Real sale price controls sales tax on building contracts; arbitrary valuation formulas exceed the taxing power.

A taxing entry confined to sales of goods permits levy only on the real price of goods actually sold, and not on an arbitrary pre-fixed proportion of a composite building contract. The article explains that the Legislature could reach genuine sales of materials embedded in such contracts, but a formula that estimated sale price without reference to the actual value of goods supplied was ultra vires to that extent. It also notes that a notification withdrawing exemption for sales to Government was treated as validly issued under the delegated power under the Act.

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Issues: (i) Whether the definition of "sale price" in section 2(h)(ii) of the Central Provinces and Berar Sales Tax Act, 1947, read with rule 4 of the Central Provinces and Berar Sales Tax Rules, 1947, was within the legislative competence conferred by Entry No. 48 of List II of the Seventh Schedule of the Constitution Act, 1935, when applied to building contracts; (ii) whether the withdrawal of exemption for sales to Government by notification was authorised by section 6(2) of the Central Provinces and Berar Sales Tax Act, 1947; (iii) whether the tax could validly be computed on a predetermined artificial proportion of labour and material cost in building contracts.

Issue (i): Whether the definition of "sale price" in section 2(h)(ii) of the Central Provinces and Berar Sales Tax Act, 1947, read with rule 4 of the Central Provinces and Berar Sales Tax Rules, 1947, was within the legislative competence conferred by Entry No. 48 of List II of the Seventh Schedule of the Constitution Act, 1935, when applied to building contracts.

Analysis: Entry No. 48 authorised taxation only on sales of goods. A building contract is a composite transaction, but the Legislature could sever and tax any genuine sale of materials embedded in it if the tax was referable to the price of goods actually sold. The Act, however, extended the charging machinery by wide definitions of dealer, goods, sale, and turnover so as to reach supplies of building materials in contracts. That extension, by itself, was not invalid so long as it targeted a real sale of goods within the constitutional entry.

Conclusion: The Legislature could, in principle, tax a genuine sale of materials involved in a building contract, so the extended definitions were not invalid merely because they touched building contracts.

Issue (ii): Whether the withdrawal of exemption for sales to Government by notification was authorised by section 6(2) of the Central Provinces and Berar Sales Tax Act, 1947.

Analysis: Section 6(2) empowered the State Government, after notice, to amend the schedules by notification. The exemption introduced by the amending Act in respect of sales to Government operated through the schedule, and the statutory scheme also conferred power to exempt dealers. On that footing, the later notification withdrawing the exemption was treated as an exercise of the delegated power already contemplated by the Act.

Conclusion: The notification withdrawing the exemption was within power and was not ultra vires.

Issue (iii): Whether the tax could validly be computed on a predetermined artificial proportion of labour and material cost in building contracts.

Analysis: Rule 4 and section 2(h)(ii) did not ascertain the actual price of materials sold. Instead, they split a lump-sum contract price by a fixed percentage chosen in advance for different classes of work and areas, irrespective of the real value of materials supplied in any individual contract. That method was not a tax on the sale price of goods, but an artificial estimate that could include services and had no necessary relation to the price of goods sold.

Conclusion: Section 2(h)(ii) and rule 4 were ultra vires to the extent that they imposed tax on an artificial basis unrelated to the actual price of goods sold or supplied.

Final Conclusion: The petitions succeeded in part: the impugned artificial method of determining sale price was struck down, while the remaining challenged provisions, including the notification withdrawing the Government exemption, were upheld; the writs were made absolute accordingly.

Ratio Decidendi: A taxing entry limited to sales of goods permits levy only on the real price of goods actually sold, and a statutory formula that taxes building contracts on an arbitrary pre-fixed proportion not tied to the actual sale price exceeds that legislative power.

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