1963 (8) TMI 66 - SC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of Sales Tax on "works contracts" under the Travancore-Cochin General Sales Tax Act.
2. Applicability of Articles 277 and 278 of the Constitution.
3. Validity of the assessments made under the Travancore-Cochin General Sales Tax Act.
4. Impact of the agreement between the Union Government and the State Government under Article 278.
5. Non-fixation of percentage by the Board of Revenue under Rule 4(3) for the assessment year 1952-53.

Detailed Analysis:

1. Constitutionality of Sales Tax on "works contracts":
The appellant contended that the Sales Tax Acts imposing tax on "works contracts" were unconstitutional after the Constitution came into force. The High Court dismissed this contention, and the Supreme Court upheld the High Court's decision, stating that the Travancore-Cochin General Sales Tax Act was validly enacted by the Legislature with plenary powers of taxation.

2. Applicability of Articles 277 and 278 of the Constitution:
The appellant argued that the Travancore-Cochin Act of 1125 would not continue under Article 372 as it was inconsistent with the Constitution's structure and Part XII. They further contended that Article 277 could not be relied upon as the conditions for its applicability were not met. The Supreme Court examined the historical background and determined that Article 277 saved the levy of taxes that were lawfully levied before the Constitution until Parliament made a law to the contrary. Additionally, the Court found that Article 278 allowed for agreements between the Union and Part B States concerning tax levies and financial assistance, which could override Article 277.

3. Validity of the assessments made under the Travancore-Cochin General Sales Tax Act:
The Supreme Court noted that the assessments for the years 1956-57, 1957-58, and 1958-59 were made under the Travancore-Cochin General Sales Tax (Amendment) Act, 1957, and the Kerala Surcharge on Taxes Act, 1957. The Advocate-General conceded that these assessments were invalid and requested liberty to reassess the appellant de novo under the Act.

4. Impact of the agreement between the Union Government and the State Government under Article 278:
The Court examined the agreement dated February 25, 1950, between the President of India and the Rajpramukh of Travancore-Cochin. The agreement incorporated the recommendations of the Indian States Finances Enquiry Committee, which aimed to address the revenue gap caused by federal financial integration. The Court held that the agreement was comprehensive and covered the loss of revenue due to the transfer of certain sources of revenue to the Union. Consequently, the agreement superseded the State's power to levy taxes on "works contracts" under Article 277, rendering the impugned assessments invalid.

5. Non-fixation of percentage by the Board of Revenue under Rule 4(3) for the assessment year 1952-53:
The appellant argued that the non-fixation of the percentage by the Board of Revenue under Rule 4(3) rendered the assessment for the year 1952-53 illegal. The Supreme Court did not address this contention explicitly, as it found the assessments invalid based on the agreement under Article 278.

Conclusion:
The Supreme Court set aside the orders of assessment and allowed the appeals with costs, holding that the assessments were not validly made by the sales tax authorities in exercise of the power saved under Article 277 of the Constitution. The Court emphasized that the agreement under Article 278 between the Union and the State of Travancore-Cochin superseded the State's power to levy taxes on "works contracts" during the period covered by the agreement.

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