Article 285 limits only direct tax on Union property, while deemed sales in works contracts remain taxable under state law.

Article 285 does not bar sales tax on transactions amounting to a sale, because the constitutional immunity is confined to direct taxation of Union property and not to indirect tax on sale transactions; Explanation II to section 2(14) of the Rajasthan Sales Tax Act, 1994, was therefore valid. Article 366(29A) authorises treating transfer of property in goods involved in execution of a works contract as a deemed sale, so section 2(38)(ii) was within legislative competence and constitutionally valid. The impugned departmental supply transactions were sustained.

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Issues: (i) Whether Explanation II added to section 2(14) of the Rajasthan Sales Tax Act, 1994, treating the Central Government and its departments as a dealer, was unconstitutional for being hit by article 285 of the Constitution of India; (ii) Whether section 2(38)(ii) of the Rajasthan Sales Tax Act, 1994, expanding the definition of sale to include transfer of property in goods involved in execution of works contract, was beyond legislative competence.

Issue (i): Whether Explanation II added to section 2(14) of the Rajasthan Sales Tax Act, 1994, treating the Central Government and its departments as a dealer, was unconstitutional for being hit by article 285 of the Constitution of India.

Analysis: Article 285 exempts the property of the Union from taxes imposed by a State, but the immunity is confined to direct taxes on property and does not extend to indirect taxes such as sales tax. The State legislation did not impose a tax on Union property as such, but operated on sale transactions effected through departmental supplies to contractors. The legal fiction created by Explanation II enlarged the definition of dealer so that departmental buying, selling, supplying, or distributing of goods fell within the charging scheme of the Act. The constitutional prohibition in article 285 was therefore not attracted.

Conclusion: Explanation II to section 2(14) is valid and is not hit by article 285 of the Constitution of India.

Issue (ii): Whether section 2(38)(ii) of the Rajasthan Sales Tax Act, 1994, expanding the definition of sale to include transfer of property in goods involved in execution of works contract, was beyond legislative competence.

Analysis: Article 366(29A) of the Constitution expressly deems transfer of property in goods involved in execution of a works contract to be a sale. The State Legislature was therefore competent to widen the statutory definition of sale so as to bring such transfers within the sales tax net. Where goods were supplied by the department to contractors and the price was adjusted against the final bills, the transaction involved transfer of property in goods for consideration and answered the constitutional concept of deemed sale.

Conclusion: Section 2(38)(ii) is within legislative competence and is constitutionally valid.

Final Conclusion: The writ petitions failed on all material challenges, and the impugned tax treatment of the departmental supply transactions was sustained.

Ratio Decidendi: Article 285 protects Union property from direct State taxation, but it does not bar sales tax on transactions amounting to a sale, and article 366(29A) authorises legislative treatment of works-contract transfers of goods as deemed sales.

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