Sovereign-backed agreement lacked force of law, so tax exemption and constitutional refund claims did not survive against successor governments.

An agreement made by a sovereign ruler was treated as a contractual arrangement based on mutual consent, not as law having sovereign force, so it could not continue as law under transitional constitutional provisions. The claimed exemption from excise duty and income-tax therefore did not survive against the Union or the successor State, because Articles 295 and 372 continued only existing rights or instruments having the force of law and did not bar competent taxation. In the absence of an enforceable exemption, the claims for refund and protection under Articles 19 and 31 also failed.

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Issues: (i) Whether the agreement dated 17 April 1941 was law or merely a contractual arrangement and, if contractual, whether it bound the Union or the successor State as continuing law; (ii) whether the appellant's claimed exemption from excise duty and income-tax survived under the constitutional and transitional provisions, including Articles 295 and 372 of the Constitution of India; (iii) whether the appellant was entitled to refund and constitutional protection under Articles 19 and 31 of the Constitution of India.

Issue (i): Whether the agreement dated 17 April 1941 was law or merely a contractual arrangement and, if contractual, whether it bound the Union or the successor State as continuing law.

Analysis: The agreement was held to rest on consent and negotiation between the parties and not on a sovereign command having the force of law. The mere fact that one contracting party was a sovereign ruler did not convert every agreement into law. A binding rule of conduct derived from sovereign authority was distinguished from a bargain based on mutual assent. Clauses referring to federal duties and future action also showed that the document was not a statute-like command and could not be dissected into partly legal and partly contractual portions.

Conclusion: The agreement was not law and did not continue as law under the transitional provisions.

Issue (ii): Whether the appellant's claimed exemption from excise duty and income-tax survived under the constitutional and transitional provisions, including Articles 295 and 372 of the Constitution of India.

Analysis: Since the Union created under the Constitution was not the same as the contemplated federation under the Government of India Act, 1935, the agreement contained no operative undertaking against Union taxes. The succeeding sovereigns did not affirm the claimed exemption, and the appellant had no enforceable right against them. Article 295(1)(b) was construed as dealing with succession to existing rights and liabilities, not as freezing legislative power or creating an eternal bar to taxation. Article 372 continued only those orders and laws that had the force of law, which this agreement did not have.

Conclusion: The claimed exemption did not survive against the Union or the State under Articles 295 or 372.

Issue (iii): Whether the appellant was entitled to refund and constitutional protection under Articles 19 and 31 of the Constitution of India.

Analysis: In the absence of an enforceable right to exemption, the appellant could not claim refund from the State of Rajasthan on the footing of the agreement. The alleged deprivation of property under Articles 19 and 31 also failed because no subsisting right existed on the relevant date. The plea based on frustration of contract was unnecessary to decide in view of the other findings.

Conclusion: The claims for refund and constitutional protection failed.

Final Conclusion: The appeals failed on the merits because the agreement did not have the force of law, did not confer an enforceable exemption against the successor governments, and afforded no constitutional protection against the levy of excise duty and income-tax.

Ratio Decidendi: A sovereign-backed agreement is not law merely because one party is the ruler; only a pre-existing right having the force of law can continue against successor governments, and transitional constitutional provisions do not bar competent taxation unless they expressly do so.

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