner of Income Tax and The State of Bombay v. F.N. Balsara (Venkatarama Aiyar, J.).
• This Court has always read the expression in the Sale of Goods Act sense. He cited Poppatlal Shah v. The State of Madras, The State of Bombay v. The United Motors (India) Ltd., State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory and Bengal Immunity Co. Ltd. v. The State of Bihar (Venkatarama Aiyar, J.).
• The matter is concluded by The Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash, which read the expression in the sense used in legislation in England and India (Venkatarama Aiyar, J.).
• The Madras Act's definition of sale conflicts with the Sale of Goods Act, 1930. Sale of goods is in Entry 10 of the Concurrent List, so the Madras definition would be repugnant and void under Section 107. He cited D. Sarkar & Bros. v. Commercial Tax Officer (Venkatarama Aiyar, J.).
• A works contract cannot be broken into a contract for labour and a sale of goods. He cited Inland Revenue Commissioners v. The Duke of Westminster and Bank of Chettinad Ltd. v. Commissioner of Income-Tax, Madras. A works contract is entire and indivisible, and there is no sale of goods or materials in it (Venkatarama Aiyar, J.).
• English cases clearly distinguish works contracts from sale of goods. He cited Lee v. Griffin, Robinson v. Graves, Love v. Norman Wright (Builders) Ltd., Tripp v. Armitage, Clark v. Bulmer, Appleby v. Myers, Seath v. Moore and Reid v. Macbeth & Gray. He also cited Hudson on Building Contracts and Benjamin on Sales (Venkatarama Aiyar, J.).
• Interveners for the respondents: Gopal Singh, for Gurbaksh Singh and Messrs. Uttam Singh Duggal & Co., and B.R.L. Iyengar, for United Engineering Co., supported the respondents (Venkatarama Aiyar, J.).

Court's Reasoning

The judgment is a single opinion of the Court delivered by Venkatarama Aiyar, J. It has no numbered paragraphs, so steps cite the opinion.

Venkatarama Aiyar, J. (for the Court)

The question and the conflict in the High Courts

1. Noted: The appeal arises from assessment of sales tax for 1949-1950. It raises an important question on Entry 48 in List II of Schedule VII to the Government of India Act, 1935, Taxes on the sale of goods. (Venkatarama Aiyar, J.)
2. Noted: The respondents are a company in construction and in the sale of sanitary wares and sundry goods. Only two items were in dispute: the Rs. 29,51,528-7-4 for materials and the Rs. 1,98,929-0-3 for foodgrains. (Venkatarama Aiyar, J.)
3. Noted: The State relied on the 1947 amendments to include the value of materials in turnover under rule 4(3). The respondents said there was no sale of those goods and the provisions were ultra vires. (Venkatarama Aiyar, J.)
4. Noted: On foodgrains, the respondents said they were not in that business. They said the price was adjusted against wages. The Tribunal rejected both contentions. (Venkatarama Aiyar, J.)
5. Noted: The High Court held that sale of goods has the Sale of Goods Act meaning. It held that the contracts were entire and indivisible, and that the sale of foodgrains was not in the course of business. (Venkatarama Aiyar, J.)
6. Noted: The State appealed on a certificate under Article 133(1). Bihar, Punjab, Mysore, Kerala and Andhra Pradesh, and three contractors, were allowed to intervene. (Venkatarama Aiyar, J.)
7. Held: The sole question is whether the Madras provisions are ultra vires in so far as they tax the supply of materials in a works contract as a sale of goods. The answer depends on the meaning of sale of goods in Entry 48. (Venkatarama Aiyar, J.)
8. Noted: Section 311(2) defines goods to include all materials, commodities and articles. It has no definition of sale of goods. (Venkatarama Aiyar, J.)
9. Held: The word materials in the definition of goods may cover materials used in a works contract. The question remains whether there is a sale of those materials within Entry 48. (Venkatarama Aiyar, J.)
10. Noted: There was a sharp conflict among High Courts. Pandit Banarsi Das v. State of Madhya Pradesh (Nagpur) upheld the tax on the value of materials. It struck down the fixed percentage deduction for labour, as the tax might fall on labour charges. (Venkatarama Aiyar, J.)
11. Noted: Bhuramal v. State of Rajasthan took a similar view. Mohamed Khasim v. State of Mysore upheld both the tax and the percentage rule. Gannon Dunkerley & Co. v. Sales Tax Officer (Kerala) upheld both. (Venkatarama Aiyar, J.)
12. Noted: Jubilee Engineering Co. Ltd. v. Sales Tax Officer (Hyderabad) followed the Madras High Court and held the taxing provisions ultra vires. The whole controversy hinges on the meaning of sale of goods in Entry 48. (Venkatarama Aiyar, J.)

Liberal construction and the meaning of sale

1. Noted: The appellant and interveners said constitutional powers must be read liberally, so sale of goods must be read broadly and not in the narrow, technical sense of the Sale of Goods Act, 1930. (Venkatarama Aiyar, J.)
2. Noted: In British Coal Corporation v. King, Viscount Sankey said a constituent statute must be read to give its powers the widest possible amplitude. He referred to Edwards v. A.G. for Canada. (Venkatarama Aiyar, J.)
3. Noted: In James v. Commonwealth of Australia, Lord Wright said a Constitution must not be read in a narrow and pedantic sense. (Venkatarama Aiyar, J.)
4. Noted: In In re the Central Provinces and Berar Act No. XIV of 1938, Sir Maurice Gwyer, C.J. asked for a broad and liberal spirit. He added that judges are not free to stretch or pervert the language of the enactment. (Venkatarama Aiyar, J.)
5. Noted: He also called a Constitution a living and organic thing, to be read so that it may prevail rather than perish (ut res magis valeat quam pereat). (Venkatarama Aiyar, J.)
6. Noted: The authority most relied on for the appellant was Navinchandra Mafatlal v. The Commissioner of Income-tax, Bombay City, on income in Entry 54 of List I. (Venkatarama Aiyar, J.)
7. Noted: That decision said the so-called legislative practice was only judicial interpretation of the word in fiscal statutes. It said entries in a legislative list must get the widest construction according to their ordinary meaning. (Venkatarama Aiyar, J.)
8. Noted: The Advocate-General of Madras added that taxation powers in a Constitution Act must be read widely. He relied on Morgan v. Deputy Federal Commissioner of Land Tax, N.S.W. and Broken Hill South Ltd. v. Commissioner of Taxation, N.S.W. (Venkatarama Aiyar, J.)
9. Noted: In Morgan, the Federal Parliament taxed land deemed to be held by shareholders as joint owners. Griffith, C.J. said Parliament may take things as it finds them, irrespective of State property law. (Venkatarama Aiyar, J.)
10. Noted: In Broken Hill South, the Court said a court should not deny a legislature the right to solve taxation problems unfettered by a priori legal categories. (Venkatarama Aiyar, J.)
11. Held: On these authorities, the appellant is right that sale of goods in a Constitution Act, on a taxation topic, must be read broadly and not restrictively. That opens two questions: whether the sense is popular or legal, and what its connotation is. (Venkatarama Aiyar, J.)
12. Noted: Blackstone defines sale as a transmutation of property from one man to another for a price or recompense in value. Read distributively, this means transfer of property for a price. Benjamin on Sale gives the same definition. (Venkatarama Aiyar, J.)
13. Noted: Halsbury's Laws says sale is transfer of ownership for a money price. Where the consideration is other goods, it is exchange or barter, though courts follow the maxim permutatio vicina est emptioni and treat it as analogous. (Venkatarama Aiyar, J.)
14. Noted: Halsbury adds that statutes relating to sale would have no application to barter. Chalmers says the essence of sale is transfer of property for a price, and delivery of goods as consideration makes it exchange. (Venkatarama Aiyar, J.)
15. Noted: Corpus Juris calls sale a term of precise legal import. It adds that the word may take a narrow or broad meaning according to context. (Venkatarama Aiyar, J.)
16. Noted: Williston defines sale of goods as an agreement whereby the seller transfers property in goods to the buyer for a price. He thinks the price may be any personal property. The Concise Oxford Dictionary defines sale as exchange of a commodity for money or other valuable consideration. (Venkatarama Aiyar, J.)
17. Held: There is practical unanimity on the legal sense of sale. The only difference is in America, on whether the price must be in money or money's worth. The dictionary meaning is the same. (Venkatarama Aiyar, J.)
18. Noted: Mr. Sikri said the popular sense is wider than the legal sense, and that sense applies to Entry 48. He relied on Nevile Reid and Company Ltd. v. The Commissioners of Inland Revenue. (Venkatarama Aiyar, J.)
19. Noted: In Nevile Reid, an agreement dated 12 April 1918 sold the trading stock of a brewery, and the transaction was completed on 24 June 1918. The Finance Act, 1918 imposed excess profits tax in between. (Venkatarama Aiyar, J.)
20. Noted: The Commissioners held the April agreement was only an agreement to sell. Sankey, J. agreed, but on the ground that matters remained to be settled. He said sale in the Act should be read in a commercial sense. (Venkatarama Aiyar, J.)
21. Held: In its popular sense a sale is said to take place when the bargain is settled, though property may not pass, as with future or unascertained goods. The observations in Nevile Reid were obiter. (Venkatarama Aiyar, J.)
22. Held: This Court has consistently held that a levy can be made only when the transaction is one of sale, and it is a sale only when property passes. It cited Poppatlal Shah v. The State of Madras and The State of Bombay v. The United Motors (India) Ltd. (Venkatarama Aiyar, J.)
23. Noted: The Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash held that the sale in Entry 48 is a transaction in which title passes. A mere executory agreement is not a sale. (Venkatarama Aiyar, J.)
24. Held: So sale of goods in Entry 48 cannot be read in its popular sense and must be read in its legal sense. (Venkatarama Aiyar, J.)
25. Noted: The concept of sale has its roots in Roman law. Emptio venditio was an agreement to transfer exclusive possession (vacuam possessionem tradere) of something (merx) for consideration. (Venkatarama Aiyar, J.)
26. Noted: An imperial rescript of the Emperors Diocletian and Maximian, of 294 A.D., settled that the consideration must be money. It is embodied in the Institutes of Justinian, Title XXIII. It was a consensual contract, complete on agreement without delivery or formalities. (Venkatarama Aiyar, J.)
27. Noted: The English common law developed on Roman lines, insisting on agreement and price. Benjamin lists four elements: parties competent to contract, mutual assent, a thing whose general property passes, and a price in money paid or promised. (Venkatarama Aiyar, J.)
28. Noted: The English Sale of Goods Act, 1893 (56 & 57 Vict. c. 71), Section 1, codified this. A contract of sale is one where the seller transfers or agrees to transfer property in goods for a money price. It may be absolute or conditional. (Venkatarama Aiyar, J.)
29. Noted: Where property passes under the contract it is called a sale. Where transfer is to take place later or on a condition, it is an agreement to sell, which becomes a sale when the time elapses or the conditions are met. (Venkatarama Aiyar, J.)
30. Noted: Section 77 of the Indian Contract Act, 1872 defined sale as the exchange of property for a price involving transfer of ownership from seller to buyer. It was suggested that a transfer of ownership for a price sufficed, with no bargain. (Venkatarama Aiyar, J.)
31. Held: That suggestion fails. The Contract Act enacts general provisions in Sections 1 to 75. It then deals separately with sale, guarantee, bailment, agency and partnership, and this scheme assumes that all these transactions rest on agreements. (Venkatarama Aiyar, J.)
32. Noted: The Indian Sale of Goods Act, 1930 repealed Chapter VII of the Contract Act. Its Section 4 is practically in the same terms as Section 1 of the English Act. (Venkatarama Aiyar, J.)
33. Held: Under English and Indian law, a sale needs an agreement between the parties to transfer title, which presupposes capacity to contract. It needs money consideration, and property must actually pass. Unless all are present, there is no sale. (Venkatarama Aiyar, J.)
34. Held: If title passes but not by any contract, express or implied, there is no sale. If the consideration is not money, it may be exchange or barter. If title has not passed, it is an agreement to sell and not a completed sale. (Venkatarama Aiyar, J.)

Legal import and legislative practice

1. Noted: The respondents said sale of goods was, in 1935, a term of well-recognised legal import in England and India. So it must have the meaning it has in the Sale of Goods Act, 1930. (Venkatarama Aiyar, J.)
2. Noted: They cited United States v. Wong Kim Ark. That case said the language of the Constitution must be read in the light of the common law, whose principles were familiar to its framers. (Venkatarama Aiyar, J.)
3. Noted: South Carolina v. United States (Brewer, J.) said the Court must place itself in the position of the men who framed the grants of power. Taft, C.J. in Ex parte Grossman said the language of the Constitution cannot be read safely except by reference to the common law. (Venkatarama Aiyar, J.)
4. Noted: The appellant relied on Continental Illinois National Bank and Trust Company of Chicago v. Chicago Rock Island & Pacific Railway Company. It said English rules do not restrict grants of governmental power (Waring v. Clarke), though they may restrict clauses that protect individual rights, such as trial by jury. (Venkatarama Aiyar, J.)
5. Noted: Weaver on Constitutional Law and Crawford on Statutory Construction state the law as South Carolina v. United States does. (Venkatarama Aiyar, J.)
6. Held: It is unnecessary to examine the American rule closely. The Privy Council has stated the law on the British North America Act, 1867. (Venkatarama Aiyar, J.)
7. Noted: In L'Union St. Jacques De Montreal v. Belisle, the question was whether a Quebec law giving relief to a society in financial embarrassment was a law on bankruptcy and insolvency. Lord Selborne said the words must be understood in their known legal sense. (Venkatarama Aiyar, J.)
8. Noted: In Royal Bank of Canada v. Larue, Viscount Cave applied that test. He held that Section 11(10) of the Canadian Bankruptcy Act, which postponed a charge under a judgment to a debtor's assignment for creditors, was a law on bankruptcy under Section 91(21). (Venkatarama Aiyar, J.)
9. Noted: In The Labour Relations Board of Saskatchewan v. John East Iron Works Ltd., the question arose under Section 96 of the 1867 Act. Lord Simonds said the courts in Section 96 were those generally understood as courts in 1867. Labour courts were then unknown. (Venkatarama Aiyar, J.)
10. Noted: Halsbury's Laws, Volume 11, page 93, says the existing state of English law in 1867 is relevant in finding the meaning of terms conferring power. (Venkatarama Aiyar, J.)
11. Noted: On legislative practice, Croft v. Dunphy (Lord Macmillan) said that when power is conferred on a topic, the scope is found by what is ordinarily treated as within that topic in the legislative practice of the State that conferred the power. (Venkatarama Aiyar, J.)
12. Noted: Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax (Lord Uthwatt) said the object is not to find a pattern that the power must follow. It is to ascertain the general conception behind the words in the enabling Act. (Venkatarama Aiyar, J.)
13. Noted: In re the Central Provinces and Berar Act No. XIV of 1938, Gwyer, C.J. looked at Indian legislative practice on excise duties. Parliament must be presumed to have had it in mind. (Venkatarama Aiyar, J.)
14. Noted: In The State of Bombay v. F.N. Balsara, this Court looked at legislative practice on intoxicating liquor to find the scope of Entry 31, List II. (Venkatarama Aiyar, J.)
15. Held: The appellants rightly say legislative practice is not conclusive. It is valuable, and might prove determinative unless there are good reasons to disregard it. In Budh Prakash it was used for the very words now under consideration. (Venkatarama Aiyar, J.)
16. Noted: In Budh Prakash, the Court looked at the English Sale of Goods Act, 1893, the Indian Contract Act, 1872 and the Sale of Goods Act, 1930. It noted the settled distinction between a sale and an agreement to sell. It held that Entry 48 authorises a tax only when there is a completed sale involving transfer of title. (Venkatarama Aiyar, J.)
17. Held: That decision is not decisive here, but it goes far to support the respondents' view. Sale of goods in Entry 48 must be read in the sense it bears in the Indian Sale of Goods Act, 1930. (Venkatarama Aiyar, J.)
18. Noted: The appellant and interveners raised four grounds. The Act, read as a whole, shows a different sense. Legislative practice does not support the narrow view. The expression has a wider legal meaning. The language must be read liberally for new concepts of sales tax. The Court examines them in turn. (Venkatarama Aiyar, J.)

Ground 1: the Government of India Act read as a whole

1. Held: This argument is open to the appellant, since rules of interpretation only aid in finding legislative intent and must yield to context. (Venkatarama Aiyar, J.)
2. Noted: Section 311(2) defines agricultural income as defined for the enactments on Indian income-tax. The argument is that the same link would have been made for sale of goods if the Sale of Goods Act meaning was intended. (Venkatarama Aiyar, J.)
3. Held: That is not the right inference. The true intent is that sale of goods in Entry 48 bears the precise meaning it has in law. That meaning should not fluctuate with the definition of sale in laws in force from time to time. (Venkatarama Aiyar, J.)
4. Noted: The argument on Entries 31 and 49, List II, was that sale is used there in a wider sense. Entry 31 covers production, manufacture, possession, transport, purchase and sale of intoxicating liquors and narcotic drugs. (Venkatarama Aiyar, J.)
5. Held: The argument misunderstands how the Entries are drafted. General words come first, then words on particular aspects. The general words are not cut down by the sub-heads. (Venkatarama Aiyar, J.)
6. Noted: Manikkasundara v. R.S. Nayudu says the later words do not limit the opening general term. They illustrate the scope and objects of the legislation. (Venkatarama Aiyar, J.)
7. Held: A law that prohibits any dealing in intoxicating liquor, by sale, barter or gift, is valid under the opening words without the words sale and purchase. (Venkatarama Aiyar, J.)
8. Held: Entry 49, List II, covers cesses on entry of goods into a local area for consumption, use or sale therein. The words are a composite expression meaning octroi duties and have a precise legal meaning. Sale there throws no light on Entry 48. (Venkatarama Aiyar, J.)
9. Held: The provisions of the Government of India Act relied on for the appellant are too inconclusive to show that sale in Entry 48 was used in a different sense. (Venkatarama Aiyar, J.)

Ground 2: legislative practice

1. Noted: The appellant said sale of goods and taxes on sale of goods are distinct. The first defines the rights of parties to a contract. The second brings money into the State's coffers. So legislative practice on one is of little help on the other. (Venkatarama Aiyar, J.)
2. Held: It is trite that the object and scope of the two laws differ. If practice differed, the Court would look to sales tax legislation. But in 1935 there was no sales tax law in England or India. (Venkatarama Aiyar, J.)
3. Noted: The first sales tax law in India was the Madras General Sales Tax Act, 1939, made under Entry 48. England introduced a purchase tax only by the Finance Act No. 2 of 1940. (Venkatarama Aiyar, J.)
4. Held: So Entry 48 introduced a topic on which there was no legislative practice. (Venkatarama Aiyar, J.)
5. Noted: The appellant turned to Australia and America. The Commonwealth Sales Tax Act of 1930 in Australia taxed retail sales. (Venkatarama Aiyar, J.)
6. Noted: In Sydney Hydraulic and General Engineering Co. v. Blackwood & Son, the New South Wales Supreme Court held that an agreement to do work and supply materials was not an agreement for sale or delivery of goods. It cited Irving's Commonwealth Sales Tax Law and Practice, p. 77. (Venkatarama Aiyar, J.)
7. Noted: In 1932 the legislature added Section 3(4). A person is deemed to have sold goods if, in performing a contract that is not a contract of sale, he supplies goods whose property passes under the contract to another person. (Venkatarama Aiyar, J.)
8. Noted: In M.R. Hornibrook (Pty.) Ltd. v. Federal Commissioner of Taxation, a contractor made piles and used them in a bridge. The majority held him liable to tax on the value of the piles. Latham, C.J. said there was no sale in fact but there was one in law by Section 3(4). (Venkatarama Aiyar, J.)
9. Held: Latham, C.J.'s judgment is adverse to the appellant. It decides that under the general law, apart from Section 3(4), there was no sale of the materials. It became a taxable sale only by the deeming provision. (Venkatarama Aiyar, J.)
10. Held: Under the Australian Constitution, power on the items in Section 51 is vested exclusively in the Commonwealth Parliament. Item (ii), taxation, is plenary and absolute. It could tax the value of materials whether the transaction is a sale or not. (Venkatarama Aiyar, J.)
11. Noted: Two of the Judges in Hornibrook rested their decision on the ground that the use of materials in construction was itself taxable under the Act. (Venkatarama Aiyar, J.)
12. Held: Under the Government of India Act, the Provincial Legislature can legislate only on matters in Lists II and III. The entries are read liberally, but the law must be with respect to those matters. A tax on sale of goods under Entry 48 must relate in fact to sale of goods. (Venkatarama Aiyar, J.)
13. Held: A Provincial Legislature cannot tax transactions that are not sales by merely enacting that they shall be deemed to be sales. (Venkatarama Aiyar, J.)
14. Noted: In Blome Co. v. Ames, the Illinois Supreme Court held that a sales tax applied to materials used by a contractor. Herlihy Mid-Continent Co. v. Nudelman overruled it. It held that no title to the materials passed as goods, so the Sales Tax Act did not apply. (Venkatarama Aiyar, J.)
15. Held: That accords with the generally accepted notion of sale of goods. It does not stop States from taxing construction works in their sovereign power. (Venkatarama Aiyar, J.)
16. Held: In 1935 there was no legislative practice on sales tax in England or India. America and Australia taxed the supply of materials in their sovereign powers by treating the supply as a sale. Apart from such legislation, sale of goods bore its common law meaning, and use of materials in construction is not a sale. This supports reading Entry 48 as the Sale of Goods Act, 1930 reads it. (Venkatarama Aiyar, J.)

Ground 3: a wider legal sense of sale

1. Noted: Mr. Sikri said sale has a wider sense outside the law of sale of goods. It covers all transactions that transfer title, with no bargain needed, even involuntary sales. He cited Ex parte Drake, In re Ware and other cases. (Venkatarama Aiyar, J.)
2. Noted: In Ex parte Drake, In re Ware, the question was whether an unsatisfied detinue decree extinguished the title of the decree-holder. Jessel, M.R. said such a judgment is a kind of involuntary sale. (Venkatarama Aiyar, J.)
3. Noted: In Great Western Railway Co. v. Commissioners of Inland Revenue, an Act dissolved two companies in an amalgamation. The question was whether the Act had to be stamped as a conveyance on sale under the Stamp Act, 1891. (Venkatarama Aiyar, J.)
4. Noted: Esher, M.R. read conveyance on sale as a conveyance the same as if upon a contract of purchase and sale. Kay, L.J. said the Stamp Act stamps the instrument by which property is transferred on a sale. (Venkatarama Aiyar, J.)
5. Held: That is a decision on a particular provision of the Stamp Act. It is not relevant to sale under the general law. The observations emphasise the contrast between the two concepts. (Venkatarama Aiyar, J.)
6. Noted: In The Commissioners of Inland Revenue v. Newcastle Breweries Ltd., rum was taken over compulsorily by the Admiralty under the Defence of the Realm Regulations. Viscount Cave said the sale was compulsory and to the Crown, which made no difference in principle. (Venkatarama Aiyar, J.)
7. Noted: In Kirkness v. John Hudson & Co. Ltd., railway wagons were taken over under Section 29 of the Transport Act, 1947, and compensation was paid. Lord Morton held that the compulsory taking was a sale, since Acts and cases had called it a compulsory sale for a hundred years. (Venkatarama Aiyar, J.)
8. Noted: The majority of the House held that a bargain is essential to a sale. Calling compulsory taking a sale was a misuse of the word. (Venkatarama Aiyar, J.)
9. Noted: In Nalukuya v. Director of Lands, Native Land Trust Board of Fiji, the Privy Council held that compensation for compulsory acquisition was covered by purchase money received in respect of a sale or other disposition of native land under Section 15 of the Native Land Trust Ordinance. (Venkatarama Aiyar, J.)
10. Held: Nalukuya rests on the particular statute. It does not affect the Kirkness majority that mutual assent is an element of sale. (Venkatarama Aiyar, J.)
11. Held: Lord Morton's main ground was that British legislative practice called compulsory acquisition a compulsory sale. The Indian practice differs. The Land Acquisition Act, 1894 calls it acquisition. Entry 9, List II speaks of compulsory acquisition of land, and Entry 42, List III of the Constitution of acquisition and requisition of property. (Venkatarama Aiyar, J.)
12. Held: That ratio has no place in reading Entry 48. The majority view in Kirkness matches this Court's view in Poppatlal Shah and United Motors that a bargain is essential. Kirkness concludes the matter, so the other English cases need no discussion. (Venkatarama Aiyar, J.)
13. Noted: The Solicitor-General, the Advocate-General of Madras and other counsel argued something narrower. Even if an agreement is needed, it need not relate to the goods as such. It is enough that in carrying it out title in movables passes for consideration. (Venkatarama Aiyar, J.)
14. Noted: They said Entry 48 needs only a sale, meaning transfer of title. To require an agreement to sell the goods as such would add words the Entry does not contain. (Venkatarama Aiyar, J.)
15. Held: The Court cannot agree. If the words are read in their legal sense, that sense is the one in the law of sale of goods. Words of legal import are read in their legal sense because they have acquired a definite and precise sense. (Venkatarama Aiyar, J.)
16. Held: Under both the common law and statute law of England and India, a sale needs an agreement, express or implied, relating to goods, completed by passing of title in those goods. Both the agreement and the sale must relate to the same subject matter. (Venkatarama Aiyar, J.)
17. Held: Where goods delivered are not the goods contracted for, the buyer may reject them, or accept them and claim damages for breach of warranty. As the Court puts it, "Under the law, therefore, there cannot be an agreement relating to one kind of property and a sale as regards another". (Venkatarama Aiyar, J.)
18. Held: The Court states the test: "there must be an agreement between the parties for the sale of the very goods in which eventually property passes". (Venkatarama Aiyar, J.)
19. Held: In a building contract, the contractor agrees to construct a building to specifications and receive payment. There is neither a contract to sell the materials used, nor does property pass in them as movables. So it is impossible to say a sale of materials is implicit in a building contract. (Venkatarama Aiyar, J.)

Ground 4: flexible and elastic construction

1. Noted: The appellant said constitutional words must be flexible to cover things unknown when enacted. So sale of goods should include what may be regarded as a sale in future. (Venkatarama Aiyar, J.)
2. Noted: In Attorney General v. Edison Telephone Company of London, the question was whether telephones infringed the Postmaster General's exclusive privilege of transmitting telegrams under Acts of 1863 and 1869. The Court held the definition of telegraph was wide enough to include telephones. (Venkatarama Aiyar, J.)
3. Noted: Toronto Corporation v. Bell Telephone Company of Canada concerned Section 92(10)(a) of the British North America Act, 1867, on lines of ships, railways, telegraphs and other works and undertakings connecting provinces. The Privy Council held a law on a telephone company was within the Dominion's power, on the words other works and undertakings. (Venkatarama Aiyar, J.)
4. Noted: In In re the Regulation and Control of Radio Communication in Canada, the Privy Council held that broadcasting was an undertaking extending beyond the province, and also fell within the description of telegraph. (Venkatarama Aiyar, J.)
5. Noted: In The King v. Brislan: Ex parte Williams, the High Court of Australia held that a law on radio broadcasting was a law on postal, telegraphic, telephonic and other like services under Section 51(5) of the Australian Commonwealth Act. (Venkatarama Aiyar, J.)
6. Held: The principle is that when new facts arise after an enactment that its makers could not have foreseen, the provision applies if its words are broad enough to hold them. In Lord Wright's words in James v. Commonwealth of Australia, the meaning does not change. The changing circumstances illustrate the full import of that meaning. (Venkatarama Aiyar, J.)
7. Held: The question is not what the framers understood but whether the words are broad enough to include the new facts. This principle has no application here, as sales tax was known to the framers and was expressly provided for in Entry 48. (Venkatarama Aiyar, J.)
8. Held: It is then a question of interpreting the words. Words of known legal import are read in the sense they had when enacted, so sale of goods bears the meaning it has in the Indian Sale of Goods Act. (Venkatarama Aiyar, J.)

Section 107 of the Government of India Act

1. Noted: The respondents also said that, even on the wider sense, the provisions would be bad under Section 107. They relied on D. Sarkar & Bros. v. Commercial Tax Officer (Calcutta). (Venkatarama Aiyar, J.)
2. Noted: Section 107(1) says a Provincial law repugnant to a Dominion law on a matter the Dominion can enact, or to an existing law on a Concurrent List matter, is void to the extent of the repugnancy. (Venkatarama Aiyar, J.)
3. Noted: Section 107(2) says a Provincial law on a Concurrent List matter that is repugnant to an earlier Dominion or existing law prevails in that Province if it was reserved for and received the Governor-General's assent. The Dominion Legislature may still legislate further. (Venkatarama Aiyar, J.)
4. Noted: The argument was that the Madras definition of sale conflicts with the Sale of Goods Act, sale of goods is Entry 10 of the Concurrent List, and the 1947 Act was not reserved for the Governor-General's assent. (Venkatarama Aiyar, J.)
5. Held: The short answer is that the Madras General Sales Tax Act is a law relating not to sale of goods, but to tax on sale of goods. It is not a Concurrent List matter or one the Dominion could legislate on. It is within the exclusive competence of the Province under Entry 48 in List II. (Venkatarama Aiyar, J.)
6. Held: The only question for such a law is whether it is within Entry 48. If it is, no question of repugnancy under Section 107 arises. D. Sarkar & Bros. cannot be accepted as sound on this point. (Venkatarama Aiyar, J.)

Splitting the works contract

1. Noted: The States contended that, even if supply of materials is not a sale under the Sale of Goods Act, the building contract is a composite agreement of supplying materials, contributing labour and producing the construction. The State can split it and tax the materials as a sale. (Venkatarama Aiyar, J.)
2. Noted: They said this power is ancillary to the substantive power to tax sales. They relied on The United Province v. Atiqa Begum and Navinchandra Mafatlal at page 836. (Venkatarama Aiyar, J.)
3. Noted: The respondents said that even if the agreement could be split, the result would not be a sale, since there is no agreement to sell materials as such and property does not pass in them as movables. (Venkatarama Aiyar, J.)
4. Noted: The nature of works contracts is discussed in Hudson on Building Contracts, 7th Ed., pp. 386-389, and Benjamin on Sale, 8th Ed., pp. 156-168 and 352-355. The Court refers to the more important cases. (Venkatarama Aiyar, J.)
5. Noted: In Tripp v. Armitage, a builder named Bennett agreed with trustees to build a hotel. He then became bankrupt. The dispute was over title to wooden sash-frames the trustees had approved but not yet fitted. (Venkatarama Aiyar, J.)
6. Noted: Lord Abinger, C.B. said it was not a contract for sale and purchase of goods as movable chattels. It was a contract to make up materials and fix them, and until fixed the property would not pass. Parke, B. said it was merely parcel of a larger contract to build a house. (Venkatarama Aiyar, J.)
7. Noted: In Clark v. Bulmer, a plaintiff contracted to build a 100 horse-power engine for E. 2,500. He sued for E. 3,000 as the price of a main engine and other goods sold and delivered. (Venkatarama Aiyar, J.)
8. Noted: Parke, B. held that there was no sale of the engine as an entire chattel, and no contract for sale of its parts as movable goods. The contract was to select materials, make them into parts, carry them to the place and fix them to the soil. (Venkatarama Aiyar, J.)
9. Noted: In Seath v. Moore, a firm of engineers, A. Campbell & Son, made five agreements with the shipbuilders T.B. Seath and Co. to supply engines, boilers and machinery. They became bankrupt before completion. (Venkatarama Aiyar, J.)
10. Noted: The House of Lords, approving Tripp v. Armitage, held there was no sale of the machinery and parts as such. For the appellant, Lord Watson's observation was cited, that once a vessel reaches a stage appropriated to the contract, property passes and later additions become the buyer's by accretion. (Venkatarama Aiyar, J.)
11. Held: Even in that passage, title to the parts passes not under any contract but on the principle of accretion. (Venkatarama Aiyar, J.)
12. Noted: The respondents relied on Lord Watson's further observation. Materials provided by the builder cannot be treated as appropriated to the contract, or as sold, unless they have been affixed to or made part of the corpus. He cited Wood v. Bell and Woods v. Russell. (Venkatarama Aiyar, J.)
13. Noted: In Reid v. Macbeth & Gray, shipbuilders went bankrupt with iron and steel plates lying at railway stations. The House of Lords held that no title in them passed to the shipowners, as the contract was one for a complete ship. (Venkatarama Aiyar, J.)
14. Noted: Lord Davey said there is only one contract, for purchase of the ship. There is no contract for sale of the materials separately. Without a contract for sale of chattels within the Sale of Goods Act, its sections do not apply. (Venkatarama Aiyar, J.)
15. Held: If a works contract has no sale of materials as defined in the Sale of Goods Act, and an action for price of goods sold and delivered lies for none, then even disintegrating the contract cannot yield a sale taxable under Entry 48. (Venkatarama Aiyar, J.)
16. Noted: In Love v. Norman Wright (Builders) Ltd., the defendants had agreed with the Secretary of State to supply and fix blackout curtains and rails in police stations. They sub-contracted the work to the plaintiffs. (Venkatarama Aiyar, J.)
17. Noted: Goddard, L.J. held the sub-contract was one of sale, even though work and labour were involved. Property passed from plaintiff to defendants and then to the War Office. (Venkatarama Aiyar, J.)
18. Held: That decision does not run against this conclusion. The goods to be supplied were the subject matter of the contract itself, not materials that were parcel of a contract to deliver a chattel. The buildings belonged to the Government, so title could pass only under the contract. (Venkatarama Aiyar, J.)
19. Noted: A further argument was drawn from the form of action in quantum meruit (as much as is earned). If a contractor is prevented from completing, the action lies for work done and materials supplied. This showed that sale of goods is latent in a building contract. (Venkatarama Aiyar, J.)
20. Noted: Lord Blackburn in Appleby v. Myres and Bullen & Leake's Precedents of Pleadings, 10th Ed., pp. 285-286 were cited for that form of action. (Venkatarama Aiyar, J.)
21. Held: A quantum meruit claim is a claim for damages for breach of contract. The value of materials is only a basis for assessing compensation. The claim is not for the price of goods sold and delivered. Section 65 of the Indian Contract Act is the same. (Venkatarama Aiyar, J.)
22. Held: Another difficulty with splitting is that property in materials used in a building contract does not pass to the other party as movable property. It would pass so if the parties agreed. If the contract was only to construct a building, the materials become the other party's property only on the theory of accretion. (Venkatarama Aiyar, J.)
23. Noted: Blackburn, J. in Appleby v. Myres said materials worked into another's property become part of it. Bricks in a wall become part of the house, and thread stitched into a coat becomes part of the coat. (Venkatarama Aiyar, J.)
24. Held: When the work is a house, the construction embedded on the land becomes an accretion to the land on the maxim quicquid plantatur solo, solo cedit (what is annexed to the soil goes with the soil). It vests in the other party as owner of the land, not by the contract. (Venkatarama Aiyar, J.)
25. Noted: It was argued that the maxim is not accepted in India. The Full Bench of the Calcutta High Court in Thakoor Chunder Poramanick v. Ramdhone Bhuttacharjee said that a bona fide improver may remove the materials, or get compensation if the building stays. (Venkatarama Aiyar, J.)
26. Noted: The Privy Council approved that statement in Beni Ram v. Kundan Lall and Narayan Das Khettry v. Jatindranath. (Venkatarama Aiyar, J.)
27. Held: Those decisions concern persons who, not being trespassers, put up constructions in good faith on land of others. The maxim does not apply to them. That exception does not apply to buildings constructed under a works contract. Title to those passes to the landowner as an accretion, so there is no question of title passing as movables. (Venkatarama Aiyar, J.)
28. Noted: Mr. Sastri said that when the thing produced under the contract is itself movable, materials incorporated into it might pass as movables. Then the conclusion that no taxable sale results can rest only on the absence of an agreement to sell materials as such. (Venkatarama Aiyar, J.)
29. Held: But this is a building contract. The theory that it can be broken up and a sale found in one part fails on two grounds. There is no agreement to sell materials as such, and property in them does not pass as movables. (Venkatarama Aiyar, J.)
30. Held: To sum up: sale of goods in Entry 48 is a nomen juris. The Court puts the essence this way: "its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement". (Venkatarama Aiyar, J.)
31. Held: "one, entire and indivisible and that is its norm, there is no sale of goods". The Provincial Legislature therefore has no competence under Entry 48 to tax supply of materials in such a contract as a sale. (Venkatarama Aiyar, J.)

Consequences of the conclusion

1. Held: None of the legislatures under the Government of India Act, 1935 could, under Section 100, impose a tax on construction contracts. It would have needed the residual powers of the Governor-General under Section 104. (Venkatarama Aiyar, J.)
2. Held: A construction leading to such a result must be avoided if possible, on Manikkasundara v. R.S. Nayudu. (Venkatarama Aiyar, J.)
3. Noted: States acting on the view that Entry 48 authorises the tax have enacted such laws and collected the tax. Several High Courts affirmed their validity. All were in the statute book when the Constitution came into force. (Venkatarama Aiyar, J.)
4. Noted: It is regretted that nothing in the Constitution offers a solution. Article 248 and Entry 97 in List I give residual power to Parliament, but it could not have been intended that the Centre should tax works constructed in the States. (Venkatarama Aiyar, J.)
5. Noted: The State Legislatures had given sale of goods in Entry 48 a wider meaning. States with sovereign powers have recently taxed the use of materials in construction. The power is better lodged with the States than the Centre. (Venkatarama Aiyar, J.)
6. Noted: The Constitution might have given an inclusive definition of sale in Entry 54 (as printed in the source) to cover the extended sense. (Venkatarama Aiyar, J.)
7. Held: But "our duty is to interpret the law as we find it". After anxious consideration, there is no sale as such of materials used in a building contract. The Provincial Legislatures had no competence to tax them under Entry 48. (Venkatarama Aiyar, J.)
8. Held: This conclusion refers only to works contracts that are entire and indivisible, as the Court below held the respondents' contracts to be. Hudson on Building Contracts, p. 165 sets out the several forms such contracts take. (Venkatarama Aiyar, J.)
9. Held: The parties might make distinct and separate contracts, one to transfer materials for money and another to pay for services and work. Then there are really two agreements, though in a single instrument. The State's power to separate them and tax the sale cannot be questioned and stands untouched by this judgment. (Venkatarama Aiyar, J.)
10. Held: The appeal fails and is dismissed with costs. (Venkatarama Aiyar, J.)

Authorities

• Poppatlal Shah v. The State of Madras ([1953] SCR 677) and The State of Bombay v. The United Motors (India) Ltd. ([1953] SCR 1069): sale needs passing of property; bargain is essential. Relied on (Venkatarama Aiyar, J.).
• The Sales Tax Officer, Pilibhit v. Messrs. Budh Prakash Jai Prakash ([1955] 1 SCR 243): sale in Entry 48 is a completed sale involving transfer of title; an executory agreement is not a sale. Relied on (Venkatarama Aiyar, J.).
• Pandit Banarsi Das v. State of Madhya Pradesh ((1955) 6 STC 93), Bhuramal v. State of Rajasthan (AIR 1957 Raj. 104), Mohamed Khasim v. State of Mysore (AIR 1955 Mys. 41) and Gannon Dunkerley & Co. v. Sales Tax Officer (AIR 1957 Ker. 146): High Court views upholding the tax; disapproved (Venkatarama Aiyar, J.).
• Jubilee Engineering Co. Ltd. v. Sales Tax Officer (AIR 1956 Hyd. 79): followed the Madras High Court; approved (Venkatarama Aiyar, J.).
• D. Sarkar & Bros. v. Commercial Tax Officer (AIR 1957 Cal. 283): Section 107 repugnancy; disapproved (Venkatarama Aiyar, J.).
• Navinchandra Mafatlal v. The Commissioner of Income-tax, Bombay City ([1955] 1 SCR 829): widest construction of entries; relied on by the appellant (Venkatarama Aiyar, J.).
• British Coal Corporation v. King ([1935] AC 500) and Edwards v. A.G. for Canada ([1930] AC 124): widest amplitude for constituent statutes (Venkatarama Aiyar, J.).
• James v. Commonwealth of Australia ([1936] AC 578): Constitution not to be read in a narrow, pedantic sense; changing circumstances illustrate the full import of the meaning (Venkatarama Aiyar, J.).
• In re the Central Provinces and Berar Act No. XIV of 1938 ([1939] FCR 18): liberal spirit but no stretching of language; Indian legislative practice (Venkatarama Aiyar, J.).
• Morgan v. Deputy Federal Commissioner of Land Tax, N.S.W. ((1912) 15 CLR 661) and Broken Hill South Ltd. v. Commissioner of Taxation (N.S.W.) ((1937) 56 CLR 337): taxing powers read widely (Venkatarama Aiyar, J.).
• Nevile Reid and Company Ltd. v. The Commissioners of Inland Revenue ((1922) 12 Tax Cas. 545): popular or commercial sense of sale; obiter (Venkatarama Aiyar, J.).
• United States v. Wong Kim Ark ((1898) 169 US 649), South Carolina v. United States ((1905) 199 US 437) and Ex parte Grossman ((1925) 267 US 87): Constitution read in light of common law (Venkatarama Aiyar, J.).
• Continental Illinois National Bank and Trust Company of Chicago v. Chicago Rock Island & Pacific Railway Company ((1935) 294 US 648) and Waring v. Clarke ((1847) 5 How. 441): English rules do not restrict grants of power (Venkatarama Aiyar, J.).
• L'Union St. Jacques De Montreal v. Belisle ((1874) LR 6 PC 31), Royal Bank of Canada v. Larue ([1928] AC 187) and The Labour Relations Board of Saskatchewan v. John East Iron Works Ltd. ([1949] AC 134): words read in their known legal sense (Venkatarama Aiyar, J.).
• Croft v. Dunphy ([1933] AC 156), Wallace Brothers and Co. Ltd. v. Commissioner of Income-tax ((1948) LR 75 IA 86) and The State of Bombay v. F.N. Balsara ([1951] SCR 682): legislative practice guides the scope of a power (Venkatarama Aiyar, J.).
• Manikkasundara v. R.S. Nayudu ([1946] FCR 67): general words of an Entry are not cut down by later particular words; a result that leaves no power should be avoided (Venkatarama Aiyar, J.).
• Sydney Hydraulic and General Engineering Co. v. Blackwood & Son (8 NSWSR) and M.R. Hornibrook (Pty.) Ltd. v. Federal Commissioner of Taxation ((1939) 62 CLR 272): Australian works-contract tax; only a deeming provision made it a sale (Venkatarama Aiyar, J.).
• Blome Co. v. Ames ((1937) 111 ALR 940) and Herlihy Mid-Continent Co. v. Nudelman ((1937) 115 ALR 485): Illinois; the former overruled by the latter (Venkatarama Aiyar, J.).
• Ex parte Drake, In re Ware ((1877) 5 Ch. D. 866), Great Western Railway Co. v. Commissioners of Inland Revenue ([1894] 1 QB 507), The Commissioners of Inland Revenue v. Newcastle Breweries Ltd. ((1927) 12 Tax Cas. 927), Kirkness v. John Hudson & Co. Ltd. ([1955] AC 696) and Nalukuya v. Director of Lands, Native Land Trust Board of Fiji ([1957] AC 325): wider sense of sale; distinguished, with Kirkness followed on the need for a bargain (Venkatarama Aiyar, J.).
• Attorney General v. Edison Telephone Company of London ((1880) LR 6 QBD 244), Toronto Corporation v. Bell Telephone Company of Canada ([1905] AC 52), The Regulation and Control of Radio Communication in Canada, In re ([1932] AC 304) and The King v. Brislan: Ex parte Williams ((1935) 54 CLR 262): new facts within broad words; held not applicable (Venkatarama Aiyar, J.).
• The United Province v. Atiqa Begum ([1940] FCR 110): relied on by the States for ancillary power (Venkatarama Aiyar, J.).
• Tripp v. Armitage ((1839) 4 M & W 687), Clark v. Bulmer ((1843) 11 M & W 243), Seath v. Moore ((1886) 11 App. Cas. 350) and Reid v. Macbeth & Gray ([1904] AC 223): no sale of materials in a works contract; title passes by accretion (Venkatarama Aiyar, J.). Seath v. Moore cites Wood v. Bell ((1856) 6 E & B 355) and Woods v. Russell ((1822) 5 B & Al 942).
• Love v. Norman Wright (Builders) Ltd. ([1944] 1 KB 484): sub-contract for curtains and rails was a sale; distinguished (Venkatarama Aiyar, J.).
• Appleby v. Myres ((1867) LR 2 CP 651): materials worked into another's property become part of it; quantum meruit (Venkatarama Aiyar, J.).
• Thakoor Chunder Poramanick v. Ramdhone Bhuttacharjee ((1866) 6 WR 228), Beni Ram v. Kundan Lall ((1899) LR 26 IA 58) and Narayan Das Khettry v. Jatindranath ((1927) LR 54 IA 218): bona fide improver; not applicable to works contracts (Venkatarama Aiyar, J.).
• Cited by counsel only: The Deputy Federal Commissioner of Taxation v. Stronach (55 CLR 305); The Queen v. Burah (5 IA 178); Reeves v. Barlow (LR 12 QBD 436); Langford Property Co. Ltd. v. Batten ([1951] AC 786); State of Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory ([1954] SCR 53); Bengal Immunity Co. Ltd. v. The State of Bihar ([1955] 2 SCR 603); Inland Revenue Commissioners v. The Duke of Westminster ([1936] AC 1); Bank of Chettinad Ltd. v. Commissioner of Income-Tax, Madras (67 IA 394); Lee v. Griffin (121 ER 716); Robinson v. Graves ([1935] 1 KB 579); Attorney-General for Alberta v. Attorney-General for Canada ([1947] AC 503); Newcastle Breweries Ltd. v. Inland Revenue Commissioners (96 LJKB 735).
• Names as spelt in the source text: Mohamad Khasim v. State of Alysoye (for Mohamed Khasim v. State of Mysore); Kirkness v. Johib Hudson & Co. Ltd. (for Kirkness v. John Hudson & Co. Ltd.); The Queen v. Buralh (for The Queen v. Burah); Pilibhit v. Mls. Budh Prakash Jai Prakas (for Budh Prakash Jai Prakash); Appleby v. Myers (also spelt Appleby v. Myres); South Corolina v. United States (for South Carolina v. United States); The King v. Bristan (for The King v. Brislan). Jessel, M.R. in Ex parte Drake also referred to Brinsmead v. Harrison.
• Texts referred to: Blackstone; Benjamin on Sale (8th Edn.); Halsbury's Laws of England (2nd Edn., Vol. 29; Vol. 11, page 93); Chalmers, Sale of Goods Act (12th Edn.); Corpus Juris (Vol. 55); Williston on Sales; Concise Oxford Dictionary; Hudson on Building Contracts (7th Edn.); Irving's Commonwealth Sales Tax Law and Practice; Weaver on Constitutional Law; Crawford on Statutory Construction; Lefroy's Canadian Federal System; Bullen & Leake's Precedents of Pleadings (10th Edn.).

Provisions mentioned

• Entry 48, List II, Schedule VII, Government of India Act, 1935: taxes on the sale of goods; the provincial power under challenge.
• Sections 100, 104 and 107, Government of India Act, 1935: Section 100 gives legislative powers by Lists; Section 104 is the Governor-General's residual power; Section 107 makes a Provincial law repugnant to a Dominion or existing Concurrent List law void, unless reserved and assented to.
• Section 311(2), Government of India Act, 1935: defines goods to include all materials, commodities and articles, and agricultural income by the income-tax enactments.
• Entry 9, List II: compulsory acquisition of land.
• Entry 10, Concurrent List: the entry the respondents said covers sale of goods.
• Entries 31 and 49, List II: intoxicating liquors and narcotic drugs (Entry 31); cesses on entry of goods into a local area for consumption, use or sale (Entry 49).
• Entry 54, List I, and Entry 42, List III: Entry 54 of List I on income was in Navinchandra Mafatlal. Entry 42 of List III is acquisition and requisition of property. Entry 45 of List I was mentioned in the Central Provinces case.
• Articles 133(1) and 248, and Entry 97 of List I, Constitution: Article 133(1) is the certificate for appeal; Article 248 and Entry 97 give residual power to Parliament.
• Sections 2(c), 2(d), 2(h), 2(i) and 2(ii) and rule 4(3), Madras General Sales Tax Act, 1939, as amended by Madras Act XXV of 1947: goods, dealer, sale, turnover and works contract, and the valuation rule.
• Section 4, Indian Sale of Goods Act, 1930: sale and agreement to sell, in the same terms as Section 1 of the English Act of 1893.
• Sections 1 to 75, 65 and 77, Indian Contract Act, 1872: general provisions; Section 65, where the Court says the position is the same as for a quantum meruit claim; Section 77 defined sale before it was repealed.
• Section 1, English Sale of Goods Act, 1893: a contract of sale of goods is for a money price; a sale versus an agreement to sell.
• Section 3(4), Australian Commonwealth Sales Tax Act, 1930 (as amended 1932): a person is deemed to have sold goods where property passes under a contract that is not a contract of sale.
• Section 91(21), Sections 92(10)(a) and 96, British North America Act, 1867; Section 51, Australian Constitution: discussed in the cited Privy Council and Australian decisions.
• Land Acquisition Act, 1894; Finance Act, 1918; Finance Act No. 2 of 1940; Stamp Act, 1891; Transport Act, 1947; Native Land Trust Ordinance, 1945 (Fiji): mentioned in the English and other decisions discussed.

Judgement

1. The appeal fails and is dismissed with costs (Venkatarama Aiyar, J.).
2. The provisions introduced by the Madras General Sales Tax (Amendment) Act, 1947 are ultra vires Entry 48, in so far as they tax the supply of materials in an entire and indivisible works contract as a sale. The High Court's decision in the respondent's favour is upheld (Venkatarama Aiyar, J.).
3. The judgment does not decide contracts that have distinct and separate agreements for transfer of materials and for work. The State's power to tax the sale under such an agreement stands untouched (Venkatarama Aiyar, J.).
4. The judgment records no amount of costs.

Legal Principle / Ratio

Sale of goods in Entry 48 has its legal sense in the Sale of Goods Act, 1930. It needs an agreement between the parties to sell the very goods in which property eventually passes. In a building contract that is entire and indivisible, there is no agreement to sell the materials, and property in them does not pass as movables. In the Court's words: "its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement".

Critical Analysis

Analysis based on the judgment text.

The Court accepts that its result leaves a gap. It says none of the 1935 Act legislatures could tax construction contracts, and the tax would have needed the Governor-General's residual power. It regrets that the Constitution offers no solution. It says the Constitution might have given an inclusive definition of sale. It still holds that its duty is to interpret the law as it finds it.

The ruling is confined to entire and indivisible contracts. The Court says parties may make separate agreements for materials and for work in one instrument, and the State may tax that sale. The judgment does not say how to tell such a contract from an indivisible one, beyond pointing to Hudson on Building Contracts, p. 165.

The reasoning depends on legislative practice that the Court itself calls not conclusive. It says practice is valuable and might be determinative unless there are good reasons to disregard it. It also notes that in 1935 there was no sales tax legislation in England or India. So the Court relies on the sale of goods law and on Budh Prakash, which it calls not decisive.

Significance

• The five-Judge Bench fixed the meaning of sale of goods in Entry 48 as the Sale of Goods Act meaning.
• It held that the State cannot tax non-sales by deeming them sales.
• It ties the meaning of sale to three elements: an agreement, money price, and passing of property.
• It shows that an agreement to sell must relate to the very goods that pass.
• It explains why materials in a building contract are not sold: they pass to the landowner by accretion and not under a sale contract.

Exam-Important Points

• Facts in one line: Madras taxed materials used in works contracts as a sale. The High Court held the provisions ultra vires. The Supreme Court dismissed the State's appeal.
• Rule: a sale needs an agreement to sell the very goods in which property passes. Passing of title without such an agreement is not a sale.
• Trap: the Court accepted that constitutional entries are read widely. It still held that sale of goods is a term of fixed legal meaning.
• Trap: a deeming provision cannot make a non-sale a sale. The Court contrasted the Australian Section 3(4) and American practice, which rested on sovereign taxing power.
• Trap: the ruling covers only entire and indivisible works contracts. Separate agreements in one instrument can be split and taxed.
• Section 107: the Madras Act is a law on tax on sale of goods, not on sale of goods, so no repugnancy under Section 107 arises.
• Accretion: materials in a building pass to the landowner under quicquid plantatur solo, solo cedit, not under a contract of sale.
• Result: appeal dismissed with costs.

Prepared from the full text of the judgment. Paragraph numbers follow the official Supreme Court judgment text; law reports may number the same paragraph differently.