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TMI Blog1971 (3) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... RISHNAMOORTHY IYER, J. (On behalf of himself and BALAKRISHNA ERADI, J.)- This original petition filed under article 226 of the Constitution is to declare that the provisions of the General Sales Tax Act, (XI of 1125) imposing tax on "works contracts" are not enforceable in any part of the Kerala State subsequent to 26th January, 1960, and to issue a writ of certiorari or other appropriate writ and quash the orders, exhibits P-1 to P-5, assessing the petitioner to sales tax on "works contracts" for the assessment years 1960-61 and 1961-62. 2.. The petitioner is a private limited company incorporated under the Indian Companies Act and having its principal office at Mattancherry originally in the Cochin State, then in the State of Travancore-Cochin and now in the State of Kerala. The Sales Tax Officer, Special Circle, Mattaneherry, assessed the petitioner to sales tax for the years 1960-61 and 1961-62 evidenced by the assessment orders exhibits P-1 and P-3. These orders include assessments on the turnover on "works contracts" undertaken by the petitioner. The contention raised by him that the turnover with respect to "works contracts" could not be subject to sales tax was overruled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso passed the Kerala Surcharge on Taxes Act (XI of 1957) for levy of surcharges on taxes on agricultural income, on the sale or purchase of goods and on profession. This came into force on 1st September, 1957. The General Sales Tax Act (XI of 1125) has been repealed by the Kerala General Sales Tax Act (XV of 1963) which came into force on 1st April, 1963. This Act does not authorise the imposition of tax on "works contracts." 4.. The petitioner unsuccessfully challenged the imposition of sales tax on "works contracts" for the assessment year 1952-53 under the T.C. General Sales Tax Act (XI of 1125) and for the assessment years 1956-57 and 1957-58 under the General Sales Tax Act (XI of 1125) in proceedings under articles 226 and 227 of the Constitution in this court. The decision of this court reported in South India Corporation (P.) Ltd. v. Secretary, Board of Revenue, Trivandrum [1961] 12 S.T.C. 344 (F.B.); 1961 K.L.J. 255., was reversed in appeal by their Lordships of the Supreme Court in South India Corporation (P.) Ltd. v. Secretary, Board of Revenue, Trivandrum [1964] 15 S.T.C. 74 (S.C.); A.I.R. 1964 S.C. 207., on the ground that in view of the agreement dated 25th February ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o state it differently, article 372 must be read subject to article 277. * * * * 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 the State Governments can enter into an agreement in terms of article 278 in respect of Part B States depriving the State law of its efficacy. In one view article 277 excludes the operation of article 372, and in the other view, an agreement in terms of article 278 overrides article 372." 6.. To the same effect are the observations of Rajagopala Ayyangar, J., in the decision of the Supreme Court in C. Rajagopalachari v. The Corporation of Madras A.I.R. 1964 S.C. 1172. It was contended by the learned counsel for the petitioner that even though the Travancore-Cochin General Sales Tax Act (XI of 1125) is a pre-Constitution law for the purpose of article 372, since there was no levy on the basis of the said enactment prior to the date of the Constitution and till 30th May, 1950, even for some time after the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law." 7.. The impugned tax was the tax which was "being lawfully levied" by the State of Travancore-Cochin before the commencement of the Constitution. The scope of section 143(2) of the Government of India Act, 1935, which is practically identical with article 277 of the Constitution came up for consideration before the Supreme Court in M/s. Ram Krishna Ram Nath v. Janpad Sabha A.I.R. 1962 S.C. 1073. Section 143(2) of the Government of India Act, 1935, reads thus: "143. (2) Any taxes, duties, cesses or fees which, immediately before the commencement of Part III of this Act, were being lawfully levied by any Provincial Government, municipality or other local authority or body for the purposes of the Province, municipality, district or other local area under a law in force on the first day of January, nineteen hundred and thirty-five, may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d does not violate article 277 of the Constitution and is therefore within the legislative competence. 9.. The next submission of the learned counsel for the petitioner was that in view of the agreement dated 25th February, 1950, entered into between the President of India and the Rajpramukh of the State of Travancore-Cochin under articles 278, 291, 295 and 306 of the Constitution, the tax on "works contracts" cannot be levied even after 26th January, 1960. It is necessary to examine the soundness of this contention. Article 278 of the Constitution is in the following terms: "278. (1) Notwithstanding anything in this Constitution, the Government of India may, subject to the provisions of clause (2), enter into an agreement with the Government of a State specified in Part B of the First Schedule with respect to- (a) the levy and collection of any tax or duty leviable by the Government of India in such State and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of this Chapter; (b) the grant of any financial assistance by the Government of India to such State in consequence of the loss of any revenue which that State used to deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not propose to express our view thereon." 12.. We shall therefore examine the decision in N. T. Patel Co. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax, Trivandrum [1964] 15 S.T.C. 698; 1964 K.L.J. 738. To appreciate the said decision, it is necessary to consider the legal effect of the agreement dated 25th February, 1950, entered into between the President of India and the Rajpramukh of Travancore-Cochin on article 277 of the Constitution. 13.. Articles 277 and 278 of the Constitution are contained in Part XII thereof. The background for the inclusion of articles 277 and 278 in Part XII of the Constitution is stated by their Lordships of the Supreme Court in South India Corporation (P.) Ltd. v. Secretary, Board of Revenue, Trivandrum [1964] 15 S.T.C. 74 (S.C.); A.I.R. 1964 S.C. 207., in these words: "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 integration in the States. Though the Constitution conferred upon the Union and the States independent powers of taxation and constituted separate consolidated fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Committee) contained in Part 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 referred to as the State) together with the recommendations contained in the Committee's Second Interim Report, are accepted by the parties thereto, 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 Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 State would have incurred but for the agreement, there was no longer any necessity for the: continuance of the saving and it ceased to have any force thereafter between the parties to the agreement." The contention on behalf of the petitioner was that since by the agreement under article 278 the State Government has absolutely and without any reservation surrendered the right to levy the tax on "works contracts" as well, envisaged by article 277 of the Constitution, the right to levy the same stood extinguished and cannot revive after the expiry of the agreement. The contention on behalf of the revenue was based on the wording of article 277 and according to the learned Govern- ment Pleader the power to levy under article 277 will continue unless a law is made to the contrary by Parliament and in so far as the Parliament has not made any such law the agreement under article 278 can only suspend the levy during its currency and after that period the power under article 277 to levy the tax will revive. There is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B, duties of customs which immediately before the commencement of the Constitution were being lawfully levied by the Government of such a State continue to be levied by that State until provision to the contrary is made by Parliament by law, notwithstanding that such a duty is mentioned in the Union List. 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 provision to the contrary contemplated by article 277 was made by the Finance Act (XXV of 1950), section 11, which extended the Central Excises and Salt Act, 1944, along with other Acts to the whole of India except the State of Jammu and Kashmir. But that section has effect only from 1st April, 1950, and therefore does not apply to the arrears of duty of excise now in controversy. The agreement envisaged by article 278 was entered into as aforesaid on 25th February, 1950. That agreement conceded to the Centre the right to levy and collect the arr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have incurred but for the agreement, there was no longer any necessity for the continuance of the saving and it ceased to have any force thereafter between the parties to the agreement." These observations of their Lordships conclusively establish that after the agreement under article 278, article 277 ceases to be operative between the parties thereto. If so the right of the Government to continue the levy conferred by article 277 should also cease from the date of the agreement. It is not the case for the respondent that the effect of the agreement of 25th February, 1950, is only to constitute the Union Government as the agent of the Government of Travancore-Cochin State for collection. 14.. We are therefore unable to accept the contention advanced on behalf of the State that the effect of the agreement was only to suspend during its currency the power of the State to levy the taxes and duties falling under the category of "federal sources of revenue" which could otherwise have been continued to be levied by it on and after 26th January, 1950, by virtue of article 277 of the Constitution. The agreement read along with the report makes it abundantly clear that the surrender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore-Cochin. Since there was no levy of sales tax on "works contracts" by the Government of the State between 25th February, 1950, and 30th May, 1950, the date on which the T-C. General Sales Tax Act (XI of 1125) was brought into force, the counsel for the petitioner submitted that there was a hiatus or period of discontinuity in the levy and there was no power to continue the levy, as it was already broken. It is not necessary to consider this contention as we take the view that since article 277 of the Constitution ceased to be operative between the parties to the agreement after 25th February, 1950, the limited legislative power to continue the levy under article 277 was not there to sustain the provisions of the Travancore- Cochin General Sales Tax Act to levy sales tax on "works contracts". It is not open to the revenue to rely on article 277 of the Constitution to legalise the levy of sales tax on "works contracts". 17.. The next submission of the learned counsel for the petitioner was based upon the import of the words "may continue to be levied" in article 277 of the Constitution. The submission of the counsel for the petitioner was that to sustain the levy under article 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be one which was lawfully levied by the Government of any State etc., for the purposes of the State etc., before the commencement of the Constitution, (2) that the identity of the body that collects the tax, the area for whose benefit the tax is to be utilised and the purposes for which the utilisation is to take place continue to be the same, and (3) that the existing range and rate of taxes are not enhanced nor its incidence in any manner altered, so that it continues to be the same tax. The learned counsel relied on the above decisions in support of his plea. 18.. We shall now take up for consideration whether condition (3) is satisfied. The suggestion on behalf of the petitioner that by the amendments of the Travancore-Cochin General Sales Tax Act (XI of 1125) from time to time, the tax on electrical goods, cement, etc. which are involved in "works contracts" has been increased cannot be ruled out as absolutely irrelevant. It was contended that the rate of tax leviable under the General Sales Tax Act (XI of 1125) has been enhanced by the Kerala Surcharge on Taxes Acts of 1957 and 1960. There was some discussion at the Bar as to whether the Kerala Surcharge on Taxes A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are invalid, if they all form part of a single scheme which is intended to be operative as a whole, then also the invalidity of a part will result in the failure of the whole. Vide Crawford on Statutory Construction, pages 218-219." The question of the effect of partial invalidity is discussed in these words in Crawford on Statutory Construction, (1940), at pages 216-218: "Simply because a statute happens to be unconstitutional or invalid in part, does not necessarily mean that the part which is not invalid must also fail, not even though the statute be penal. It is only where the valid parts are so clearly dependent upon and so inseparably connected with the invalid parts that they cannot be separated without defeating the object of the statute, that they too must fall with those parts which are invalid. It is also well to remember that separability is not dependent upon whether the various provisions are contained in the same section, for the division of a statute into sections is purely artificial. In determining separability, the test is whether the legislature has manifested an intention to deal with a part of the subject-matter covered, irrespective of the rest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the learned counsel for the petitioner was that there is a differential treatment accorded to persons doing business in the area which originally formed the District of Malabar in the Madras State. The General Sales Tax Act (XI of 1125) is applicable to the whole of Kerala State. The charging section provides for the levy of sales tax on "works contracts" in the entire State of Kerala. There was no attempt on the part of the State to contend that on the basis of this enactment sales tax can be levied on "works contracts" on dealers in the Malabar area. In the matter of levy of sales tax on "works contracts" there is therefore prima facie a differential treatment. It has been repeatedly laid down by the Supreme Court that the Legislature has always the power to make special law to attain particular objects and for that purpose the authority has to select or classify persons, objects or transactions upon which the law is intended to operate. The tax on "works contracts" in the Travancore-Cochin area is sought to be levied under article 277 of the Constitution and in continuation of the legal sanction in force immediately before the Constitution. It is not a levy sought to be impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no longer any necessity for the continuance of the saving and it ceased to have any force thereafter between the parties to the agreement." If the Supreme Court has decided in that case that by virtue of the agreement the power to continue to levy the tax has been extinguished for ever, I do not think, there is any meaning in their Lordships leaving open the question whether the power would revive or not after the period of agreement. And when I look into the decision of the Supreme Court in Union of India v. Gwalior Rayon Silk Mfg. (Wvg.) Co. A.I.R. 1964 S.C. 1903., delineating the scope of an agreement under article 278, I have no doubt that the observations cannot have that effect. 2.. Article 277 is an article which enables a State Government to continue to levy taxes and duties which were being lawfully levied immediately before the commencement of the Constitution notwithstanding the fact that the taxes and duties are mentioned expressly or impliedly in the Union List. The article gives a power, a faculty, to the State Government, which it otherwise would not have possessed. It is only logical that if the State is enabled to continue to levy a tax by article 277 wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any reason it is held that those provisions in the Travancore-Cochin General Sales Tax Act, 1125, did not continue to operate as a law in force under article 372 or that the State had no legislative capacity to enact those provisions or put into actual force those provisions after the agreement was entered into, the result would be that the corresponding provisions in the Cochin General Sales Tax Act, 1121 as amended in 1124 would have continued as law; and the State could have justified the assessment and collection of the tax under these provisions notwithstanding that the assessment and collection were purported to be made under the General Sales Tax Act, 1125. You can repeal a law only if you have capacity to enact it. "There is no doubt that the general principle is that the power of a legislative body to repeal a law is coextensive with its power to enact such a law, as would be seen from the following passage in the judgment by Lord Watson in Attorney-General for Ontario v. Attorney-General for the Dominion [1896] A.C. 348 at 366.: 'Neither the Parliament of Canada nor the Provincial legislatures have authority to repeal statutes which they could not directly enact.'" (Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terminate or modify any such agreement if after consideration of the report of the Finance Commission he thinks it necessary to do so." The article in so far as it is relevant to the present purpose says that the Government of India may enter into an agreement with the Government of a State in respect of the levy and collection of any tax or duty leviable by the Government of India and that the agreement would be subject to the provisions of clause (2) which says that the agreement shall continue in force for a period not exceeding ten years from the commencement of the Constitution. In considering the constitutional scope of an agreement under article 278, it is necessary to keep in view the ambit of the article. The two Governments could not have entered into an agreement which would be outside the purview of article 278, and then claimed for it the constitutional efficacy attaching to a agreement within the scope of that article. If the agreement touched matters not dealt with by article 278(1), the constitutional validity of that part of the agreement will have to be adjudged on other considerations. In other words, if the agreement related to matters outside the scope of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve competence as to the imposition of the tax. We are of opinion that article 278(1)(a) deals only with public revenues and how they should be assessed and collected and distributed between the Union of India and Part B States in case there is an agreement in that behalf between the Union of India and Part B States. It further provides that in case of such agreement the earlier provisions of the Chapter relating to the levy, collection and distribution of taxes and duties would not apply and the agreement would prevail for a maximum period of ten years.......... Thus it becomes possible to the Government of India if it so decides to enter into an agreement with a Part B State with respect to a tax leviable by the Government of India that the tax shall be assessed and collected by the State through its own officers and the State may retain the entire proceeds so assessed and collected even though the executive power of the Union under article 73 extends to matters with respect to which Parliament has power to make laws and ordinarily if a law as to taxation is passed by Parliament within its power its assessment and collection would be by officers under the Government of India. Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State. If the agreement under article 278(1) could relate only to assessment and collection of tax how can it affect the provisions of the Cochin General Sales Tax Act pertaining to this matter. The agreement did not expressly repeal those provisions in the Cochin Act. Nor was there an implied repeal, because there could be no repugnancy between those provisions in that Act imposing the tax on works contract and the terms of the agreement, as ex hypothesi these terms could relate only to the assessment and collection of the tax. I do not know how the provisions of the Travancore-Cochin General Sales Tax Act relating to exigibility to tax the turnover of works contract stood abrogated by the agreement, or how the effect of article 277 was wiped out between the parties to the agreement. The effect of the agreement is not a matter left to implication only. Article 278(1) expressly provides that the other provisions in that Chapter shall have effect subject to the terms of the agreement and not for wiping out of any provision in the Chapter. So it comes to this: if an agreement under article 278 could only have dealt with levy and collection of tax which the Government of India cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax beyond the period of ten years and in a contingency other than legislation to the contrary by Parliament, would it be valid even as an executive agreement is the question. I do not think that any State under the Constitution can enter into a contract by way of executive agreement parting with a constitutional power unless expressly or impliedly provided for in the Constitution. Lord Blackburn said in Ayr Harbour Trustees v. Oswald (1883) 8 A.C. 623, 634.: "Whether that body be one which is seeking to make a profit for shareholders, or, as in the present case, a body of trustees acting solely for the public good, I think in either case the powers conferred on the body empowered to take the land compulsorily are entrusted to them, and their successors, to be used for the furtherance of that object which the legislature has thought sufficiently for the public good to justify it in entrusting them with such powers; and, consequently, that a contract purporting to bind them and their successors not to use those powers is void." If a statutory body cannot enter into a contract to part with a power entrusted to it by the Legislature, I think, the case is a fortiori in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as mere executive agreement, would not have been valid, since the State Government could not constitutionally have contracted to part with the power, as that power was intended by the Constitution to remain vested in the State until provision to the contrary is made by Parliament. As a matter of fact, the agreement related only to levy and collection of the tax, and since the ten years period expired on 25th January, 1960, the power of the State to continue to levy and collect the tax revived as Parliament has not made any provision to the contrary. I agree with the conclusion in N. T. Patel Co. v. Deputy Commissioner of Agricultural Income-tax and Sales Tax, Trivandrum [1964] 15 S.T.C. 698; 1964 K.L.J. 738. 5.. It was contended on behalf of the petitioner that the structure of the tax has. been changed by the enactment of the Kerala Surcharge on Taxes Act, 1957, and the amendment thereto by Act 12 of 1960, with the result that the rate and the incidence of the tax have been altered, and therefore, the State Government cannot levy and collect sales tax under the General Sales Tax Act, 1125. It is not contended that the rate of the sales tax imposed by the Travancore-Cochin Gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time increase any of the duties or taxes referred to in those articles by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India." Article 269 says that taxes and duties mentioned in the article shall be levied and collected by the Government of India and shall be assigned to the States. Article 270 provides that taxes on income other than agricultural income will be collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2) of that article. These articles make it clear that the destination of a tax levied may be for purposes of State Government, but the surcharge for the use of the Government of India. The assessment of surcharge in administrative practice is also a distinct assessment. Again, take a case where the turnover of works contract of a dealer in a year does not exceed Rs. 30,000 ; no surcharge can be levied. Does it follow that no sales tax also could be levied? If the argument of the petitioner is sound, then the turnover cannot be assessed to sales tax also as the texture of the tax has been altered. And when I ask the questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract unconstitutional. It will certainly be open to an assessee in such a case to contend that no surcharge can be levied on the turnover, but he cannot say that the levy of sales tax under the General Sales Tax Act is also bad. If, for instance, instead of passing the Kerala Surcharge on Taxes Act the Legislature or Government had simply increased the rate of sales tax leviable on the turnover of works contract, it could have been contended that since there is only an indivisible tax at a particular rate, and as the State Government cannot continue to levy and collect the tax at the rate which prevailed immediately before the commencement of the Constitution, because the rate has been indivisibly enhanced, the levy is bad. But this is not the situation here. The wording of the article would indicate that it was open to the State Government to continue to levy the tax at the old rate. As the Kerala Surcharge on Taxes Act is a distinct legislative enactment, and is not indivisibly connected with the General Sales Tax Act, the levy of sales tax alone can be open to no objection. 9.. The question of severability falls into two classes. One relates to a situation in which some appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that turnover would be unconstitutional. Nor can I say after looking into these enactments that they are so dependent on each other or otherwise so connected that the Legislature intended the provisions of the General Sales Tax Act as regards the exigibility to tax of turnover of works contract to operate only if surcharge can constitutionally be levied on that turnover under the provisions of the Surcharge on Taxes Act. I think that it was competent to the State Government to collect sales tax on the turnover of works contract for the period in question under the General Sales Tax Act. 11.. I agree with the finding in the judgment of my learned brethren on the question of the applicability of article 14 of the Constitution to the facts of this case. 12.. No data has been placed before the court for holding that the tax collected will not be applied for the same purpose as the tax levied and collected before the commencement of the Constitution was applied. Nor is there any substance in the contention that the increase in the rate of sales tax for some of the materials used in the construction of the works undertaken by the petitioner is an increase in the rate of sales ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1723 of 1965. A single judge of the High Court quashed the impugned order and this was confirmed in Writ Appeal No. 243 of 1967. The State, the Kerala Sales Tax Appellate Tribunal and the Inspecting Assistant Commissioner of Agricultural Income-tax and Sales Tax, Ernakulam, have come up in appeals to this court and the common respondent is the company. The central question in all these appeals is, whether the provisions of the General Sales Tax Act (XI of 1125) (corresponding to Christian era 1950) imposing a tax on works contracts were enforceable in the State of Kerala subsequent to January 26, 1960. The history behind the present law of sales tax on this point in the State of Kerala is as follows: The territory of the said State is composed inter alia of major parts of the erstwhile States of Travancore and Cochin which were separate sovereign States having plenary powers of taxation. Under the Sales Tax Act of both these States tax was exigible on works contracts. The Cochin Act was known as the Cochin General Sales Tax Act (XV of 1121) (Christian era 1945) as amended by Act V of 1124 (Christian era 1948). The Travancore Act was known as the Travancore General Sales Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Travancore and the Union of India under article 278 of the Constitution the State had no power to impose sales tax in respect of works contracts but the court expressed no opinion as to whether such tax would be leviable after the expiry of the period of the agreement as this point was not involved in the appeal. In the instant cases the points urged on behalf of the assessee before the High Court were: (i) that the levy of tax on works contracts under the provisions of the General Sales Tax Act (XI of 1125) for the period 26th January, 1960, to 30th March, 1963, is not saved by article 277 of the Constitution; and (ii) the levy is violative of article 14 of the Constitution. Two learned Judges of the High Court Bench constituted to hear the first three matters came to the conclusion that the right to levy tax did not survive after the period covered by the agreement dated 25th February, 1950. The third learned Judge took a different view. But all the three judges were agreed that the levy if otherwise justified was not violative of article 14 of the Constitution. There can be no doubt-and indeed there was no suggestion-that after the Constitution came into force it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of certain taxes, duties, cesses etc. which were being lawfully levied theretofore in the following terms: "Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law." The impost of sales tax on works contracts though beyond the competence of the States would be within that of Parliament by virtue of item 97 of List I of the Seventh Schedule and article 248 of the Constitution. It would therefore follow that if there was no other law touching this point, sales taxes on works contracts which were being lawfully levied by the Governments of the States of Travancore and Cochin before 26th January, 1950, would continue to be levied and to be applied to the same purposes until provision to the contrary was made by Parliament by law. The fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to that judgment the agreement "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." Further (see page 292): "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 subsidising 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 authoris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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