TaxTMI 
TaxTMI 
1963 (8) TMI 30
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....sputed facts may briefly be stated. The appellant is a private limited company incorporated under the Indian Companies Act. The principal office of the company is at Mattancherry. It carries on business in iron, hardware, electrical goods, timber, coir, engineering contracts etc. In the course of its business, the company acted as engineering contractor for the State and Central Government departments and also for private parties. On March 17, 1959, the Sales Tax Officer, Special Circle, Ernakulam, assessed the company to sales tax under the Travancore-Cochin General Sales Tax Act, 1125 M.E. for the assessment year 1952-53 in respect of "works contracts". The company filed a revision petition before the 1st respondent, but it was rejected. Likewise the 2nd respondent assessed the company to sales tax by his orders dated 7-1-1960, 4-1-1960 and 31-3-1960 for the assessment years 1956-57, 1957-58 and 1958-59 in respect of "works contracts". The appellant filed four petitions in the High Court of Kerala under Articles 226 and 227 of the Constitution for quashing the said orders of assessment. The main contention advanced on behalf of the appellant-company before the High Court was that....
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....tte to establish that such a percentage was fixed. The Rules also were notified on May 30, 1950. The earlier Acts of Travancore and Cochin were repealed from May 30, 1950. Till May 30, 1950, sales tax was levied on works contracts in Travancore and Cochin areas under the respective Acts and the Rules framed thereunder. As from the said date the said Acts were repealed, thereafter the said tax was imposed under the Act and the Rules framed thereunder. On Novem- ber 1, 1956, the States Reorganization Act of 1956 came into force and the new State of Kerala was formed thereunder. The newly formed Kerala State comprised the area covered by the Travancore-Cochin State, excepting a small part thereof, and the district of Malabar in the Madras State. Thereafter, the Kerala Legislature passed the Travancore-Cochin General Sales Tax (Amendment) Act, 1957 (12 of 1957) amending the Act and extending its provisions to the whole State of Kerala. The new Act practically contained the provisions of the earlier Act. The said Act came into force on October 1, 1957. By the provisions of Act 12 of 1957, among other things, the tax on electric goods was enhanced from 3 nP. to 4 nP. in the rupee and in ....
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.... impugned Act, in so far as it imposed tax in respect of "works contracts", would offend Article 14 of the Constitution inasmuch as it was not applied to areas other than those covered by the Travancore-Cochin States and, therefore, discriminatory in its application. And (5) in any view, in respect of the assessment year 1952-53 the non-fixation of the percentage by the Board of Revenue under rule 4(3) of the Rules made under the Act renders the said assessment illegal. The learned Advocate-General of Kerala counters some of the said arguments. We shall refer to his arguments in the course of the judgment at appropriate places. It may be mentioned at this stage that the learned Advocate-General conceded that the assessment orders for the years 1956-57, 1957-58 and 1958-59 made under the Travancore- Cochin General Sales Tax (Amendment) Act, 1957 (12 of 1957) and the Kerala Surcharge on Taxes Act (11 of 1957) were bad, but prayed that the State might be given liberty to assess the appellant de novo for the said years under the Act. The main contention of learned counsel for the appellant centres on the provisions of Articles 277 and 278 of the Constitution. Under Article 277....
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....the power to levy any tax in respect of the subjects so transferred. The learned Advocate- General, on the other hand, contends that Article 278(2) enables the Union and a B State to enter into an agreement only in respect of a tax leviable by the Government of India in the said State and in respect whereof a loss has been incurred by the State by reason of the fact that under the Constitution it has ceased to have the power to levy and collect the said tax, and that, as in the instant case by reason of Article 277 the State would continue to have the power to levy the tax in respect of " works contracts " till Parliament made appropriate law, it did not incur any loss in respect of the said tax and, therefore, no valid agreement could be entered into between the State Government and the Union in respect thereof. To state it differently, Article 278 does not come into play unless the Government of India acquires the power to levy a particular tax saved by Article 277 by Parliament making an appropriate law ; for, it is said, with some force, there cannot be an agreement to recoup any loss of revenue when there is no such loss. But this question is covered by a decision of this Cour....
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....t page 535: "That a duty of the kind now in controversy on the date of the agreement after coming into force of the Constitution is leviable only by the Government of India even in respect of the State of Rajasthan is clear beyond all doubt. The Union List only, namely, entry 84 in the Seventh Schedule, authorises the levy and collection of the duty in question. . . . . . . .It is true that Article 277 has saved, for the time being, until Parliament made a provision to the contrary, the power of the State of Rajasthan to levy such a duty, but that is only a saving provision, in terms subject to the provisions of Article 278." This Court, therefore, held that after the coming into force of the Constitution the excise duty in question in that case leviable only by the Government of India, though there was a saving provision in favour of the State of Rajasthan till Parliament made an appropriate law; and on that reasoning it held that the agreement under Article 278 could be made in respect of such a levy notwithstanding the temporary reservation made in favour of the State. The only difference between that case and the present one is that at the time the agreement was entered into....
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....in (2) above. * * * * Subject to the provisions of the Constitution of India, this agreement shall, except where the context of the Committee's Report and of this agreement otherwise require, remain in force for a period of ten years from the commencement of the Constitution of India." It will be seen from the said agreement that it incorporated the recommendations made by the Indian States Finance Enquiry Committee with some modifications and that the Union of India agreed to recoup the State for the loss caused to it by reason of the federal financial integration in the manner described thereunder. It was not a piecemeal agreement confined to a few items, but a comprehensive one to fill up the entire revenue-gap caused to the State by reason of some of its sources of revenue having been taken away by the Union or otherwise lost to it. A perusal of the main recommendations made by the Indian State Finance Enquiry Committee and incorporated in the agreement also indicates the completeness of the arrangement. The Committee was asked to examine and report, inter alia, whether, and if so, the extent to which, the process of so integrating Federal Finance in the Indian ....
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.... customs duties of Travancore must be borne by the State Government. (b) as regards the residual net Central revenue-gap of the two States taken together (Rs. 230 lakhs), there should be a guaranteed re- imbursement by the Central Government to the following extent during a transitional period: From the date of federal financial integration Rs. 230 lakhs per annum to 31st March, 1955." The agreement, read with the Report, makes the following position clear: The loss arising to the State on account of the federal financial integration in the State was ascertained and a provision was made for subsidizing the State by filling up the said revenue-gap. The agreement ex facie appears to be a comprehensive one. It takes into consideration the entire loss caused to the State by reason of some of its sources of revenue being transferred under the Constitution to the Union. It would be unreasonable to construe the agreement as to exclude from its operation certain taxes which the State was authorized to levy for a temporary period. As we have said, that saving was subject to an agreement and, as by the agreement effective adjustments were made to meet the loss which the S....
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....tution and, therefore, is bad; and, that apart, it is also inconsistent with the express provisions of Part XII of the Constitution and particularly with those of Articles 277 and 278 thereof. Article 372 reads: "(1) Notwithstanding the repeal by this Constitution of the enactments referred to in Article 395 but subject to the other provisions of this Constitution, all the law in force in the territory of India immediately before the commencement of this Constitution shall continue in force therein until altered or repealed or amended by a competent Legislature or other competent authority. * * * * Explanation I.-The expression 'law in force' in this article shall include a law passed or made by a Legislature or other competent authority in the territory of India before the commencement of this Constitution and not previously repealed, notwithstanding that it or parts of it may not be then in operation either at all or in particular areas." The object of this article is to maintain the continuity of the pre-existing laws after the Constitution came into force till they were repealed, altered or amended by a competent authority. Without the aid of su....
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....- consistent with the provisions of the Constitution other than those dealing with its legislative competency. The words "subject to the other provisions of the Constitution " mean that if there is an irreconcilable conflict between the pre-existing law and a provision or provisions of the Constitution, the latter shall prevail to the extent of that inconsistency. An article of the Constitution by its express terms may come into conflict with a pre-Constitution law wholly or in part ; the said article or articles may also, by necessary implication, come into direct conflict with the pre-existing law. It may also be that the combined operation of a series of articles may bring about a situation making the existence of the pre-existing law incongruous in that situation. Whatever it may be, the inconsistency must be spelled out from the other provisions of the Constitution and cannot be built up on the supposed political philosophy underlying the Constitution. These observations are necessitated by the reliance of Mr. Nambiar on two decisions of the Supreme Court of the United States of America. In Chicago, Rock Island and Pacific Railway Company v. William McGlinn [1884] 29 L. Ed. 27....
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....apter contains a scheme of federal financial intergration in the States. Though the Constitution conferred upon the Union and the States independent powers of taxation and constituted separate consolidated funds, it evolved a procedure for an equitable readjustment of the taxes collected between the Union and the States. But before the Constitution came into force the States were levying and collecting certain taxes which, under the Constitution, were allotted to the Union. The immediate exercise of the Union power of taxation in respect of such taxes would dislocate the finances of the States and introduce difficulties in the administration. To avoid this, Article 277 saved the existing taxes levied by the States, though they have been transferred to the Union List by the Constitution, till Parliament made appropriate law. But the Constitution was also made applicable to Part B States. They had plenary powers of taxation. Their relation- ship with the paramount power differed from State to State. Further, most of the States were in a state of financial instability and required substantial help from the Union to bring them up to the standard of Part A States. There would be a se....