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TMI Blog1963 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... r Article 277. - C.A. Nos. 295, 296, 297, 298 of 1962 - - - Dated:- 13-8-1963 - DAS S.K., SUBBA RAO K., RAGHUBAR DAYAL, RAJAGOPALA AYYANGAR N. AND MUDHOLKAR J.R. JJ. V.P. Gopalan Nambiar, Advocate-General for the State of Kerala (Sardar Bahadur, Advocate, with him), for the respondents (in all the appeals). M.K. Nambiar, Senior Advocate (J.B. Dandachanji, O.C. Mathur and Ravinder Narain, Advocates of J.B. Dadachanji and Co., wiht him), for the appellant (in all the appeals). -------------------------------------------------- The Judgment of the Court was delivered by SUBBA RAO, J.- These four companion appeals arise out of a common judgment of the High Court of Kerala dismissing the four petitions filed by the appellant seeking to quash the orders of assessment made by the Sales Tax Authorities imposing sales tax in respect of "works contracts." The undisputed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds were sold in relation to "works contracts." Rule 4(3) provided that, "For the purposes of sub-rule (1), the amount for which goods are sold by a dealer shall, in relation to a works contract, be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of the amount payable as may be fixed by the Board of Revenue from time to time for different areas, representing the usual proportion in such areas of the cost of labour to the cost of materials used in carrying out such contract, subject to the following maximum percentages: * * * *" But, it is stated that the Board of Revenue did not fix the percentage for deduction from the amount payable to the dealer for carrying out a works contract. This fact was not denied in the High Court, but before us an application is made to produce the Travancore- Cochin Gazette 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 The earlier Acts of Travancore and Cochin were repealed from May 30, 1950.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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsistent with the structure of the Constitution as well as with the provisions of Part XII thereof. (2) Article 277 of the Constitution cannot be relied upon by the respondent, as it can be availed of only: (a) if a particular tax was lawfully levied by the Government of the State immediately before the commencement of the Constitution and is expressly mentioned in the Union List, and (b) if there is an identity between the tax imposed by the State before the Constitution and that continued by it thereafter in respect of rate, area, State and purpose. It is said that the said two conditions are not satisfied. (3) Assuming that Article 277 applied, the said provision could not be relied upon by the appellant in view of the agreement entered into between the Rajpramukh of Travancore and the Union Government under Article 278 of the Constitution. (4) The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into force only on May 30, 1950, i. e., after the commencement of the Constitution. If so, it follows that the tax under the Act would not be saved, as the necessary condition that the levy should have been lawfully made before the Constitution was not satisfied. On the assumption that Article 277 saved the levy of tax under the Act, the further contention of the appellant is that there was an agreement dated February 25, 1950, between the President of India and the Rajpramukh of the State of Travancore-Cochin in the matter of the federal financial integration in the said State and that under the said agreement the Union agreed to recoup the loss in revenue incurred by the said State by reason of the constitutional transference of the B State's power of taxation in respect of certain items to the Union List and that, thereafter, the State ceased to have 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 incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Thus, the combined operation of Articles 277 and 278 read with the agreement vests the power of levy and collection of the duty in the Union of India." The reasons for the conclusion are found at page 533: "It is noteworthy that the provisions of Article 278 override pro tanto other provisions of the Constitution including Article 277 and the terms of the agreement override the provisions of the Chapter, namely, Chapter 1 of Part XII. . . . . . . .Article 277, therefore, is in the nature of a saving provision permitting the States to levy a tax or a duty which, after the Constitution, could be levied only by the Centre. But Article 277 must yield to any agreement made between the Government of India and the Government of a State in Part B in respect of such taxes or duties, etc." The learned Chief Justice proceeded to state thus at 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art I of its Report read with Chapters I, II, III of Part II of its Report, in so far as they apply to Travancore-Cochin (hereinafter refer- red to as the State) together with the recommendations contained in the Committee's Second Interim Report, are accepted by the parties there- to, subject to the following modifications, namely: (1) With reference to paragraph 6 of the Committee's Second Interim Report, the date of federal financial integration of the State shall be 1st April 1950. (2) * * * * (3) The Committee's formula of guaranteeing the 'federal' revenue- gap for the first five years after federal financial integration and of tapering it down over the next five years will be applied to the combined 'federal' revenue-gap of the former Indian States, Travancore and Cochin, taken together, computed as 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 recommendation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts should be repealed and the corresponding body of Central legislation extended proprio vigore to the States, with effect from the prescribed date, or as and when the administration of particular "federal" subject is assumed by the Centre. In its Second Interim Report, dealing with Travancore and Cochin, the following recommendations were made: "'Revenue-gap' arising out of 'federal' financial integration: (i) The net revenue loss to the Travancore and Cochin States, taken together, upon federal financial integration (on the basis of figures for their financial year 1123 M.E.) would be Rs. 330 lakhs; this includes a net loss of Rs. 100 lakhs by abolition of internal customs duties in Travancore State. (ii) We recommend that- (a) the loss resulting from the immediate abolition of internal 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." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 277 of the Constitution. Learned Advocate-General for the State of Kerala raises an interesting point, namely, that the impugned law, i.e., the Travancore- Cochin General Sales Tax Act of 1125 M.E. continued in force after the Constitution under the express provisions of Article 372 thereof till the said law was altered, repealed or amended by the competent authority and, therefore, even if there was an agreement between the Union and the State as aforesaid, it could not affect the power of the State to impose the tax under the said law. Mr. Nambiar, on the other hand, argues that Article 372 is subject to other provisions of the Constitution and a law empowering a State to impose a tax in respect of a federal subject is inconsistent with the federal structure of the Constitution 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary to consider in detail the said decisions, as they either resume the said legal position or sustain it, but do not go further. They held that a law made by a competent authority before the Constitution continues to be in force after the Constitution till it is altered or modified or repealed by the appropriate authority, even though it is beyond the legislative competence of the said authority under the Constitution. We give our full assent to the view and hold that a pre-Constitution law made by a competent authority, though it has lost its legislative competency under the Constitution, shall continue in force, provided the law does not contravene the "other provisions" of the Constitution. But the real question is whether the said impugned law is in- 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anila [1910] 55 L. Ed. 491. We are not concerned in this case with the general principles enunciated by the law of America, but only with the express provisions of Article 372 of our Constitution. That apart, it may also be inappropriate to rely upon the legal consequences of a cession of a State under the American law for the interpretation of Article 372 of our Constitution, which deals with a different situation and lays down expressly the legal position to meet the same. We would, therefore, confine our attention to the express provisions of the Constitution in considering the question raised before us. The relevant provisions which have a bearing on the said question are found in Part XII of the Constitution. Chapter I deals with finance ; and this chapter 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, und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving of taxes, duties, cesses or fees. To state it differently, Article 372 must be read subject to Article 277. We have already held that an agreement can be entered into between the Union and the States in terms of Article 278 abrogating or modifying the power preserved to the States under Article 277. That apart, even if Article 372 continues the pre-Constitution laws of taxation, that provision is expressly made subject to the other provisions of the Constitution. The expression "subject to" conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject. Further Article 278 opens out with a non-obstante clause. The phrase "notwithstanding anything in the Constitution " is equivalent to saying that in spite of the other articles of the Constitution, or that the other articles shall not be an impediment to the operation of Article 278. While Article 372 is subject to Article 278, Article 278 operates in its own sphere in spite of Article 372. The result is that Article 278 overrides Article 372; that is to say, notwithstanding the fact that a pre-Constitution taxation law continues in force under Article 372, the Union and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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