1958 (4) TMI 65 - SC - VAT and Sales Tax

Supreme Court Affirms Tax Law Validity and Constitutionality

The Supreme Court upheld the validity of the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, affirmed Parliament's competence to impose tax on ... Whether it is a question of policy whether taxes should be imposed on the supply of materials in building contracts, and that, therefore, the power conferred by section 2 on the Government to extend a law with modifications cannot be exercised so as to modify a provision of the Bengal Finance (Sales Tax) Act, 1941, relating to that matter? Held that:- The modification made by the Central Government, assuming that that is its true character, does not involve any change of policy underlying the Bengal Finance (Sales Tax) Act, 1941. Indeed, the modification gives effect to the policy of that enactment which was to bring construction contracts within the ambit of the taxation powers of the State, and which failed only for want of legislative authority. Whether we view the notification as one extend- ing a subsisting statute to Delhi or as extending it with modifications so far as the impugned provisions are concerned, it is intra vires section 2. Appeal dismissed. Issues Involved:1. Validity of the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi.2. Competence of Parliament to impose tax on the supply of materials in building contracts.3. Interpretation of 'enactment in force' under Section 2 of the Part C States (Laws) Act.4. Constitutionality of Section 2 of the Part C States (Laws) Act regarding delegation of legislative powers.Issue-wise Detailed Analysis:1. Validity of the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi:The petitioners, building contractors in Delhi, challenged the validity of certain provisions of the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi by a notification dated April 28, 1951. They argued that the provisions imposing tax on the supply of materials in construction contracts were ultra vires the powers of the Provincial Legislature under Entry 48 in List II, Schedule VII, to the Government of India Act, 1935. The Supreme Court held that the decision in Gannon Dunkerley & Co. v. State of Madras, which declared similar provisions ultra vires, did not apply as the impugned law was enacted by Parliament under Article 246(4) of the Constitution, not by a State Legislature.2. Competence of Parliament to impose tax on the supply of materials in building contracts:The Court held that under Article 246(4), Parliament has the power to legislate for Part C States, and this power is untrammeled by the limitations prescribed by Article 246(2) and (3) and Entry 54 of List II. Parliament's power is plenary and absolute, subject only to constitutional restrictions, which are not material to the present question. Therefore, it was competent for Parliament to impose a tax on the supply of materials in building contracts and to do so under the name of sales tax.3. Interpretation of 'enactment in force' under Section 2 of the Part C States (Laws) Act:The petitioners contended that the impugned provisions were not 'in force' in the State of West Bengal at the date of the notification because they were ultra vires Entry 48. The Court disagreed, stating that 'enactment in force' should be construed as meaning 'statute which is in operation' in a Part A State, as distinct from a statute that had been repealed. The Court further held that even if the narrow construction contended for by the petitioners were accepted, the authority conferred by Section 2 includes the power to extend laws with modifications, making the extension of the Bengal Act to Delhi valid.4. Constitutionality of Section 2 of the Part C States (Laws) Act regarding delegation of legislative powers:The petitioners argued that Section 2 was an unconstitutional delegation of legislative powers because it allowed the Government to modify laws enacted by a Legislature on matters of policy. The Court referred to the decision in In re The Delhi Laws Act, 1912, where the majority held that the first portion of Section 2 was valid. The Court also addressed the decision in Rajnarain Singh v. The Chairman, Patna Administration Committee, stating that the modification made by the Central Government did not involve a change of policy but rather gave effect to the policy of the Bengal Finance (Sales Tax) Act, 1941. Thus, whether viewed as extending a subsisting statute or as extending it with modifications, the notification was intra vires Section 2.Conclusion:All contentions urged by the petitioners failed, and the petitions were dismissed with costs. The Court upheld the validity of the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, affirmed Parliament's competence to impose the tax, and validated the interpretation and constitutionality of Section 2 of the Part C States (Laws) Act.