Holding

Section 5(3) of the Rajasthan Sales Tax Act and sub‑rule (i) of Rule 29, 1955, are unconstitutional and void, and a State cannot levy tax on deemed sales that are inter‑State, outside the State, or in the course of import/export; the tax must be measured on the value of the goods at incorporation.

Summary

The Supreme Court examined appeals by Gannon Dunkerley Co. and other contractors challenging the Rajasthan Sales Tax Act, 1954 and its rules which imposed tax on the transfer of property in goods used in works contracts. The Court held that Section 5(3) of the Act and sub‑rule (i) of Rule 29 of the Rajasthan Sales Tax Rules were unconstitutional because they allowed a State to tax deemed sales that occur in inter‑State trade, outside the State, or in the course of import/export, matters beyond the competence of Entry 54 of the State List. The Court reaffirmed the principles laid down in Builders' Association of India, applying the provisions of the Central Sales Tax Act (sections 3, 4, 5, 14, 15) to such transfers and clarified that the tax measure is the value of the goods at the time of incorporation into the works, not the total contract value. Consequently, the High Court judgment was set aside, the impugned provisions declared void, and the assessment order of September 1 1990 was quashed.

Issues considered

The constitutional validity of Section 5(3) of the Rajasthan Sales Tax Act and sub‑rule (i) of Rule 29, 1955, in relation to tax on transfer of property in goods involved in works contracts.
Whether the State's power under Entry 54 of List II, read with Article 366(29‑A)(b), is limited by Article 286(2) and (3) with respect to inter‑State sales, outside‑State sales and import/export sales.
The applicability of the Central Sales Tax Act, 1956 (sections 3, 4, 5, 14, 15) to deemed sales arising from works contracts.
The proper measure and rate of tax on such deemed sales, including the valuation of goods at incorporation and permissible deductions for labour and services.
The permissibility of the State Legislature defining the situs of a deemed sale and of prescribing uniform tax rates for goods in works contracts.

Legislation cited

Central Sales Tax Act, 1956s. Section 14, s. Section 15, s. Section 2(g), s. Section 3, s. Section 4, s. Section 5
Constitution of Indias. Article 286(2), s. Article 286(3), s. Article 366(29-A)(b)
Rajasthan Sales Tax Act, 1954s. Section 2(o), s. Section 2(p), s. Section 2(s), s. Section 2(t), s. Section 5(3), s. Section 7
Rajasthan Sales Tax Rules, 1955s. Rule 29(2), s. Rule 46(2)

Subjects

sales taxworks contractconstitutional validityEntry 54Article 366Article 286central sales tax actdeemed saleinter‑state tradetax measurevaluation of goods

Judgment

GANNON DUNKERLEY AND CO. A.ND ORS. ETC. ETC. A
v.
STATE OF RAJASTHAN AND ORS. ETC. ETC.

NOVEMBER 17, 1992

[M.H. KANIA, CJ., J.S. VER.MA, S.C. AGRAWAL, YOGESHWAR B
DAYAL AND DR. A.S. ANAND, JJ.]

Constitution of India 195(}-Artic/es 286, 366 (29-A) (b ), Schedule VII
List II Entry 54-Transfer of property in goods involved in execution of works
contract-:-Levy of sales tax-State Legislature whether'f:ompetent to legis- c
late-Value of goods-Whether would constitute measure of t~Value of
goods-How to be determined-Need for central legislation emphasised.

Central Sales Tax Act, 1956-Section 2(g), 3, 4, 5, 14, 15-Works
contract-Transfer of property of goods involved in such contract-'Deemed D
sale'-State Legislature-Whether competent to provide for tax of such sale.

Rajasthan Sales Tax Act 1954: Section 5(3)-Rajasthan Sales Tax
Rules 1955: Rule 29(2)(i)-Works Contract-:-Levy of sales tax-Provisions
held ultra vires Entry 54 list JI of Seventh Schedule to the Constitution-:-
Hence unconstitutional and void. E
Statutory Interpretation-Statute-Constitutional validity of-Deter-
mined on the basis of its provisions and 011 the ambit of operation.

In State of Madras v. Ganno11 Dunkerley & Co. {Madras) Ltd. [1959]
SCR 379 it was held that the expression "sale of goods' in Entry 48 in F
List II of Seventh Schedule to the Government of India Act, 1935 and
Entry 54 in List II of the Seventh Schedule to the Constitution had the
same meaning as the said expression had in the Sale of Goods Act, 1930,
its essential ingredients being an agreement to sell movables for a price
and property passing therein pursuant to that agreement. It was further G
held that in a building contract, which is entire and indivisible, there is
no sale of goods because in such a contract the agreement between the
parties is that the contractor should construct the building according to
the specifications contained in the agreement and in consideration there·
for receive payment as provided therein and in such an agreement, there H
103
104 SUPREME COURT REPORTS {1992) SUPP. 3 S.C.R.

A was neither a contract to sell the materials used in the construction nor
does the property pass therein as movabies. It was, therefore, laid down
that it was not within the competence of the Provincial/State Legislature
to impose a tax on the supply of materials used in such a contract treating
it as a sale~ .. ~
\

B
After the aforesaid decision in Gannon Dunkerley case the Coostitu·
tion was amended by the Forty-Sixth Amendment and thereby Clause
(29A) was inserted in Article. 366, and Clause (3) of Article 286 was
substituted. Thereafter, various State Legislatures amended their sales
tax legislation to make provision for imposition of sales tax in ~~lation \!
c to works contracts.

The constitutional validity of the Forty-sixth Amendment as well as
the amendments made in the su,te legislations on that basis were chal-
lenged before this Court in appeals as .well ~s writ petitions filed under
D Article 32 of the Constitution.

This Court by its judgment in Builders' Association of India & Ors.
· v. Union of India [1989] 2 SCR 320 upheld the validity of the Forty-Sixth
Amendment. Since this Court had interpreted the relevant provisions of
E the Constitution, this Court did not consider it necessary to take up each
and every writ petition to express its opinion on the validity of the
statutory provisions and rules which were questioned before the Court
and the petitioners concerned were given the liberty to approach the
authorities under the Sales Tax Act or the High Court concerned for
necessary relief.
F
After the Forty Sixth Amendment, the Rajasthan Sales Tax Act was
amended by the Rajasthan Finance Act, 1987. By the said Act, among
other provisions, the definition of 'sale' contained in clause (o) of Section
2 _was substituted, certain amendments were made in definition of 'sale
G price' contained in cl.(p) of Section 2. By the Rajasthan Sales Tax
(Amendment) Act 1988, certain further amendments were made in the
definition of 'sale' contained in clause (o) and definition .of 'turnover'
contained in clause (t) of Section 2. Clause (u) was introduced in Section
2 to define 'works contract'. By the Rajasthan Sales Tax (Second Ameud-
H ment) Act, 1988 the definition of 'works contract' contained in cl.(i) of
GANNON DUNKERLEY CO. v. STATE OF RAJASTHAN 105

Section 2 was substituted. A
After the decision of this Court in Builders' Association case, Rajas-
than Sales Tax (Amendment) Act 1990 was enacted whereby some minor
changes were made in the definition of 'sale' contained in clause (o) and
the last proviso, which was inserted in th~ definition of 'sale price' B
contained in cl.(o). by the Rajasthan Act No. 7 of 1987 was deleted.

In the Rajasthan Sales Tax Rules 1955 by Notification dated May
28, 1987 sub-rule (2) was inserted in Rule 29 to provide for deductions
of turnover relating to works contracts. After the Builders' Association
case, the said sub-rule (2) of Rule 29 was substituted by notification dated C
June 28, 1989.

In pursuance of the decision of this Court in Builders' Association
case, fresh writ petitions were filed by the appellants challenging the
validity of the provisions of the Rajasthan Sales Tax Act, 1954 and the D
Rajasthan Sales Tax Rules, 1955 relating to imposition of tax on transfer
of property in goods involved in the execution of a works contract, which
were dismissed by a Division Bench of the Rajastban High Court by
judgment dated September 3, 1991. Appeals were filed against the said
decision of the High Court. E
Before the High Court the appellants tonfined their challenge to
cl.(3) of Section 5 and cl.(2-c) of Section 7 of the Rajasthan Sales Tax
Act and sub-Rule (2) of Rule 29 and sub-Rule (2) of Rule 46 of the
Rajasthan Sales Tax Rules. Sub·Rule (2) of Rule 29 relates to sub-s. (3)
of Section 5 whereas sub-Rule (2) of Rule 46 relates to sub-cl.(2) of .d.(c) F
of Section 7 of the Act. However, before this court the appellants also
challenged the validity of Explanation I in definition of 'sale' contained
in clause (o) of Section 2 of the Act.

The petitioner in the writ petition (filed under Article 32 of the G
Constitution) is a company which under-takes contracts for executing .
turnkey projects involving building construction, erection and installation
of equipment etc. It challenged the validity of the provisions relating to
imposition of tax on the transfer of property in goods involved in the
execution of a ''forks contract contained in the Sales Tax Laws of the H
106 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A States of Tamil Nadu, Andhra Pradesh and Rajasthan. The. reason for
approaching this Court under Article 32 was that inspite of the decision
of this court in Builders' Association case the company was being subjected
to demands for tax in relation to works contracts by the various States
and each State is wanting to tax the same transaction on the basis that
B it constitutes a sale under its sales tax Jaw. The writ petition was con-
sidered only with reference to the provisions contained in the Rajasthan
Sales Tax Act, 1954 and the Rajastban Sales Tax Rules, 1955.

On behalf of the .appellants and the petitioner (contractors) it was
contended that in view of the declaration of the law made by this court
c in Builders' Association case, the State Legislature, in exercise of its
legislative power to impose a tax on the transfer of property in goods
involved in the execution of a works contract under Entry 54 of the State
List read with Article 366(29-A)(b), cannot levy such a tax in respect of
transactions which are in the nature of sales in the course of inter-state
D trade and commerce or are sales outside the Siate lev)'ing such tax or are
sales in the course of import inasmuch as it is beyond the legislative
competence of the State Legislature to impose a sales tax on inter-state
sales as well as sales outside the State and sales in the course of import
or export. It was urged that the existence of a law made by Parliament _
E under Article 269(3), Article 286(2) and Article 286(3)(b) is a condition
precedent for the exercise of the legislative power by the State, and since
no such law has been enacted by Parliament in relation to imposition of
tax on property in goods involved in the execution of a works contract, it
is not open .to the State leg_islature to exercise the power to impose such
F tax. Jt was also contended that the Central Sales Tax Act, 1956, having
not been amended after the Forty-Sixth Amendment to include within its
ambit a transfer of property in goods involved in the execution of a works
contract, is not applicable to such a transfer and it cannot be treated to
be a law made under Article 269(3) and Article 286(2) in relation to sales
G arising out of such transfers, and that it was not permissible for the State
Legislature to define the expression 'sale' in a manner so as to include
within its ambit an inter-State sale as well as sale outside the State or
sale in the cours of import and thereby assume power to impose tax on
the same, lt was further submitted that since the tax leviable by virtue of
H sub-clause. (b) of clause (29- A) of Article 366 .is on goods which are
GANNON DUNKERLEY CL. v. STATE OF RAJASTIIAN 107

involved in the execution of a works contract the measure for such an A
imposition can only be the value of such goods and the value of the works
contract cannot be made the measure for such an imposition and for the
same reason, the rate of imposition cannot also be fixed on the basis of
the value of the works contract and it has to be fixed in relation to the
goods which are involved in the execution of a works contract. Relying on B
the Bengal Immunity Co. Ltd. v. The State of Bihar and Ors., (1955) .2 SCR
603 it was urged that till Parliament makes a law specifying the restrictions
and conditions in regard to the system of levy, rates and other incidents
of the tax referred to in Article 366(29-A)(b), it is not open to the State
Legislatures to impose a tax on the transfers referred to in sub-cl.(b) of C
cl.(29-A) of Article 366.

On behalf .of the states it was contended that in the absence of the
applicability of the provisions of the Central Sales Tax Act, 1956 to
transfer of property in goods involved in the execution of a works contract
and Parliament having not enacted any law under Article 269(3) and D
Article 286(2) there is no limitation whatsoever on the legislative power
- of the States to impose a tax on such a transfer, and that the nature .of
a works contract is such that th~re can never be any sale in the course
of inter-state trade or commerce or an outside sale or a sale in the course
of import in respect of goods which are involved in tl}e execution of such E
a contract, since the transfer of property in such goods takes place only
when the goods are incorporated in the works and this can only be in the
State in which the works is to be executed. It was submitted that there is
a distinction between the nature of the tax and the measure of the tax
and that though a tax on transfer of property in goods involved in the F
execution of a works contract is imposed on the goods which are involved
in the execution of works contract, the value of the works contract can be
made the measure for the levy of such a tax as well as for presecribing
the rate for imposition of such tax.
G
On behalf of the State of Karnataka it was submitted tly.lt as a
result of the Forty Sixth Amendment, a new field of taxation in respect
of the works contracts had been made available to the States and that
the said power is independent of the legislative power conferred under
Entry 54 in List II of the Seventh Schedule to the Constitution, and that H
108 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A it is not subject to the constitutional limitations contained in Article 286
of the Constitution, and that this question did not directly arise for
Cf?nsideration in the Builders' Association case. It was also' urged that the
decision in the Builders' Association case does not lay down the correct
law and needs reconsideration.
B Allowing the appeal!J and the Writ Petition, this Court

HELD:

A.AMBIT OF THELEGISLATIVE POWER OF THE STATES TO
C IMPOSE THE TAX.OF THE NATURE REFERRED TO IN ARTICLE
366(29-A)(b ).

1.1. The Court should go back upon its previous ruling on a
constitutional. issue only when it is demonstrated beyond all reasonable
~. '

doubt that the previous ~uling given after due deliberation and full bearing
.D
was erroneous. [132~D] · ·

Lt. Col. Kha]oor Singh v. The Union of India & Anr., [1961] 2 S.C.R.
. 828 at p. 845; Keshav Mills Co. Ltd. v. Commissioner of Income-tax, Bombay
North {196S] 2 S.C.R. 908; Ganga Sugar Co. Ltd. etc v. State of U.P. & Ors.
E etc., [1980] 1 S.C.R. 769 and Smith v.Allwright, 321U.S.649 at 669·(1944) ·
referred to.
1.2. Having regard to_ the principles governing reconsideration of an
.earHer dec.ision it was n_ot appropriate to reopen the issues which are
covered by the decision in Builders' Association case and the matter be
F dealt with in accordance with the law as laid down therein that the
e~pressi«;>n "tax on the ·sale or purchase of goods' in Entry 54 of the State
List includes a tax on the transfer of property in goods" (whether as goods
or in some other form) involved in the execution of a works contract also
and the tax leviable by virtue of sub-clause (b) of clause (29-A) ·of Article
.G 366 of the Contitution is subject to the discipline to which any levy under
Entry 54 of the State .List is made subject to under the Constitution.
[1~3-D, E]

2.1. ~~ legis~ative power of the States tinder Entry 54 of the State
1 List is subject to the limitations flowing from the provisions of Entry 92-A
·1 H of List I and the prohibition 'contained in Article 286. (133-F]
GANNON DUNKEf'.LEY CO. v. STATE OF RAJASTIIAN 109

2.2. The legislative power under Entry 54 of the State List is not A
available in respect of transactions of sale or purchase which take place
in the course of inter-State trade or commerce as well as transactions of
sale or purchase which take place (a) outside the State or (b) in the course
of the import of goods into or export of the goods out of the territory of
India. [133-H; 134-A] B

2.3. It is beyond the competence of the State Legislature to make a
law imposing or authorising the imposition of a tax on transfer of property
in goods involved in the execution of a works contract with the aid of
sub-clause (b) of clause (29-A) of Article 366 in respect of transactions C
which take place in the course of inter-State trade or commerce or
transactions which constitute sales outside the Stat~ or sales in .the course
of import or export. [134-B, CJ

2.4. With regard to imposition of tax on sale or purchase of goods, D
after the Forty Sixth Amendment, legislation by Parliament is envisaged
in respect of the following matters: (i) formulation of principles for
determining when a sale or purchase of consignment of goods takes place
in the course of inter-State trade or commerce; Article 269(3); (ii) for·
mulation of principles for determining when a sale or purchase of goods
takes place in any of the ways mentioned in Clause (1) of Article 286 E
[Article 286(2)]; and (iii) declaration of goods to be. of special importance
in inter-State trade or c"mmerce and specification of restrictions and
conditions in regard to system of levy, rates and other incidents of tax in
respect of a tax on the sale or purchase of such goods [Articles 286(3) (a) J;
and (iv) specifications of restrictions and conditions in regard to system F
of levy, rates and other incidents of tax in .respect of a tax on the sale or
purchase of goods being tax of the nature referred to in sub-clause (b),
sub-clause (c) and sub-clause (d) of Clause (29-A) of Article 366 [Article
286(3)(b)]. (135-B-H]
G-
2.5. The Central Sale~ Tax Act is a composite law enacted under
Entry 92-A of List I read with Clause (1) of Article 269 as well as under
Clause (3) of Article 269, Clause (2) of Article 286 and sub-clause (a) of
Clause (3) of Article 286. No law has, however, been made hr Parliament
in exercise of its power undE:r Article 286(3)(b). [135-ll} f.
110 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A 2.6. The existence of a law enacted under Article 286(3)(b) is not a
condition precedent for the exercise of the taxing power of the State under
Entry 54 in List II. Article 286(3)(b) only means that in the event of a
law having been made by Parliament under Article 286(3)(b) the exercise
of the legislative power of the State under Entry 54 in List II to impose
a tax of the nature referred to in sub-clauses (b), (c) and (d) of Clause
B
(29-A) of Article 366 would be subject to restricti.ons and conditions in
regard to the system of levy, rates and other incidents of tax contained
in the said law. The need for the law envisaged by Article 286(3)(b) cannot,
however, be min;mised in view of the grievance there th3t is wide disparity
in tlie sales tax· legislations of the various states in the matter of imposi-
C lion, mode of assessment, rates etc. of tax on the transactions referred to
in Article 366(29-A)(b) relating to transfer of property in goods involved
in the execution of a works contract. [139-D-G]

- 3.1. In view of the legal fiction introduced by Article 366(29-A)(b)
D whereby the contract which was single and indivisible, has been altered
into a contract which is divisible into one for sale of goods and the other
for supply of labour and services, there is a deemed sale of the goods
which are involved in the execution ofa works contract and such a deemed
sale has all the incidents of a saie of goods involved in the execution of
E a works contract where the contract is divisible into one for sale of goods
and the other' for supply of labour and services. (137-G]

Builders Association of India & Ors. v. Union of India, [1989] 2 S.C.ll.
320 and East End Dwellings Co. Ltd. v. Finsbury Borough Council, (1952)
A.C. 109, referred.
,, .
3.2. Even in the ~bsence of any provision expressly including trans·
fers of property in goods involved in the •execution of a works conract
. within the ambit of sections 3, 4 and 5 of the Central Sales Tax Act (after
the Forty-Sixth Amendment) the said provisions would be applicable to
""J such transfers and the legislative power of the State to impose tax on
such transfers under Entry 54 of the State _List will have to be exercised
keeping in ~ew the ·provisions contained in S~ions 3, 4 and 5 of the
Central Sales Tax Act. For the same reasons Sections 14 and 15 of the -
Central Sales Tax. Act would. ~I~!> ~.- app~icable to the deemed sales
resulting from transfer of property in goods involved in the execution of
GANNON DUNKERLEY CO. v. STATEOFRAJASTHAN 111

a works contract and the legislative power under Entry 54 in State List A
.will have to be exercised subject to the restrictions and conditions
prescribed in respect of goods that have been declared to be of special
importance in inter-State trade or commerce. [137-H; 138-A-CJ

3.3. While enacting a law imposing a tax on sale or purchase of B
goods under Entry 54 of the State List read with sub- clause (b) of Clause
(29-A) of Article 366 of the Constitution, it is not permissible fo~ the State
Legislature to make a law imposing tax on such a deemed sale which
constitutes a sale in the course of inter-State trade or commerce under
Section 3 of the Central Sales Tax Act or an outside sa~ under Section
4 of the Central Sales Tax Act or a sale in the course of import or export C
under Section 5 of the Central Sales Tax Act. So also it is not permissible
for the State Legislature to impose a tax on goods declared to be of special
importance in inter-State trade or commerce under Section 14 of the
Central Sales Tax Act except in accordance with the restrictions and
conditions contained in Section 15 of the Central Sales Tax Act. D
[140-G, H; 141-A]
3.4. While defining the expression 'sale' in the sales tax legislation
it is open to the State Legislature to fix the situs of a deemed sale resulting
from a transfer falling within the ambit of Article 366(29-A)(b) but it is
not permissible for the State Legislature to define the expression 'sale' in, E
a way as to bring within the ambit of the taxing power a sale in the course
of inter-State trade or commerce, or a sale outside the State or a sale in
the course of import and export. [148-F]

4.1. The location of the situs of the sale in sales tax legislation of F
the State would have no bearing on the chargeability of tax on sales in
the course of inter-State trade or commerce since they fall outside the
field of legislative competence of the State Legislatures and will have to
be excluded while assessing the tax liability under the State legislation.
[141-H; 142-A] G

- 4.2. The same is true of sales which are outside the State and sales
in the course of import and export. The State Legislature cannot so frame
its law as to convert an outside sale or a sale in the course of import and
export into a sale outside the state. The question whether a sale is an
outside sale or a sale inside the State or whether it is a sale in the course H

,·
112 SUPREME COURT REPORTS (1992] SUPP. 3 S.C.R.

A of import or export will have to be determined in accordance with the
principles contained in Sections 4 and 5 of the Central Sales Tax Act and
the State Legislature while enacting the sales tax legislation for the State
cannot" make a departure from these principles. [142-B, CJ

Bengal Immunity Co. Ltd. v. State of Bihar & Ors., (1955] 2 S.C.R.
B 605 and Onkar Lal Nand Lal v. State of Rajasthan & Anr., [~985] Suppl.
3 S.C.R., 107~, referred to.

5.1. The measm·e for levy of the tax contemplated by Article 366(29-
A)(b) is the value of the goods involved .i'n the execution of a works
C contract. [142-G]

5.2. Since the taxable event is the transfer of property in goods
involved in the execution of a works contract and the said transfer of
property in such goods takes place when the goods are incorporated ·in
D the works, the value of the goods which can constiture the measure for
the levy of tax has to be the value of goods at the time of incorporation
· of the goods in the works and not the cost of acquisition of goods by the
Contractor. [143-B, CJ· ·

5.3. The cost of incorporation of the goods in the works cannot be
E made a part bf. the measure for the levy of tax contemplated by Article
366(29-A)(b). (143-D]

5.4. The ·,·alue of the goods involved in the execution of a works
contract will have to be determined by taking into account the value of
F the entire works contract and deducting therefrom the charges towards
labour and services as wel.1 as the value of the goods which are not taxable
in view of Sections 3,4 and 5 of Central· Sales Tax Act and goods covered
by Sections 14 and 15 of the said Act which are exempt from tax under
the sales tax legislations of the States. (143-E, 146-C, DJ

G 5.5. The charges for labour and services which are required to be
deducted frpm -the value of the works contract would cover (i)_ labour
charges for execution ofthe works; (ii) amount paid to a sub-contractor
for labour and services; (iii) charges for obtaining on hire or otherwise
machinery and tools used for execution of the works contract; (iv)charges
H for planning, designing and architect's fees; and (v) cost of consumables
GANNON DUNKERLEY CO. v. STATE OFRAJASTIIAN 113

u~ed in execution of _the works contract, (vi) cost of establishment of the A
contractor to the extent it is relatable to supply of labOur and services;
(vii) other similar expenses relatable to.· supply of labour and services;
and (viii) profit earned by the contractor to the extant it is relatable to
suply of labour and services. [149-C, DJ

5.6. The amount de~uctible by way of charges for labour and services B
will have to be determined in the light of the fact of the fact of a particular
case on the basis of the material produced by the Contractor. In cases ,
where the Contractor does not maintain proper accounts or the accounts
maintained by him are not found worthy of credence, it would be permis-
sible for the State legislation to prescribe a formula for determining the C
charges for labour and services by fixing a particular percentage of the
value of the works contract and to allow deduction of the amount thus
determined from the value of the works contract. The amount deductible
under such a formula should not ditTer appreciably from the expenses for
labout and services that would be incurred in the normal circumstances D
in respect of that particular type of works contract. It would be permissible
indeed necessary, to prescribe varying scales for deduction on account of
cost of labour and services for various types of works contract.
(146-G, H; 147·A·C)
6.1. In the field of taxation the legislature is permitted to exercise , E
an extremely wide discretion in classifying items for tax purposes so long
as it refrains from clear and hostile discrimination against particular
persons or classes. [147-F]

East India Tobacco Co. v. State of Andhra Pradesh [1963) 1 S.C.R. F
404 at p.411; P.M. Ashwathanarayan Shetty & Ors. v. State of Kamataka,
[1968) Supp. 3 S.C.R. 155 at p. 188; Federation of Hotel & Restaurant
Association of India v. Union of India, [1989) 1 S.C.R. 918 at p. 949; Kera/a
Hotel & Restaurant Association & Ors. v. State of Kera/a & Ors. [1990j 1
S.C.R. 516 at p.530; S.Kodar v. State of Kera/a, [1975) 1 S.C.R. 121 and
Ganga Su~ar Co. Ltd. v. State of U.P. & Ors., [1980) 1 S.C.R. 769, referred G
to.

6.2. It would be permissible for the State Legislature to tax all the
goods involved in the execution of a works contract at a uniform rate
which may be ditTerent from the rates applicable to individual goods. The H
114 ' SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A goods which are involved in the execution of the works contract when
incorporated in the works·can be classified into a separate category for
the purpose of imposing the tax and a uniform rate may be p~scribed
for the sale of such goods. (148-A-B]

B. VALIDITY OF THE RAJASTHAN SALES TAX ACT AND
B RAJASTHAN SALES TAX RULES:

1.1. Section 5(3) of the Rajasthan Sales Tax Act and Clause (i) of
sub-Rule (2)' of Rule 29 of the Rajasthan Sales Tax Rules are unconstitu- • '
tional and void. [160-D]
c 1.2. In view of the declaration1that Section 5(3) of the Rajasthan
Sales Tax Act is unconstitutional and void, the assessment order dated.
September l, 1990 passed by the Commercial Tax Officer, Kota, under
challenge in W.P. No. 197 of 1991, cannot stand and is quashed. ·
[160-H; 161-A]
D
. L3 ~he c·~nstitutional validity of a statute has to be determined on
the. basis of its provisions and on the ambit of its op~ration as reasonably
construed and if,.so judged, it does not pass the test of constitutionality
• it cannot be pronounced valid merely because it is administered in a
E manner which might not conflict with the constitutional requirements.
[158-D].
· The Collei:tor of Customs v. Nathe/la Sampathu Chetty & Anr., (1962)
3 S.C.R. 786 at pp. 825~, referred to.

· 2.1. In the Rajasthan Sales Tax A~t no express provision has been
F made for exclusion of transactions constituting deemed sales under Article
366(29-A)(b) which take place·in the course of inter-State trade or com-
merce or outside the State or in the course of import and export in relation
to which the State Legislature lacks the competence to impose a tax unde~
Entry 54 of the State List. Nor has any provision been made with regard
G to exc~usion of sales of goods which are declared to be of special impor-
tance in inter-State trade or commeree and are governed by sections 14
and 15 of the Central Sales Tax Act. Under section 5(3) read with Section
.2(t) the matter has been left to the discretion of the rule making authority
to prescribe whether deductions in respect of such transactions should
H be allowed or not. (156-D-F] ·

)_
GANNON DUNKERLEY CO. v. STATE OF RAJASTIIAN 115

2.2. By use of the word 'turnover' instead of word 'taxable turnover' A
in Sub-Section (3) of section 5 the amplitude of the incidence of tax has
been widened so as to indude transactions which are outside the sphere
of taxation available to the State Legislature under Entry 54 of the State
List. [159-H; 160~AJ

2.3. ~lause (1) of sub-Rule (2) or Rule 29 could not be construed to B
. mean that sales on which no tax is leviable under sub-Section (1) of Section
5 are to be excluded from the turnover for the purpose of computing tax
on such turnover in relation to a works contract. The High Court has
upheld the validity of sub· section (3) of Section 5 by taking into account
the provisions of sub-Rule (2) of Rule 29, but has failed to notice that C
under clause (1) of sub-Rule (2) of Rule 29, transfer of property in goods
involved in the execution of a works contract, on which no tax is leviable
under Section S, are not required to be deducted from the turnover.
[1S9~E-G]

2.4. Sub-section (3) of Section S, transgresses the limits of the D
legislative power conferred on the State Legislature under Entry 54 of the
State List inasmuch as it enables tax being imposed on deemed sales
resulting from transfer of property in goods, whether as goods or in some
other form, involved in the execution of a works contract which takes place
in the course of inter-State trade or commerce, or which takes place E
outside the state or which takes place in the course of import and export
within the meaning of Sections 3, 4 and 5 respectively of the Central Sales
Tax Act and it does not take·into account the conditions and restrictions
imposed by Section 15 of the Central Sales Tax Act on goods declared to
be of special importance in inter-State trade or commerce under Section
14 of the Central Sales Tax Act. [160-B·D]
F

2.5. Clause (1) of sub-Rule (2) of Rule 29 of the Rajasthan Sales Tax
Rules also suffers from the same infirmity. [160-D]

2.6. The invalidity of Section 5 (3) goes to the root of the imposition G
of tax and i~ the absence of the said provision the tax cannot be levied.
[160-E]
3. It was not considered necessary to examine the other questions
relating to the validity of Explanation-I to Clause (o) of Section 2 of the
Rajasthan Sales Tax Act, Explanation (i) to Clause (t) of Section 2, H
116 SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A sub-section (2-C) of Section 7, Clause (ii) of sub-Rule (2) of Rule 29 and
sub-Rule (2) of the Rule 46 of the Rajasthan Sales Tax Rules. [160-F] ·

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4861-64
of 1992.

B From the Judgment and Order dated 3.9.1991 of the Rajasthan High
Court in D.B. Civil Writ Petition Nos. 5146/89, 4609/90, 338/90 and 2734
of 1991.

AND
c Writ Petition (Civil) No: 197 of 1991.

Under Article 32 of the Constitution· of India.

K. P~rasara~, B.R.L.· Iyengar, F.S. Nru:iman, Harish N. Salve, C.
D NatarajaJ!,'V. Bataji, P,N. Ramalingam, Mrs. Pushpa, A.T.M. Sampath,
S.C. Sharina ·and Ravi Prakash Gupta for the Appellants/Petitioners.

G. Ramaswamy, Attroney General, Depankar Gupta, -Solicitor
General, V.R. Reddy, Addi. Solicitor General, B. Ahuja, T.S. Krish~
nainoorthy Iyer; J. Ramamurthy, B:Dutta, Ranbir Chandra,.Ashok Kumar
E Sharma, P; Parmeshwaran, Ms .. A Subhashini, DA. Dave, C.B. Nath,
Siddarth, Anip Sachthey, Aruneshwar Gupta, R. Mohan,.R.P~ Singh, S'.K.
Dhingra, Sunil Kumar Jain, Vijay Hansaria and U.S, Prasad for .the
Respondents.

The Judgment of the Court was delivered by
F
S.C. AGRAWAL, J. Having heard learned counsel in SLP(C) Nos.
3365-68 of 1992 we hereby grant special leave to appeal and proceecl to ·
dispose of the appeals.

These appeals arising from the Judgment of the Rajasthan High
G Court dated September 3,· 1991, and the connected writ petition filed under
A~ticle 32 of the Constitution raise questions relating to imposition of tax
on the transfer of property in goods involved in the execution of works
contracts. The power to.· impose this tax became available to the State
legislatures as a result of the amendments introduced in the Constitution
H by the Constitution (Forty Sixth Amendment) Act 1982, hereinafter
GANNON DUNKERLEY CO. v. STATEOFRAJASTIIAN(AGRAWAL,J.) 117

referred to as the Forty Sixth Amendment. The validity of the said amend- A
ment has been upheld by this Court in Builders Associatiqn of India & ors.
v. Union of India, [1989] 2 SCR 320 wherein this Court has also considered
the scope and ambit of the legislative power to unpose the s~d.tax.

The relevant historical background leading to the enactment of the B
Forty Sixth Amendment has been set out in detail in the Builders Associa-
tion case (supra) we would therefore only make a brief reference to the
circumstances which led to the said amendment

Under Entry 48 in List II ofSeventh,Schedule to the Gov~rnment of
India Act 1985. The legislative power t-0 impose "truces on sale of goods and C
on advertisements" was conferred on .the Provincial Legislattires under the
Constitution as adopted the said taxing power wa~ di'1ided between Parlia-
ment and the State Legislature. Under Entry 92 in List I of the Seventh
Schedule to the Constitution Parliament was empowered. to impose "taxes
on the sale or purchase of newspap_ers and on advertisements .published D
therein" and under Entry 54 in List II the State Legislatures were em-
powered to impose "taxes on the sale or purchase of goods other than
newspapers". With regard to imposition of sales tax on goods involved in
execution of works contracts where the contract was single and indivisible
the question arose whetherthere. is a 'sale' of those materials within the E
meaning of that word in Entry 48 in List II of the Seventh Schedule to the
Government of India Act 1935 and Entry 54 in List II of the Seventh
Schedule to the Constitution. There was sharp cleavage of opinion ·among
the High Courts on. that question. The High Court of Madras in Gannon
Dunkerley & Co. (Madras) Ltd. v.State of Madras, AIR 1954 Mad. 1130,
took the view that the e~pression 'sale of goods' in Entry 48 in I,..ist II of F
the Governme~t of India Act 1935 and Entry 54 in List II ofthe Constitu-
tion had the same meaning as it has in the Sale of Goods Act, 1930 and
that construction works contracts were not contracts for sale of the
materials used therein and that the contract, being entire and indivisible,
could not be broken into a contract for sale of materials and a contract for
payment for work done. On that view it was held that the provisions of the G
amendments introduced by the Amendment Act of 1947 in Madras
General Sales Tax Act 1939 whereby the definition of 'sale' was enlarged
to include 'a transfer of property in goods involved in the execution of a
works contract' and thereby impose sales tax on such transfers, were
declared as ultra Vires the powers of the Provincial Legislature. The same H
118 SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A view was taken by the Hyderabad High Court in Jubilee Engineering Co.
Ltd. v. Sales Tax Officer, Hyderabad City & Ors., AIR 1956 Hyd 79. The
Kerala High Court in Gannon Dunkerley & Co. Madras (Pvt.) 'Ltd. v. Sales
Tax Officer, Mattancheri, AIR 1957 Kerala 146 and the Mysore High Court
in Mohamed Khasim v. State of Mysore, (1955] VI STC 211, took the
contrary view and upheld the power of the State to impose sales tax on the
B turnover relating to construction works. The Nagpur High Court in Pandit
Banarsi Das v. State of Madhya Pradesh & Ors., (1955) VI STC 93, while
declining to follow the decision of the Madras High Court expressed the
view that the State Legislature could pick out a sale from the composite
transaction of a building contract which included transfer of property in
c materials and could make the portion attributable to the cost of such
materials subject to payment of sales tax in exercise of its undoubted and
plenary powers. The Rajasthan High Court in Bhuramal & Ors. v. State of
Rajasthan, AIR 1957 ~aj. 104, took a sim~lar view.

D , . This conflict was resolved by this Court in State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd., [1959) SCR 379 wherein the decision of
the Madras High Court was affirmed and it was held that the exr.ression
. sale of goods in Entry 48 in List II of Seventh Schedule to the Government
of India Act, 1935 had the same meaning as the said expression had in the
Sale of Goods Act, 1930, its ess.ential ingredients being an agreement to
E sell movables for a price and property passing therein pursuant to .that
agreement. It was further held that in a building contract, which is entire
and indivisible, there is no sale of goods because in such a contract the
agreement between the parties is that the contractor should construct the
building according to the specifications cqntained in the agreement and in
F consideration therefore receive payment as provided therein and in such
an agreement, there was neither a contract to sell the materials used in the
construction nor does the•property pass therein as movables. This Court
therefore, laid down that it was not within the competence of the Provincial
Legislature under Entry 48 in List II of Seventh Schedule to the Govern- (
ment of India Act, 1935, to impose a tax on the supply of materials used
G in such a contract treating it as a sale. The said decision, though rendered
L
in the context of Entry 48 in List ·II· of the Seventh Schedule to the
Government of India Act, 1935, :was equally applicable to the provisions
found in Entry 54 in List II of the Seventh Schedule to the Constitution.
In the Gannon Dunkerlay case (supra) it was made clear that the
H abovementioned conclusions had reference to works contracts which were
c
GANNON DUNKERLEY CO. v. srATE OF RAJASTHAN (AGRAWAL, J.) 119

entire and indivisible and the Court has observed : A
"It is possible that the parties might enter into distinct and
separate contracts one for the transfer of materials for
money consideration, and the other for payment of
remuneration for services and for work done. In such a
case, there are really two agreements though there is a B
single instrument embodying them, and the power of the
State to separate the agreement to sell, from the agree-
ment to do work and render service, and to impose a tax
thereon could not be questioned and will stand untouched
by the present judgment." (p.427) c
It may also be mentioned that in Mithan Lal v. The State of Delhi &
Anr., [1959] SCR 445 this Court, in the context of a law made by Parliament
in relation to Part C States under Article 246(4) of the Constitution, had
held that Parliament could impose a tax on the supply of materials in
building contracts and to impose it under the name of sales tax because D
the said power of Parliament was plenary and absolute and was untram-
melled by the limitations prescribed by Article 246 clauses (2) and (3) and
Entry 54 in List II and that the decision in Gannon Dunkerley case (supra)
which was given on a statute passed by the Provincial legislature under the
Government of India Act, 1935, had no application to such a case. (p.451) E
After the decision in Gannon Dunkerley case (supra) the matter with
regard to taxability of goods involved in execution of works contracts was
examined by the Law Commission. In its 61st Report the Law Commission
after considering the 'legal position, including the decision in Gannon
Dunkerley case (supra), expressed the view. F
"Before the judgments of the Supreme Court, however,
sale was usually regarded as including a works contract.
The question is ultimately one of policy, but the Commis-
sion would prefer restoration of the power to the States.
G
Narrow interpretation of the expression 'sale' was not the
practice before the Supreme Court judgments. Entries in
the legislative list, should receive a broad interpretation.
Fine nuances need not be material. The transactions
resemble sale in substance. Hence, the power should be H
120 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A given to the States.

If this alternative is adopted, there are several drafting
deVices open, e.g. :

(a) amending State List, entry 54, or
B
(b) adding a fresh entry in the State List, or

( c) inserting in Article 366 a wide definition of 'sale' so
as to include works contracts.

c The Commissioner prefers the last one. It would avoid
multiple amendment."

· Ke~ping in View the said recomin-endation of the Law Co~ission,
the Constitution was amended by the Forty-Sixth Amendment by the said
amendment clause (29A) was inserted in Article 366 and clause (3) of
D Article 286 was substituted. The ·other amendments· introduced by it are
not relevant for this. case. Clause (29-A) of Article 366 is in the following
·terms:

.. "(29A) "tax on the sale or purchase of go9ds" includes-

E · (a) a tax on the transfer, otherwise than in pursuance
of a contract, of property .in any goods for cash, deferred
paym1:nt or. other valuable consideration;

(b) a tax on the transfer of property in goods (whether .
(
'

as goods or in some other form) involved in the execution
F
of a.works contrad;

. ( c) a tax on the delivery of goods on hire- purchase or (
any system of payment by installments; (
( d) a tax on the transfer of the right to use any goods
G r
for fl.DY purpose (whether or not for a specified period) '-.
for cash, deferred payment or other valuable considera-
. tion;

( e) a tax on. the supply of goods by any unincorporated
H association or. body of persons to a member thereof for I
\.
GANNONDUNKERLEYC:O. v. STATEOFRAJASTHAN[AGRAWALJ] 121

cash,. deferred payment or other valuable consideration; A
(t) .a tax on the supply, by way of or as part of any
service or in any other manner whatsoever, of goods, being
food or any other article for human consumption or any
drink (whether or not intoxicating), where such supply or
service, is for cash, deferred payment or other valuable B
consideration;

and such transfer delivery or supply of any goods shall be
deemed to be a sale of those goods by the person making
the transfer, delivery or supply and a purchase of those
goods by the person to whom such transfer, delivery or
c
supply is made;"

Clause (3) of Article 286 provides as µnder:

"(3) Any law of a State shall, in so far as it imposes, or
D
authoris~ the imposition of -

(a) a tax on the sale or purchase of goods declared by
Parliament by law to be of special importance in inter-
state trade or commerce; or
E
(b) a tax on the sale or purchase of goods, being a tax
ofthe nature referred to in sub-clause (b), sub-clause (c)
or subcclause (d) of clause (29-A) of Article 366,

be subject to such restrictions and conditions in regard to
the system of levy, rates and other incidents of the tax as F
Parliament may by law specify."

After the Forty-sixth Amendment, various State Legislature&
amended their sales tax legislation to make provision for imposition of sales
tax in relation to works contracts. The constitutional validity of the Forty-
sixth Amendment as well as the amendments made inthe State legislations G
on that basis were challenged before this Court in appeals as well as writ
petitions filed under Article 32 of the Constitution. The said matters were
disposed of by this Court by its judgment in Builders' Association case
(supra). In that case, two points were raised before this Court: (i) the Forty
Sixth Amendment was unconstitutional for the reason that it had not been H
122 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A ratified. by the legislatures of not less than one-half of the States by
Resolutions passed to that effect by those legislatures before the Bill which
led to the amendment in question was· presented to the President for
assent; and (ii) it was not open to the States to ignore the provisions
contained in Article 286 of the Constitution and the provisions of .the
Central Sales Tax Act, 1956 while making assessment under the Sales Tax
. B laws passed by the legislatures of the States.

Rejecting the first contention this court upheld the validity of the
Forty-sixth Amendment in view of the Memorandum dated January 31,
1982 signed by the Secretary-General, Rajya Sabha which showed that the
c Bill before it was presented to the President for his assent had been ratified
by the legislatures o: twelve States and it showed that there was due
compliance of the provisions contained in the proviso to Article 368(2) of
the Constitution. As regards the secdnd contention, this Court, on a
consideration of the contentions raised on behalf of the petitioners and the
appellants and the submissions urged by the States to meet those conten-
·D tions, has declared that "sales tax laws passed by the legislatures of States
levying taxes on the transfer of property in goods (whether as goods or in
some other forms) involved in the execution of a works contract are subject
to the restrictions and conditions mentioned in each clause or sub-clause
of Article 286 of the Constitution." (p.355)
E
This Court has observed that Parliament amended Article 366 by
introducing sub-clause (b) of clause (29-A) in order to overcome the effect
of the decision in Gannon Dunkerley case (supra). Construing the
provisions of sub-clause (b) of clause (29-A) of Article 366, this Court has
laid down:
,F .,
"Sub-clause (b) of clause (29-A) states that 'tax ori the sale
or purchase of goods, includes among other things a tax
on the transfer of property in the goods (whether as goods
or in some other form) involved in the executi9n of a
,- G works contract. It does not say that a tax on the sale or
purchase of goods included a tax on the amount paid for
.the execution of a works contract. It refers to a tax on the
transfer of property in goods (whether as goods or in some
, other fom1) involved in the execution of a works contract.
The emphasis is .on the transfer of property in goods
··H
I'.
.(whether as goods qr in some other. form). The latter part
GANNON DUNKERLEY CO. v. STATEOFRAJASTIIAN(AGRAWAL,J.) 123

of clause (29-A) of Article 366 of the Constitution makes A
the position very clear. While referring to the transfer,
delivery or supply of any goods that takes place as per
sub-clauses (a) to (t) of clause (29-A), the latter part of
clause (29-A) says that 'such tran~fer, delivery or supply
of any goods' shall be deemed to be a sale of those goods
by the person making the transfer, delivery or supply and B
a purchase of those goods by the person to whom such
transfer, delivery or supply is made. Hence, a transfer of
property in goods under sub-clause (b) of clause (29-A)
is deemed to be a sale of the goods involved in the
execution of a works contract by the person making the C
transfer and a purchase of those goods by the person to
whom such transfer is made. The object of the new defini-
tion introduced in clause (29-A) of Article 366 of the ·
Constitution is, therefore, to enlarge the scope of 'tax on
sale or purchase of goods' wherever if occures in the
Constitution so that it may include within its scope the D
transfer, delivery or supply of goods that may take place
under any of the transactions referred to in sub clause (a)
to (t) thereof wherever such transfer, delivery or supply
becomes subject to levy of sales tax. So construed the
expression 'tax on the sale or purchase of goods' in Entry
54 of the State List I, therefore, includes a tax on the E
transfer of property in goods (whether as goods' or in some
other form) involved in the execution of a works contract
also. The tax leviable by virtue of sub clause (b) of clause
(29-A) of Article 366 of the Constitution thus becomes
subject to the same discipline to which any levy under F
Entry 54 of the State List is made subject to under the
Constitution." (pp.347-348) ·

Explaining the effect of the Forty-Sixth Amendment on the powers
of the State to levy sales tax, this Court has held :
G
Even after the decision of this Court in the State of Madras
v. Ga1111011 Dunkerley & Co. (Madras) Ltd. (supra) it was
quite possible that where a contract entered into in con-
nection with the construction of a building consisted of
two parts, namely, one part relating to sale of materials
used in the construction of the Building by the contractor H
124 SUPREME COURT REPORTS (1992] SUPP. 3 S.C.R.

A to the person who had assigned the contract and another
part dealing with the supply of labour and services, sales
tax was leviable on the goods which were agreed to be
sold under the first part. But sales tax could not be levied
when the contract in question was a single and indivisible
works contract. After the 46th Amendment the works
B . contract which was an indivisible one is by a legal fiction
altered into ~ contract which is divisible into one for sale
of goods and the other for supply of labour and services.
After the 46th Amendment, it has become possible for the
States tolevy sales tax on the value of goods involved in
c a works contract in the same way in which the sales tax
was leviable on the price of the goods and materials
supplied in a building contract which had been entered
into in two distinCt and separate parts as stated above. It
could not have been the contention of the revenue prior
to the 46th Amendment that when the goods and materials
D had been supplied under a distinct and separate contract
by the contractor for the purpose of construction of a
building the assessment of sales tax cou.ld be made ignor-
ing the restrictions and conditions incorporated in Article
286 of the Constitution. If that was the position can the
E States contend( ed) after the 46th Amendment under
which by a legal fiction the transfer of property in goods
involved in a works contract was made liable to payment
of S!J.les tax that they are not governed by Article 286 while
· levying sales tax on sale of goods involved in a works
contract? ·They cannot do so. When the law creates a leg~I
F fiction such fiction should be carried to its logical end.
There should not be any hesitation in giving full effect to .
it. If the power to tax a sale in any ordinary sense is subject .·
t~ certain conditions and restrictions imposed by the Con-
stitution, the power to tax a transaction which is deemed
•G to be a sale under Article 366(29-A) orthe Constitution
should also be subject to the same restrictions and condi-
tions. (pp.351-352)

After referring to the provision.s of clause (1) of Article 286 where
the expression· "a tax· on the sale or purchase of goods" is used this Court
l has observed :
GANNON DUNKERLEY CO. v. SfATE OF RAJASTIIAN (AGRAWAL, J.) 125

"Here again we have to read the expression 'a tax on the A
sale or purchase of goods' found in Article 286 as includ-
ing the transfer of goods referred to in sub-clause (b) of
clause (29-A) of Article 366 which is deemed to be a sale
of goods and the tax leviable thereon would be subject to
the terms of clause (1) of Article 286." (p.348)
B
Similarly, with reference to clauses (2) and (3) of Article 286, this
Court has observed :

"Similarly, the restrictions mentioned in clause (2) of Ar-
ticle 286 of the Constitution which says that Parliament c
may by law formulate principles for determining when a
sale or purchase of goods takes place in any of the ways
mentioned in clause (1) of Article 286 would also. be
attracted to a transfer of goods contemplated under Ar-
ticle 366(29-A)(b). Similarly, clause (3) of Article 286 is
also applicable to a tax on a transfer of property referred
D
to in sub-clause (b) of clause (29-A) of Article 366. Clause
(3) of Article 286 consists of two parts. Sub-clause (a) of
clause (3) of Article 286 deals with a tax on the sale or
purchase of goods declared by ParHament by law to be of
special importance in inter-State or commerce, which is E
generally applicable to all sales including the transfer,
supply or delivery of goods which are deemed to be sales
under clause (29-A) of Article 366 of the Constitution. If
any declared goods whic1t are referred to in section 14 of
the Central Sales Tax Act, 1956 are involved in such
transfer, supply or delivery, which is referred to in clause F
(29-A) of Article 366 the sales tax law of a State which
provides for levy of sales tax thereon will have to comply
with the restrictions mentioned in section 15 of the Central
Sales Tax Act, 1956. Clause (b) is an additional provision
which empowers Parliament to impose any additional
G
restrictions or conditions in regard to the levy of sales tax
on transactions which will be deemed to be sales under
sub-clause (b) or sub-clause (c) or sub-clause (d) of clause
(29-A) of Article 366 of the Constitution." (p.348)

Rejecting the contention urged on behalf of the States that since H
126 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A sub-clause (b) .of clause (3) of Article 286 of the Constitution refers only
to the transactions referred to in sub-clauses (b) (c) and (d) of clause
(29-A) of Article 386, the transactions referred to under those three
sub-clauses would not be subjected to any other restrictions s'et out in
clause (1) or clause (2) or sub-clause (a) of clause (3) of Article 286 of the
Constitution, this Court has observed :
B
"It In;ay be that by virtue of sub-clause (b) of clause (3) of
Article 286 it is open to Parliament to impose some other
restrictions or c0nditions which are not generally ap-
plicable to all kinds of sales. That however cannot make
c the other parts to Article 286 inapplicable to the transac-
tions which are deemed to be sales under Article 366(29-
A) of the Constitution. We are of the. view that all
transfers, deliveries and supplies of goods referred to. in
. sub-clauses (a) to (f) of clause (29-A) of Article 366 of.
the Constitution are subject to the restrictions and condi-
D tions mentioned in clause (1), clause (2) and sub-clause
(a) of clause (3) of Article 286 of the Constitution and the
transfers and deliveries that take place under sub-clauses
(b), (c) and (d) of clause (29-A) of Article 366 of the
Constitution are subject to an additi?nal restriction men-
E tioned in sub-clause (b) of Article 286(3) of the Constitu-
tion. (p.349)

The contention urged on behalf of the States that the properties that
are transferred to the owner in the execution ofa works contract are not
F the goods involved in the execution of the works contract, but a con-
glomerate, that is the entire building that is actually constructed, was
rejected by the Court. and it was observed that after the Forty Sixth
Amendment it is not possible to accede to the plea of the States that what
is transferred in a works contract is the right in the immovable property
(p.354). This Court also rejected the plea put forward on behalf of the
G States that the Forty Sixth Amendment had conferred on the States a larger
freedom than what . they had before in regard to their power to ·levy
sales-tax under Entry 54 of the State List. It was held that the Forty-Sixth
Amendment does no more than making it possible for the States to levy
sales tax on .the price of goods and materials used in works contracts as if
H there was a sale of such goods and materials. (p.354}
. ·-1..
GANNOND~NKERLEYCO. v. STATEOPRAJASTHAN[AGRAWAL,J.] 127

Since it had interpreted the relevant -provisions of the Constitution, A
this Court did not consider it necessary to take up each and every writ
petition to express its opinion on the validity of the statutory provisions and
rules which were questioned before the Court and the petitioners con-
cerned were given the liberty to approach the authorities under the Sales
Tax Act or the High Court concerned for necessary relief and further made
.it clear that it would be open to them to question the validity of the
B
statutory provisions and the rules made thereunder before the High Court
concerned.

In pursuance of the decision of this Court in Builders' Association
case (s.upra), fresh writ petitions were filed by the appellants in the appeals C
challengiilg the validity of the provisions of the Rajasthan Sales Tax Act,
1954 and the Rajasthan Sales Tax Rules, 1955 relating to imposition of tax
on transfer of property in goods involved in. the execution of a works
contract. The said writ petitions were dismissed by a division bench of the
Rajasthan High Court by judgment dated September 3, 1991. The appeals D
are directed against the said judgment of the High Court.

Writ Petition (Civil) No. 197/91 has been filed under Article 32 of
the Constitution by Larsen & Toubro Ltd., a company incorporated under
• the Companies Act, 1956, which undertakes contracts for executing turn-
key projects involving building ·construction, erection and installation of E
equipment., etc. In the writ petition, the validity of the provisions relating
to imposition of tax on the transfer of property in goods involved in the
execution of a works contract contained in the Sales Tax Laws of the States
of Tamilnadu, Andhra Pradesh and Rajasthan have been challenged. The
reason for approaching this Court under Article 32 of the Constitution, as F
stated in the writ petition, is that in spite of the decision of this Court in
Builders' Association case (supra), the petitioner is being subjected to
demands for tax in relation to works contracts by the various States and
each State is wanting to tax the some transaction on the basis that it
constitutes a sale under its sales tax law. In the said writ petition, the
petitioner has impleaded all the States as respondents. We propose to G
consider this writ petition with reference to the provisions contained in the
Rajasthan Sales Tax Act, 1954 and the Rajasthan Sales Tax Rules, 1955.

During the course of arguments, Shri F.S. Nariman and Shri Harish
Salve, learned counsel appearing for the appellants in the appeals, and Shri H

J.
128
,
SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A K. Parasaran, learned counsel appearing for the petitioner in the writ
petition, raised questions having a bearing on the exercise of the legislative
power of the States to impose the tax on transter of property in goods
involved in the execution of a works contract, the applicability of the ·
provisions of the Central Sales Tax Act to such a transfer, the fixation of
the situs of such a transfer for the purpose of ascertaining whether ·it
B constitutes a sale outs~de the State, the measure for levy and fixing the rates
for imposition of such tax and other matters incidental thereto. Since other
writ petitions and· appeals involving similar questions were listed for hear-
ing along with these matters we have heard· Shri K.M. Vijayan, Shri A.K.
Ganguli, Shri B.R.L. Iyengar, Shri Sankar Ghosh, Shri B. Datta and Shri
c G.S. Jetly, learned counsel appearing for the contractors in those cases.. On
behalf of .the States, who are parties in the appeals and the writ petition,
we have heard Shri T.S. Krishnamoorthy Iyer, Shri R.N. Narasimhamoor- ·
thy, Shri C. Sitaramiah, Shri S.K. Dholakia, Shri T.A. Ramachandran, Shri
R.N. Sachthey and Shri N.M. Ghatate. Shri Ahuja, learned counsel appear-
D ing for the Union of India, did not choose to make any submission for the
reason that the matter appertains to the legislative powers of the State
Legislatures:

On behalf of the contractors, it has bee1,1 urged that in view of the
declaration of the law made lJy this Court in Builders Association case
E (supra), the State Legislature, in exercise of its legislative power to impose
a t.ax on the transfer of property in goods involved in the execution of a
-
works contract under Entry-54-of the-State-Listread with Article 366(29-A)
(b), cannot levy such a tax in respect of transactions which are in the nature
of saies in the course of inter-state trade and commerce or are sales outside
F the State levying such tax or are sales in the course of import inasmuch as
it is beyond the legislative competence of the State Legislature to impose
a sales taX on inter-state sales as well as sales outside the State and sales
in the course of import or export. It has also been urged that the existence
of u law made by Parliament under Article 269(3)(b) Article 286(2) and
Article 286(3){b) is a condition precedent for the exercise of the legislative
G power by the State to impose a tax on transfer of property in goods involved
in the execution of a works contract and since no law has been enacted by )
Parliament under Articles 269(3), 286(2) and 286(3)(b) in ·relation to
imposition o( tax on transfer of property in goods involved in the execution.
of a works contract, it was not open to the State Legislatures to exercise
•
H the power to impose such tax. In this regard, it was contended that the
GANNON DUNKERLEY CO. v. STATEOFRAJASillAN(AGRAWAL,J.) 129

Central Sales Tax Act, 1956, having not been amended after the Forty-Sixth A
Amendment .to include within its ambit a transfer of property in goods
involved in the execution of a work contract, is not applicable to such a
transfer and it cannot be treated to be a law made under Appeal 269(3)
and Articie 286(2} in relation to sales arising out of such transfers. It was
further submitted that it is not permissible for the State Legislature to B
define the expression 'sale' in a manner as to incl~de within its ambit an
inter-state sale as well as sale outside the State or sale in the course of
import and thereby assume power to impose tax on the same. It has been
contended that since the tax leviable by virtue of sub-clause (b) of clause
(29-A) of Article 366 is on goods which are involved in execution of a works
contract, the measure for such an imposition can only be the value of such C
goods and the value of the works contract cannot be made the measure for
such an imposition and for the same reason, the rate of imposition cannot
also be fixed on the basis of the value of the works contract and it has to
be fixed in relation to the goods which are .involved in the execution of a
works contract.
D
In reply to these contentions, it has been urged on behalf of the
States that in the absence of the applicability of the provisions of the
Central Sales Tax Act, 1956 to transfer of property in g~ods involved in
the execution of a works contract and Parliament having not enacted any
law under Articles 269(3) and Article 286(2), there is no limitation what- E
soever on the legislative power of the States to impose tax on such a
transfer. It has also been submitted that the nature of a works contract is
such that there can never be any sale in the course of inter-state trade or
commerce or an outside sale or a sale in. the course of import in respect
of goods which are involved in the execution of such a contract since the
F
transfer of property in such goods takes place only when the good~ are
incorporated in the works and this can only be in the State in which the
works is to be executed. It has been further urged that there is a distinction
between the nature o~ the tax and the measure of the tax and that though
a tax on transfer of property in goods involved in the execution of a works
contract is imposed on the goods which are involved in th~ execution of a G
works contract, the value of the work contract can be made the measure
for levy of such a tax as for prescribing the rate for imposition of such tax.

Before we proceed to consider these submissions, it is necessary to
deal with the contention urged by Shri Narasimhamoorthy learned counsel H
130 SUPREME COURT REPORTS (1992] SUPP. 3 S.C.R.

A appearing for the State of Karnataka with regard to the location of the
legislative power to· •impose the tax on transfer of property in goods
involved in the execution of a works contract Shri Narasimhamoorthy has
urged that as a result of the Forty-Sixth Amendment a new field of taxation
in respect ofthe works contracts has been made available to the States ~d
that the said power is independent of the legislative power conferred.under
B Entry 54 in. List II of the Seventh Schedule to the Constitution and it is not
subject to the constitutional limitations contained in Article 286 of the
Constitution. In this regard Shri Narasimamoorthy has urged that this
question did not directly arise for consideration in Builders' Association
case (supra) and the observations with regard to location· of the power to
c impose this tax in the said judgment are in the nature of incidental or casual
coservations only and they do not preclude .this Bench from considering
this question.

We find it difficult t.o accept this contention. The question whether
D as a result of the Forty-Sixth Amendment, an independent taxing power
has been conferred on the States had arisen for consideration before this
Court in Builders' Association case (supra) since it was specifically raised
in the contentions urged on behalf of the States. While summarising the
said contentionsthis Court has thus mentioned this contention: "Sub-cl.(b)
of clause 29-A of Article 366 of the Constitution has conferred on the
E Legislatures of States the power to levy tax on works contract which is
independent of the power conferred on the Legislatures of the States under
Entry 54 -of the State List." : (p.346). The said contention was rejected with
these observations.:

F "The object of the new definition introduced in clause
(29-A) of Article 366 of the Constitution is, therefore, to
enlarge the scope of 'tax on sale or purchase of goods'
wherever it occurs in the Constitution so that it may
.inciude within its scope the transfer delivery or .supply of
goods that may take place under any of the transactions
G referred to in sub-clauses (a) to (f) ·thereof wherever such
transfer, delivery or supply becomes subject to levy of sales
tax. So construed the expression 'tax on the sale or pur-
chase of goods' in Entry 54 of the State List, therefore,
includes a tax on the transfer of property in goods
H (whether as goods ·or in some other form) involved in the
GANNON DUNKERLEY CO. 1•. STATEOFRAJASTHAN(AGRAWAL,J.) 131

execution of a works contract also, The tax leviable by A
virtue of sub-clause (b) of clause (29-A) of Article 366 of
the Constitution thus becomes subject to the same dis-
cipline to which any levy und~r Entry 54 of the State List
is made subject to under the Constitution," (pp.347-48)

The Court has further observed- B

. "We are surprised at the attitude of the States which have
put forward the plea that on the passing of the· 46th
Amendment the Constitution had conferred on the States
a larger freedom than what they had before in regard to c
their power to levy sales-tax under Entry 54 of the State
List. The 46th Amendment does no more than making it
possible for the States to levy sales tax on the price of
goods and materials used· in works contracts as if there
was a sale of such goods and materials. We do not accept
D
the argument that sub-clause (b) of Article 366(29A)
should be read as being equivalent to a separate entry in
List II of the Seventh Schedule to the Constitution ena-
bling the States to levy tax on sales and purchases inde-
pendent of Entry 54 thereof. As the Constitution exists
today the power of the States to levy taxes on sales and E
purchases of goods including the "deemed" sales 'and pur-
chases of goods under clause (29A) of Article '366 is to
be found only in entry 54 and not outside it. We may
recapitulate here the observations of the Constitution
Bench in the case or Bengal Immunity Conipany Ltd. F
(supra) in which this Court has held' that the operative
provisions of the several parts of Article 286 which i,m-
poses restrictions on the levy of sales tax by the States are
. intended to deal with different topics and one could not
be projected or read into another and each one of them
has to be obeyed while any sale or purchase is taxed under G
Entry 54 of the State List." (p.354)

These observations clearly indicate that the question whether the
power to impose tax on the transfer of property in goods involved in the
execution of a works contract is to be found in Entry 54 in List II or is an H
132 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A ind~pendent trucing power squarely arose for consideration in Builders#
Association case (supra) and has been answered categorically. It cannot,
therefore, be said that the said question did not arise for consideration in
that case and the observations of ·this court in that regard are incidental
or casual in. natur~ only which. do not preclude us from going into this .J---
question.
B
Shri Narasimhamoortliy has then contended that the view of this
Court in Builders' Association case (supra) that power conferred on the
State Legislatures to impose tax. on the transfer of property in goods
involved in the execution of a works contract is subject to the restrictions
c and conditions mentioned in each clause or sub-clause of Article 286 of
the Constitution, does not lay down the correct law and needs to be
reconsidered. We are not inclined to agree. The principles governing
reconsideration of an earlier decision are settled by the various decisions
of this Court. It has been laid down : "This Court should not, except when
D it is demonstrated beyond all reasonable doubt that its previous ·ruling
given after due deliberation and full hearing was erroneous, go back upon
its previous ruling, particularly on a constitutional issue" See : . Lt. Col.
Khajoor Singh v. 17ie Union of India & Anr., [1961] 2 SCR 828 at p. 845.
In Keshav Mills Co. Ltd. v. Commissioner of Income-tax, Bombay North, :
[1965] 2 SCR 908, it has been observed-
E
"When this Court decides questions of law, its decisions
are, under Art. 141, binding on all courts within the
· territory of India, and so, it must be the constant en-
deavour and concern of this Court to introduce and main-
F tain an element. of certainty and continuity in the
interpretation of law in· the country. Frequent exercise by
this Court of its power to review its earlier decisions on
r\
the ground that the view pressed before it later appears
to the Court to be more reasonable, may incidentally tend
to make law uncertain and introduce confusion which
G must be consistently avoided. That is not to say that if on
·a subsequent occa:sion the Court is satisfied that its earlier
decisionwas clearly erroneous, it should hesitate to correct
the error; but. before a previous decision is pronounced
to be plainly erroneous, the Court must be satisfied with
H a fair amount of unanimity amongst its members that a
. GANNONDUNKF'lLEYCO. v. SfATEOFRAJASTHAN[AGRAWAL,J.) 133

revisiqn of the said view is fully justified." (pp. 921-22) A
In Ganga Sugar· Co. Ltd. etc. v. State of U~P. & Others etc., [1980) 1
SCR 769, it has been laid down -

"Pronouncements by .Constitution Benches should not be
treated so cavalierly as to be revised frequently. We can- B
not devalue the decisions of this Court to brief
ephemerality which recalls the opinion expressed by Jus-
tice Roberts of the U.S~ Supreme Court in Smith v.
Al/wright, 321 U.S. 649 at 669 (1944), that adjudications of ·
the Court were rapidly gravitating 'into the same class as C
a restricted railroad ticket, good· for this day and train
only"'. (p.782)

Having regard to the observations referred to above ~d the stand
of the parties during the course of arguments before us, we do not consider
it appropriate to reopen the issues which are covered by the decision in D
Builders' Association case (supra) and we will, therefore, deal with the
matter in accordan.ce with ·the law as laid down in that case that th~
expression "tax on the sale or purchase of goods" in Entry 54 of the State
List includes a tax on the transfer of property in good~ (whether as good~
or in some other form) involved in the execution of a works contract also
and the tax leviable by virtue of sub-clause (b) of clause (29-A) of Article E
366 of the Constitution is subject to the discipline to which any levy under
Entry 54 of the State List is made subject to under the Constitution.

The legislative power of the States under Entry 54 of the State List
is subject to two limitations - one flowing from the entry itself which make~ F
the said power "subject to the provisions of Entry 92-A of List I" and the
other flowing from the prohibition contained in Article 286. Under Entry
92-A of List I Parliament has the power to make a law in respect of taxes
on sale or purchase of goods other than newspapers where such sale ot
purchase takes place in the course of inter-State trade or commerce. The
levy and collection of such tax is governed by Article 269. This shows that G
the legislative power under Entry 54 of the State List is not available in
respect of transactions of sale or purchase which take place in the course
of inter-State trade or commerce. Similarly clause (1) of Article 286
prohibits the State from making a law imposing or authorising the imposi-
tion of a tax on the sale or purchase of goods where such sale or purchase H
SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A takes place (a) outside the State or (b) in the course of the import of goods
into or export of the goods out of the territory of India. As a result of the
said provision, the legislative power conferred under Entry 54 of the State
List does not extend to imposing tax on a sale or purchase of goods which
takes place _outside the State or which takes place in the cour~e of import
or export of goods. In view of the aforesaid. limitations imposed by the
B Coruititution on the legislative power of the States µnder Entry 54 of the
State List, it is beyond the competence of the State Legislattlre _to make a
law imposing or authorising the imposition of a tax on transfer of property
iii goods involvecl ~ the execution of a works c.ontrnct 'Y.ith _the aid of
sub-cl.(b) of cl.(29-A) of Article 366, in respect of transactions which take
C place in the course of inter-State trade or commerce or transactions which
constitute sales outside the State or sales in the course of import or export.
Consequently, it is not permissible for a State to frame the legislative
enactment in exercise of the legislative power conferred by Entry 54 in
State List in a manner as to assume the power to impose tax on such
D transactions_and thereby transgress ·these constitutional limitations. Apart
from the limitations referred to above -which curtail the ambit of the
legislative competence of the State le~slatures, therf is clause (3) of
Ar:ticle 286 which enables Parliament to- make a. law placing restrictions
and conditions on the exercise of the legislative power of the State under
Entry 54 in State . List in regard to the system of levy rates and other
E incidents of tax. Such a law may be in relation to (a) goods declared by
Parliament by law to be of special importance in inter-State trade or
commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c)
and (d) of clause (29-A) of Article 366. When such a law is enacted by
Parliament.the legislative power of.the States under Entry 54 in State List
has to be exercised subject to the restrictions and conditions specified in
F
that law in dercise of the power conferred by Article 286(3)(a) Parliament
has enacted sections 14 and 15 of the Central Sales Tax Act, 1956. No law
has; :however, been made by Parliament in exercise of its power under
ArticJe-286(3)(b).
(
G On behalf of the contractors, it has been contended that the legisla-
tive power conferred on the States under Enti:y 54 of the State List can be
exercised only after Parlianienl has enacted -a law under .Article 269(3)
formulating principles for determining when a sale or purchase· of goods
tak~s place in the course of inter-State trade or commerce and a law under
H Artide 286(2) formulating principles for determining when a sale or pur-
GANNON DUNKERLEY CO. v. SfATEOFRAJASfHAN(AGRAWAL,J.j 135

chase of goods takes place in any of the ways mentioned in cl.(1) of Article A
286. The submission is that no law as envisaged by Articles 269(3) and
286(2) has been enacted in respect of imposition of tax on transfer of
property in goods involved in the execution of a works contract. It has been
urged that Central Sales Tax Act. 1956 which formulates the principles
under Article 269(3) and 286(2) is not applicable because after the Forty- B
Sixth Amendment ~he Central Sales Tax Act has not been ~mended so as
to make it applicable to transfer of property in goods involved in the
execution of a works contract. On behalf of the States, it is submitted that
since the Central Sales Tax Act has not been. made applicable and no law
as envisaged under Articles 269(3) and 286(2) has been enacted, limitation
on the legislative power conferred on the States undei: :Entry 54 in State C
List on the basis of Articles 269 and 286 cannot be invoked. We are unable
to accept either of these contentions. With regard to imposition of tax on
sale or purchase of goods, after the Forty-Sixth Amendment, legislation by
Parliament in respect of following matters is envisaged :

(i) formulation of principles for determining when a sale or purchase D
of consignment of goods takes place in the course of inter-State trade or
commerce [Article 269(3)];

(ii) formulation of principles for determining when a sale or purchase
of goods takes place in any of the ways men~ioned in cl.(1) of Article 286 E
[Article 286(2)}; and

(iii) declaration of goods to be of special importance in inter-State
trade or commerce and specification of restrictions and conditions in
regard to system of levy rates and other incidence of tax in respect of a tax
on the sale or purchase of such goods [Article 286(3)(a); and F
(iv) specification of restrictions and conditions in regard to system
of levy, rates and other incidents of tax in respect of a tax on the sale or
purchase of goods being tax of the nature referred to in sub-cl.(b), sub-
cl.(c) and sub-d.(d) of cl.(29-A) of Article 366. [Article 286(3)(b)].
G
The Central Sales Tax Act is a law in respect of matters (i), (ii) and
(iii) referred to above. It is a composite law which has been enacted under
Entry 92-A of List I read with clause (1) of Article 269 as well as under
cl.(3) of Article 269, cl.(2) of Article 286 and sub-cl.(a) of cl.(3) of Article
286. Chapter II (Sections 3, 4 and 5) bears the heading 'formulation of H
136 SUPREMECOURTREPORTS (1992)SUPP.3S.C.R.

A '
principles for determining when a sale or purchase of goods takes place in
the course of inter-State trade or commerce or outside a State or in the
course Qf import or export'. Section 3 lays down the conditions when a sale
or purchase of goods can be said to take place in the course of inter-State
trade or commerce and it is referable to cl.(3) of Article 269. Section 4 -
prescribes the conditions when a sale or purchase of goods is said to take
B place outside a State and Section 5 pres~ribes the condition when a sale
or purchase of goods is said to take place in the course of import or export.
Sections 4 and 5 are thus referable to cl.(i) of Article 286. Chapter III
(Sections· 6 to 13) bears the heading 'inter-State sales tax' and the said
provisions are referable to Entry 92-A of List I and sub-clause (g) of clause
C (1) of Article 269. Chapter IV (Sections 14 and 15) bears the heading
'goocts of special importance in inter-State trade or commerce' and the said
provisfons are referable to sub-cl.(a) of cl.(3) of Article 286.

The question is whether in the absence of an amendment in the
D Central Sales Tax Act specifically applying its provisions to a transfer of
property· in· goods involved in the execution of a works contract, the
provisions of Sections 3, 4 and 5 contained in Chapter II can be held
applicable to such a transfer. In this context, it may be mentioned that prior
to the Forty-Sixth Amendment, a distinction was being made between a
'works contract' which was entire and indivisible and a workS contract
E composed' of two ·distinct and separate contracts - one, for transfer of
materials and other, for payment of remuneration for services and for work
done. The non-availability of the legislative power of the States under Entry
54 of the State List, as construed by this Court in the Gannon ·Dunkerley
case (supra); was confined, in its application, to works contracts falling in
F the first Category; i.e.; contracts which were entire and indivisible and it
was per~issible for the States to impo~e tax on sale or purchase of goods \;
where the parties had entered into distinct and separate contracts one for
the tr~nsfer of materials and .other for payment of service and for work
done. 1:he_ pr<?visions of Sectio~s 3, 4 and 5 of the Central Sal~s T~ Act
.were applicable_ where there were two separate contracts. In Builders'
G Asso~iation case (supra), it has been observed - _
~:

"After the 46th Amendment the works contract which was
an indivisible one is by a legal fiction altered into a
contract which is divisible into one for sale of goods and
H . '. the other for supply of labour and services. After the 46th
GANNON DUNKERLEY CO. v. SfATE OF RAJASTIIAN [AGRAWAL, J.) p7
Amendment, it has become possible for the States to levy A
sales tax on the value of goods involved in a works contract
in the same way in which the sales tax was leviable on the
price of the goods and materials supplied in a building
contract which had been entered into in two distinct and
separate parts as stated above." (p.351 F-G)
B
This would mean that as a result of the Forty-Sixth Amendment,. the
contract which was single and indivisible has been altered by a legal fiction
into a contract which is divisible into one for sale of goods and other for
supply of labour and services ;md as a result such a contract which was
si~gle and indivisible has been brought at par with a contract containing C
tvlro separate agreements. Since the provisions of Sections 3, 4 and 5 were
applicable to such contracts containing two separate agreements, there is
no reason why the sai°d provisions should not apply to a contract which,
though single and indivisible, by legal ·fiction. introduced by the Forty-Sixth
Amendment, has been altered into a cont~act which is divisible into one
for sale of goods and other for labour and services. Reference may be made D
in this context to the oft-quoted observations of Lord Asquith in East End
Dwellings Co. Ltd. v. Finsbury Borough Council, (1952) A.C. 109:

"If you are bidden to treat an imaginary state of affairs as
real, you must surely, unless prohibited from doing so, also E
imagine as real the consequences and incidents which, if
the putative state of affairs had in fact existed, must
inevitably have flowed from or accompanied it ..... The
statute says that you must imagine a certain state of affairs;
it does not say that having done so, you must cause or
permit your imagination to boggle when it comes to the F
inevitable corollaries of that state of affairs."

I.f the legal fiction introduced by Article 366(29-A)(b) is carried to
its logical end it follows that even in a single and indivisible works contract
there is a deemed sale of the goods which are involved in the execution of G
a works contract. Such a deemed sale has all the incidents of a sale of
goods involved in the execution of a works contract where the contract;, is

• divisible into one for sale of goods and the other for supply of labour and
services.

For the reasons aforesaid, we are of the view that even in the absence H
138 SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A of any amendment having been made in the Central Sales Tax Act (after
the Forty-Sixth Amendment) expressly including transfers of property in
goods involved in execution of a works contract, the provisions contained
in Sections 3, 4 and 5 would be applicable to s~ch transfers and the
legislative power of the State to impose tax on such transfers under Entry
54 of the State List will have to be exercised keeping in view the provisions
B contained in Sections 3, 4 and.5 of the Central Sales Tax Act. For the same
reasons sections 14 and 15 of the Central Sales Tax Act would also be
applicable to the deemed sales resulting from transfer of property in goods
involved in the execution of a works contract and the legislative ·power
under Entry 54 ·in State List will have to be exercised subject to the
C restrictions and conditions prescribed in the said provisions in respect of
goods that have been declared to be of special importance in inter- State
trade or commerce.

Since the question of levy of inter-State sales tax under Section 6 of
the Central Sales Tax Act is not in issue· in these cases which only relate
D to impositiOJ? of sales tax by the States, we do ~ot propose to go int~ the
question, whether such a tax ·can be levied on deemed sales resulting from
transfer of property in goods involved in the execution of a works contract
without amending the definition of 'sale' in section 2(g) of the Central Sales
Tax Act, so as to include such transfers within its ambit. It is, however,
E made clear that .the absence of any amendment in the definition of sale
contained in Section 2(g) of the Central Sales Tax Act, 1956 so as to
include transfer of ·property in goods involved in execution of a works
contract does not in any way affect the. applicability of the Sections 3, 4
and 5 and Sections 14 and 15 of the Central Sales Tax Act to such transfers.

F On the basis of Article 286(3)(b) which has been introduced by the
Forty-Sixth Amendment, it has been urged on behalf of the contractors that
till Parliament make~ a law specifying the restrictions and conditions in
regard to the system of levy, rates and other incidents of the tax· referred
to in Article 366(29-A)(b), it is not open to the State Legislatures to impose
G a tax on- the transfers referred to in sub-cl.(b) of cl.(29-A) of Article 366.
In support of this submission, reliance has been placed on the decision of
this Court in The Bengal Immunity Co. Ltd. v. The State of Bihar 01td others,
'
(1955] 2 SCR 603, wherein it was held that until Parliament by law made '
in exercise of the powers vested in it by clause (2) provides, no State could
H impose or authorise the imposition of any tax on sales or purchase of goods
GANNON DUNKERLEY CO. v. SfATEOFRAJASfHAN[AGRAWAL,J.] 139

when suc,h sales or purchases take place in the course of inter-State trade A
or commerce. The aforesaid observations made in the context of cl.(2) of
Article 286, as it stood at that time, can have no bearing on sub-cl.(b) of
cl.(3) of Article 286. Under cl.(2) of Article 286, as it stood at the time
when Bengal Immunity case (supra) was decided, the States were
precluded from imposing or authorising imposition of tax on the sale or B
purchase of any goods or sale or purchase of any goods in the course of
inter-State trade or commerce except in so far as Parliament may by law
or otherwise provide. In the absence of a law by Parliament so providing
it was not permissible for the State Legislatures to impose such a tax. The
scheme of sub-cl.(b) of cl.(3) of Article 286 is, however, different. In view C
of sub-cl.(b) of cl.(29-A) of Article 366, the State Legislatures are com-
petent to impose tax on transfer of property in goods involved in the
execution of a works contract and under sub-cl.(b) of cl.(3) of Article 286
Parliament has been empowered to make a .law specifying restrictions and
conditions in regard to the system of levy, rates or incidence of such tax. D
This does not mean that the legislative power of the State cannot be
exercised till the enactment of a law under sub-cl.(b) of cl.(3) of Article
286 by Parliament. It only means that ·in the event of a law having been
made by Parliament under Article 286(3)(b) the exercise of the legislative
power. of the State under Entry 54 in List II to impose a tax of the nature E
referred to in sub-clauses (b), (c) and (d) of clause (29-A) of Article 366
would be subject to restrictions and conditions in regard to the system of
levy rates and other incidents of tax contained in the said law. The existence
of a law enacted under Article 286(3)(b) cannot, therefore, be regarded as
a condition precedent for the exercise of the taxing power of the State
F
under Entry 54 in List II to impose a tax of the nature referred to in sub-
clauses (b), (c) and (d) of clause (29-A) of Article 366. This doe~ ndt,
however, absolve Parliament from enacting a law as envisaged by Article
286(3)(b). Keeping in view the grievance of the contractors that there is
wide disparity in the sales tax legislation of the various States in the matter
of imposition, mode of assessment, rates etc., of the tax on deemed sales G
resulting from transfer of property in goods involved in the execution of a
works contract referred to in sub-cl.(b) of cl.(29-A) of Article 366, the need
for the law envisaged by Article 286(3)(b) cannot be minimised.

On behalf of the States it has been seriously contended that a H
140 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A deemed sale resulting from transfer of property in goods involved in the
execution of a works contract can never be a sale in the course of inter-
State trade or commerce and it cannot be an outside sale or a sale in the
course of import since the transfer of property in the goods takes place
only at the stage when the goods are incorporated into the works and that
B can take place only in the State where the works is required to be executed.
On behalf of the contractors, on the other hand, it has been urged that a
works contract <;an involve transactions constituting a sale in the course of
int.er~State trade al!~ commerce as well_ as an outside sale or a sale in the
course of import and that is a matter which will liave to be considered in
C accordance with the principles contained in Sections 3, 4 and 5 of the
Central Sales Tax Act keeping in view the terms and conditions of the
particular contract. In this regard, the learned counsel have placed relianq::
on a number of decisions of this Court wherein the provisions of Sections
3 and 4 of the Central Sales Tax Act, 1956 have been considered. We do
D not propose to go into this controversy because the question whether a
deemed sale resulting from transfer of property in goods involved in the
execution oLa particular. works contract amounts to a sale in the course of
-inter-State trade or commerce under Section 3 of the Central Sales Tax
Act or an outside sale under Section 4 of the Central Sales Tax Act or a
sale in the course of import under section 5 of the Central Sales Tax Act
E has to be decided in the light of the particular terms of the works contract
and it cannot be decided in the abstract. As at present advised, we are not
in a position to say that in no case, can there be a sale in the course of
inter-State trade or commerce. or an outside sale or- a sale in the course of l=
import in respect of a deemed-sale resulting from transfer of property in
F
goods involved in the execution
I
of a works contract falling within the ambit
of sub-cl.(b) of cl.(29-A) of Article 366 of the Constitution.

It must, therefore, .be h~ld-that while enacting a law imposing_ a tax·
on sale or purchase of goods u~der Entry 54 of the State List read with
G sub-cl.(b) of cl.(29-A) of Article 366 of the Constitutioµ, it is not permis-
sible forthe State Legislature to make a law imposing tax on such a dee~ed
sale which constitutes a sale in the course of inter-State trade or commerce
under section 3 of the Central Sales Tax Act or an outside sale under
Section 4 of the Central Sales Tax Act or sale in the course of import or
H export _under section 5 of the Central Sales Tax Act. So also it is not
GANNON DUNKERLEY CO. v. SfATEOFRAJASTI:lAN(AGRAWAL,J.J 141

permissible for the State Legislature to impose a tax on goods declared to A
be of special importance in inter-State trade or commerce under section
14 of the Central Sales Tax Act except in accordance with the restrictions
and conditions contained in Section 15 of the Central Sales Trot Act.

Having thus defined the ambit of the field available to the Slate
l~gislature for enacting a law imposing a tax o~ transfer of property in B
goods involved in the execution of a works contract we may now examine
some aspects of such a law to which reference has been made during the
course of arguments by the learned counsel for the contractors. We
propose to deal with these aspects separately.
c
DEFINITION OF SALE

It has been contended on behalf of the contractors that while it is
permissible for the State Legislature to define the expression 'sale' in the
sales tax legislation to include transfer of property in goods involv~d in the
execution of a works contract it is not permissible for the State Legislature D
to locate the situs of such sale in a manner as to treat a sale in the course
of inter-State trade or commerce or a sale outside the State or a sale in
the course of import and export, as a sale inside the State and thereby
assume the power to impose a tax on sales which are actually sales in the
course of inter-State trade of commerce or outside sales or sales in the E
course of import and export. In this regard, it may be stated that so far as
sales in the course o~ inter-State trade or commerce are concerned the
position is well settled that the situs of the sale or purchase is wholly
irrelevant as regards its inter-State character (See : Bengal Immunity Co.
Ltd. v. State of Bihar & Ors., (1955) 2 SCR 605, at 650). In Onkar Lal Nand F
Lal v. State of Rajastlta11 & Anr., (1985) Suppl 3 SCR 1075 it has been
observed:

"There is, in our opinion, no antithesis between a sale in ·
the course of inter-State trade or commerce and a sale
inside the State. Even an inter-State sale must have a situs
G
and the situs may be in one State or another. It does not .
involve any contradiction in saying that an inter-State sale'
or purchase is inside a State or outside it." (p.1086)

The location of the situs of the sale in sales tax legislation of the State H
142 SUPREME COURT REPORTS (1992) SUPP. 3 S.C.R.

A would therefore, have no bearing on the chargeability of tax on sales in the
course of inter-State trade or commerce since they fall outside the field of
legislative competence of the State legislatures and will have to be excluded
while assessing the tax liability under the State legislation. The same is true
of sales which. are outside the State and sales in the course of import and
B export. The State Legislature cannot so frame its law as to convert an
outside .sale or a sale in the· course of import and export into a sale inside
the State. The question whether a sale is an outside sale or a sale inside
the State or whether it is a sale in the c:Ourse of import or export will have
to be determined in accordance with the principles contained in sections
4 and 5 of the Central Sales Tax Act and the State Legislature while
C enacting the sale tax legislation for the State cannot mak.e a departure from
those principles. '·

MEASURE OF TAX

D
On behalf of the contractors, it has been urged that ·under a ,(aw
imposing a tax on the transfer of property in goods involved in the execu-
tion of a works contract under entry 54 of the State List read with Article
366(29-A)(b), the tax is imposed on th~ goods which are involved in the
execution of a works contra,ct and the measure for levying such a tax can
E only be the value of the goods so involved and the value of the works
contract cannot be made the measure for levying the tax. The submission
is further that the value of such goods would be the rost of acquisition of
the goods by the contractor and, therefore, the measure for levy of. tax can
only be the cost at which the goods involved in the execution of a works
F contract were obtained by the contractor. On behalf of the States, it has
been submitted that since th.e property in goods which are involved in the
execution of a works contract passes only when the goods are incorporated
in the works, the measure for the levy of the tax would be the value of the
goods at the time of their incorporation in the works as well as the cost of
incorporation of the goods in the works. We are in agreement with the
.G submission that measure for the levy of the tax contemplated by Article
366(29-A)(b) is the value of the goods involved in the execution of a works
contract. In Builders' Association case (supra) it has been pointed out that
in Article 366(29-A)(b), "the emphasis is on the transfer of property in
goods (whether as goods or in some other form)" (p.347). This indicates
H that though the tax is imposed on the transfer of property in goods involved
GANNON DUNKERLEY CO."· SfATEOFRAJASTHAN(AGRAWAL,J.] 143

in the execution of a works contract, the measure for levy of such imposi- A
tion is the value of the goods involved in the execution of a works c0ntract.
We are, however, unable to agree with the contention urged on behlillf of
the contractors that the value of such goods for levying the tax can be
assessed only on the basis. of the cost of acquisition of the goods by the
contractor. Since the taxable event is the transfer of property in goods B
involved in the execution of a work~ contract and the said transfor of
property in such goods takes place when the goods are incorporated in the
works, the value of the goods which can constitute the measure for the levy
of the tax has to be the value of the goods at the time of incorporation of
the goods in the works and not the cost of acquisition of the goods by the
contractor. We are also unable to accept the contention urged on behalf C
of the States that in addition to the value of the goods involved in the
execution of the works contract the cost of incorporation of the goods in
the works can be included in the measure for levy of tax. Incorporation of
the goods in the works forms part of the contract relating to work and
labour which is distinct from the contract for transfer of property in goods D
and, therefore the cost of incorporation of the goods in the works cannot
be made a part of the measure for levy of tax contemplated by Article
366(29-A)(b). .

With regard to the determination of the value of the goods which are
involved in the execution of a works contract the submission of the learned E
counsel appearing for the States is that a more convenient mode for such
determiriation is to take the value of the works contract as a whole and
deduct therefrom the cost of labour and services rendered by the contrac-
tor during the co1use of execution of the works contract. The submission
of the learned counsel is that this mode would prevent evasion of tax. The
learned counsel for the contractors have submitted that in that event. the F
following deductions should be made from the value of the entire contract ·
in order to arrive at the value of the goods involved in the execution of a
works contract :
'
(i) labour charges for execution of the works; G

- (ii) amounts paid to a sub-contractor for labour and services;

(iii).charges for planning, designing and architect's fees;

.. (iv) charges for obtaining on hire the machinery and tools H
144 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A used in the execution of the works contract;

(~) cost of consumables such as water, electricity, fuel, etc.

(vi) transportation charges for transport of goods to the
place of works;
B
(v,ii) overhead expenses of the head office and branch ·office
including rents, salary, electricity, telephone ·charges,
etc. and interest charges to banks and financial institu-
tions;

c (viii) profits expected ·on such contract;

Keeping in view the legal fiction introduced by the Forty-Sixth
Amendment whereby the works contract which was entire' and indivisible
.has been altered into a contract which is divisible into one for sale of goods
.D and other for supply of labour and services, the value of the goods involved
in the execu.tion of a works contract on which tax is'leviable must exclude
the charges which appertain to the contract for supply of labour and
services. This would mean that labour charges for execution of works, (item
no. (i)) amounts paid to a sub-contractor for labour and services (item no.
(ii)J, charges for planning, designing and architect's fees [item no. (iii))
E charges for obtaining on hire or otherwise machinery and tools used in the
execution of a works contract [item no. (iv)), and the cost of consumables
such as water, electricity, fuel, etc. which are consumed in the process of
execution of a works contract [item no. (v)J and other similar expenses for
labour and services will ·ha.ve to be excluded as charges for supply of labour
F and services. The charges mentioned in item No. (vi) cannot, however, be
a
excluded. The position of contractor in relation to a transfer of' property
in goods in the execution of a works contract is not different from that of
a dealer in goods who is lfable to pay sales tax on the sale price charged
by him from the customer for the goods sold. The said price includes the ·
cost of bringing the goods to the place of sale. Similarly, for the purpose
·G of ascertaining the value 9f goods which are involved in the execution of a
works contract for the purpose of imposition of tax, the cost of transpor-
tation of the goods to the place of works has to be taken as part of the
value of the said goods. The charges mentioned in item no. (vii) relate to
the various expenses which form part of the cost of establishment of the
H contractor. Ordinarily the cost of establishment is included in the sale price
GANNON DUNKERLEY CO. v. SfATEOFRAJASillAN(AGRAWAL,J.) 145

charged by a dealer from the customer for the goods sold. Since a cpm- A
posite works contract involves supply of materials as well as supply of
labour and services, the cost of establishment of the contractor would have
to be apportioned between the part of the contract involving supply of
materials and the part involving supply of materials and the part involving
supply of labour and services. The cost of establishment of the contractor
B
which is relatable to suppJy of labour and services cannot be include~ in
the value of the goods involved in the execution of a contract and the cost
of establishment which is relatable to supply of materials involved in .the
execution of the works contract only can be included in the value of the
goods. Similar apportionment will have to be made in respect of item no.
(viii) rel~ting to profits. The profits which are relatable to the supply of C
materials can b~ included in the value of the goods and the profits which
are relatable to supply of labour and services will have to be excluded. This
means that in respect of charges mentioned in item nos. (vii) and (viii), the
cost of establishment of the contractor as well as the profit earned by him
to the extent the same are relatable to supply of labour and services will D
have to be excluded. The amount so deductible would have to be deter-
mined in the light of the facts of a particular case on the basis of the
material produced by the contractor. The value of the goods involved in
the execution of a works contract will, therefore, have to be determined by
1l taking into account the value of the entire works contract and deducting E
therefrom the charges towards labour and services which would cover :-

(a) Labour charges for execution of the works;

(b) amount paid to a sub-contractor for labour and ser-
vices;
F
(c) charges for planning, designing and architect's fees;
(
(d) charges for obtaining on hire or oth~rwise machinery
and tools used for the execution of the works contract;

(e) cost of consumables such as water electricity, fuel, etc. G
used in the execution of the war.ks contract the property
in which is not transferred in the course of execution
of a works contract; and

(t) cost of establishment of the contractor to the extent it
is relatable to supply of labour and services;
H
146 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A (g) other similar expenses relatable to supply of labour and
services,

(h) profit earned by the contractor to the extent it is
relatable to supply of labour and services.

B The amounts deductible under these heads will have to
be determined. in the light of the facts of a particular
case . on the basis of the material produced by the
contract.or.

We may, however, make it clear that -apart from the deductions
c rei'erred to above, it will be necessary to exclude from the value of the
works contract the value of the goods which are not taxable in view of
sectipns 3, ·4 and 5 of the Central Sales Tax Act and goods covered by
sections 14 and 15 of the Central Sales Tax Act as well as goods ·which are
exempt -from tax und~r the sales tax legislatfon of ~e State. The value Of
D goods involved in the execution of a works contract will have to be·
determined -after making these ~eductions and exclusions from the value
of the works eontract.

Normally, the contractor will be in a position to furnish the necessary \
{
E material to establish the expenses that were incurred -under the aforesaid
hea-ds of deduction for labour and services. But there may be cases where
the contractor has not maintained· proper accounts or t~e accounts main-
tained by him are·- ilot found to be worthy of credence by the assessing
authority. In that event, a question would arise as to how the deduction
towards the aforesaid• heads may be made. On behalf of the States, it has
F been urged that it would be permissible for the State to prescribe a formula
·on the basis of a fixed percentage of the value of the contract as expenses
towards labour and services and the same may be deducted from the value
of the works contract and that the said formula need not be uniform for
all works contracts and may depend . on the nature of the works contract.
G We find merit in this submission. In cases where the contractor does riot
maintain proper accounts or the accounts maintained by him are not found
\VOrthy· of credence it would, in our view,' be permissible for the State
legislation to prescribe a formula ;for· determining the charges for labour ·
and ser'vices by· fixi~g a particular percentage of the value of the works
H contract and to _allow deduction of the amount thus determined from the
GANNON DUNKERLEY CO. 1·. SfATEOFRAJASTHAN[AGRAWAL,J.) 147

value of the works contract for the purpose of determining the value of the A
goods involved in the execution of the works contract. It must, however, be
ensured that the amount deductible under the formula that is prescribed
for deduction towards charg~s for labour and services does not differ
appreciably from the expenses for labour and services that would be
incurred in normal circumstances in respect of that particular type of works B
contract. Since the expenses for labour and services would depend on the
nature of the works contract and would not be the same for all types of
works contracts it would be permissible, indeed necessary, to prescribe
varying scales for deduction on account of cost of labour ;nd services for
various types of ~orks ·contracts.
c
RATE OF TAX:

A question has been raised whether it is permissible for the State
legislature to levy tax on deemed sales falling within the ambit of Article
366(29-A)(b) by prescribing a uniform rate of tax for all goods involved in D
the execution of a works contract even though different rates of tax are
prescribed for sale of such goods. The learned counsel for the contractors
have urged that it would not· be permissible to impose two different rates
of tax in respect of sale of the same article, one rate when the article is
sold separately and a different rate when there is deemed sale in connec- E
tion with the execution of a works contract. On behalf of the States it has
been submit~ed that it is permissible for the State to impose a particular
rate of tax on all goods involved in the execution of a works contract which
may be different from the rates of tax applicable to those goods when sold
separately. In the field of taxation the decisions of this Court have per-
mitted the Legislature to exercise an extremely wide discretion in class-
F
ifying items for tax purposes, so long as it refrains from clear and hostile
discrimination against particular persons or classes. See : East India Tobac-
co Co. v. State of Andltra Pradesh, [1983) 1 SCR 404 at p. 411; P.M.
Ashwatltanarayan Shetty & Ors. v. State of Kamataka & Ors., [1988) Supp.
3 SCR 155 at p. 188; Federation of Hotel & Restaurant Association of India G
v, Union of India, [1989] 2 SCR 918 at p. 949 and Kera/a Hotel & Restaura~it
Association & Ors. v. State of Kera/a & Ors., [1990] 1 SCR 516 at p. 530.
Imposition of sales tax at different rates depending on the value of the
annual turnover was upheld in S. Kodar v. State of Kerala, {1975l l SCR
121. Similarly, imposition of purchase tax at different rates for sugar mills H
'
/
I 148. SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R ..

A and Khandsari units was upheld in Ganga Sugar Co. Ltd. v. State of U.P.
&Ors.; [1980) 1 SCR 769. In our opinion, therefore, it would be permissible
for the State LegiSlature to tax all the goods involved.in the execution of a
works· contract at a uniform rate which may be different from the rates
applicable to individual goods because the goods which are involved in the
B execution of the works contract when incorporated in the works can be
cl.assified into a separate category for the purpose of imposing the tax and
a uniform rate may be prescribed for sale of such goods.

The aforesaid discussion leads to the following conclusions : - .

c (1) In exercise of its legislative power to impose tax on sale or
purchase of goods under Entry 54 of the State List read with Artide
366(29-A)(b), the State legislature, while imposing a tax on ~he transfer of
property in goods (whether as goods or in some other form) involved in
the execution of a works contract is not competent to impose a tax on such
D a transfer (deemed sale) which constitutes a sale in the course of inter-
State trade or commerce or a sale outside the State or a safe in the course
of import or export.

(2) The provisions Of Sections 3, 4, 5 and sections 14 and 15 of the
Central Sales Tax Act, 1956 are applicable to a transfer of property in
E goods involved in the execution of a works contract covered by Article
366(29-A)(b).

(3) While defining the expression 'sale' in the sales tax legislation it
is open to the State Legislature to fix the situs of a deemed sale resulting
F from a transfer falling within the ambit of Article 366(29-A)(b) but it is not
permissible for the State Legislature to define the expression "sale in a way
as to bring within the ambit of the trucing power a sale in the course of
inter-State trade or commerce, or a sale outside the state or a sale in the
coiirse of import and export.

G (4)The tax on transfer of property in goods (whether as goods or in
some other foriii) involved in the execution of a works contract falling
within the ambit of Ahicle 366(29-A)(b) is leviable on the goods involved.
in the execution of a works contract and the value of the goods which are
-
involved in· execution of the works contract would constitute the measure
H for imposition of the tax.
GANNON DUNKERLEY CO. v. SfATEOFRAJASTHAN(AGRAWAL,J.) 149

(5) In order to determine the value of the goods which are involved A
in the execution of a works contract for the purpose of levying the tax
referred to in Article 366(29-A)(b), it is permissible to take the value of
the works contract at the basis and the value of the goods invoived in the
execution of the works contract ·can be arrived at by deducting expenses
incurred by the contractor for providing labour and other services from the B
value of the works contract.

(6) The charges for labour and services which are required to be
deducted from the value of the works contract would cover (i) labour
charges for execution of the works, (ii) amount paid to a sub-contractor
for labour and services; (iii) charges for obtaining on hire or otherwise, C
machinery and tools used for execution of the works contract; (iv) charges
for planning, designing and architect's fees; and (v) cost of consumables
used in execution of the works contract; (vi) cost of establishment of the,
contractor to the extent it is relatable to supply of labour and servi.ces; (vii)
other similar expenses relatable to supply of labour and services; and (viii) D
profit earned by the contractor to the extent it is relatable to supply of'
labour and services.

(7) To deal with cases where the contractor does not maintain proper
accounts or the account books produced by him are not found worthy of . E
credence by the assessing authority the legislature may prescribe a formula ·
for deduction of cost of labour and services on the ·basis of a percentage .
of the value of the works contract but while doing so it has to be ensured ,
that the amount deductible under such formula doe~ not differ appreciably .
from the expenses for labour and services that would be incurred in normal
F
circumstances in respect of that particular types of works contract. It would
J
be permissible for the legislature to prescribe varying scales for deduction
on account of cost of labour and services for various types of works ,
contract.

(8) While fixing the rate of tax it is permissible to fix a uniform rate ' G
of tax for the various goods involved in the execution of a works contract
which rate may be different from the rates of tax fixed in respect of sales
or purchase of those goods as a separate article.

We would now proceed to consider the provisions of the Rajasthan H
150 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A Sales Tax Act in the light of the principles referred· to above. In this
context, we may briefly outline the general scheme of the said enactment.
• Section· 2 contains the definitions wherein 'goods' is defined in cl.(h), 'sale'
is defined in cl.(o), 'sale price' is defined in· cl.(p), 'taxable turnover' is
defined in cl.(s) and 'turnover~ is defined in cl.(t). Sections 3 provides for
B incidence of taxation. Section 4 provides for exemption from tax of goods
specified: in the Schedule to the Act. Section 5 provides for rate of tax.
Section 6 provides for registration of a dealer. Section 7 relates to submis-
sion of returns. Sections 10 to 20 relate to assessment of tax. ·Section 23
deals with refunds. Section 26 confers the power to make rules.

C After the Forty-Sixth Amendment, the Rajasthan Sales Tax Act was
amended by the Rajasthan Finance Act, 1987 (Act No. 7 of 1987). By the
said Act, among other provisions, the definition of 'sale' contained in cl.(o)
of Section 2 was substituted,_ certain amendments were made in definition
of 'sale priCe' contained in cl.(p) of Section 2, the definition of 'turnover'
D contained in cl.(t) of S.ection 2 was amended, and clause (cc) was inse~ted
in sub-section (2) of section 26 to confer power to frame rules to provide
for the determination of the amount payable to the dealer for the transfer
of property in goods (whether as goods or in some other form) made in
the course of execution of a contract or works contract. By Rajasthan Sales
E Tax {Amendment)"Act, 1988 (Act no. 9 of ~988), certain further amend-
ments were made in the definition of 'sale' contained in cl.(o) an_d defini-
tion of 'tunwver' contained in cl.(t) of section 2. cl.(u) was introduced in
section 2 to define 'works contract'. Sub-s.(3) was added in S. 5 and
sub-s.(2)(c) was inserted in Section 7. By Rajasthan Sales Tax (Secorid
Amendment) Act, 1988 (Act no. 13 of 1988), the definition of 'works
F contract' contained in cl.(u) of S.2 was sub~tituted. After the decision of
J
l
this Court in Builders' Association case; Rajasthan Sales (Amendment) Act,
1990 (Act no. 3 of 1990) was enacted whereby some minor changes were
made in the definition of 'sale' contained in cl.(o) and the last proviso,
c
which was inserted in the definition of 'sale price' contained in cl.(p) by
G Rajasthan Act no. 7 of 1987; was deleted.

In the Rajasthan Sales Tax Rules, 1955, by notification dated May
.
28, 1987, sub-rule (2) was inserted in Rule 29 to provide for deductions o( ·
turnover relating to works contracts. After the Builders' Association case,
I
H the said sub-rule (2) of Rule 29 was substituted by notification dated .lune
GANNON DUNKERLEY CO. 1•. STATEOFRAJASTHAN(AGRAWAL,J.) 151

28, 1989. I\
Before the High Court, the appellants had confined their challenge
to cl.(3) of Section 5 and cl.(2-C) of Section 7 of the Act and sub-Rule (2)
of Rule 29 and sub-Rule (2) of Rule 46 of the Rajasthan Sales Tax Rules.
Sub-Rule (2) of Rule 29 relates to sub-s.(3) of Section 5 whereas Sub-Rule
(2) of Rule 46 relates to sub-cl.(2) of cl.( c) of Section 7 of the Act. During B
the course of arguments before this Court, the learned counsel for ·the
appellants have also challenged the validity of Explanation I in definition
of 'sale' contained in cl.(o) of Section 2 of the Act.

Cl.(o) of Section 2 which defines 'sale', as amended by the en~ct- C
ments referred to above, provides as under -

"(o) 'Sale' with all its gramm,atical variation and cognate
expressions, means every transfer of the property in goods
(other than by way of mortgage, hypothecation, charge or
pledge) by one person to another for cash or deferred D
payment or other valuable consideration and includes :

(i) a transfer, otherwise than in pursuance of a con-
tract, of property ·in goods for cash, deferred payment or
other valuable consideration;
E
(ii) A transfer of property in goods (whether as goods
or in some other form) involved in the execution of a
works contract;

(iii) A delivery of goods on hire-purchase or other
system of payment by instalments;
F

(iv) A transfer of the right to use goods for any purpose
(whether or .not for a specified period for cash, deferred
payment or other valuable consideration;
G
(v) A supply of goods by any unincorporated associa-
tion or body of persons to a member thereof for cash,
deferred payment of other valuable consideration.

(vi) A supply by way of or as part of any service or in
any other manner whatsoever of goods, being food or any H
152 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A other article for human consumption or any drink
(whether or not intoxication), where such supply is for
cash, ·deferred payment of other valuable consideration;

and such transfer, delivery or supply shall be deemed
to be a sale and the word "purchase" or buy shall be
B construed accordingly. .,
Explariation-1. The transfer of property in goods (whether
as goods or in s0me other form) involved in the execution
of a works contract shall· he deemed to take place within
c the State of Rajasthan it the goods are within the State at
the time of their appropriation or application or use for
the execution of the works contract irrespective of the
place where the agreement for such works is made or from
where the goods are transferred or delivered for use in
the works contract.
D
E\planation-JJ. Where the work under a works contract is
spread over many states including the State of Rajasthan,
the proportionate work done within the State of Rajasthan
shall be deemed to be the sale under this clause irrespec-
tive of the place of agreement for works or the point or r'
E
movement of goods involved in the execution of that works
contract;"

The main part of the said definition incorporates the prov1S1ons
· contained in cL(29-A) of Article 366. Explanations I and II seek to fix the
F situs of the deemed sale in respect of goods involved in the execution of a
works contract. The objection of the learned couns.el for the appellants is (
I'
that Explanation I widens the amplitude of the expression 'sale' so as to
include deemed· sales which are in the course of inter-State trade and
commerce as well as sales which take place outside 'the State and enables
even such sales being subjected to imposition of tax under the Rajasthan
G
Sales Tax Act.

Sub-s.(3) of Section 5 provides as under -
(
"(3) Notwithstanding anything contained in this Act, in the
H case of a works contract, the turnover of such contract

-
GANNON DUNKERLEY CO. v. SIATEOFRAJASTHAN[AGRAWAL,J.) 153

shall be subjected to tax: A
Provided that such deductions as may be prescribed,
may ?e allowed to a contractor while determining his tax
liability.

The expression 'turnover' is defined in cl.(t) as under - B
(t) "turnover" means the aggregate amount of sale prices
received or receivable for a sale, transfer, delivery or
supply by a dealer in any of the ways referred to in clause
(o), and
c
(Provisos-Omitted)

Explanation : Subject to such condit~ons and restrictions,
if any, as may be prescribed in this behalf:
D
(i) The amount for which goods are sold or supplied
shall in relation to a works contract be deemed to be the
amount payable to the dealer for carrying out such con-
tract less the cost of labour upto such extent as· may be
prescribed;
E
(Rest is Omitted)

In this context reference may also be made to the definition of
'taxable turnover' contained in cl.(s) of Section 2 which provides as fol-
lows-
F
"(s) 'taxable turnover' means that part of turnover which
remains after deduction therefr6m the aggregate amount
of the proceeds of sale of goods -

(i) on which no tax is leviable under this Act,
G
(ii) which have already been subjected to tax under this
Act,

(iii) which have been sold to persons outside the State for
consumption outside the State; and H
154 SUPREME COURT REPORTS [1992] SUPP. 3 S.C.R.

A (iv) which are taxable at a point of sale within the State
subsequent to the sale by the dealer and such sale is
covered by a declaration as may be required under any
·.provision of this Act or the rules made thereunder."

(Rest is omitted)
B
Sub-rule (2) of Rule 29 of the Rajasthan Sales. Tax Rules, as sub-
stituted by Notification dated June 24, 1989, provides as under -

"{2) In case of works contract, tax shall be computed on
c the turnover of th_e contractor after deducting -

(i) The value of the goods transferred in execution of
works contract, whether as goods or in some other form
which have already ·suffered _tax at the rate prescribed
under Section 5 or which are exempted from tax under s.
D 4 of the Act.

(ii) All sums towards labour charges, which are directly
co-related with the goods, property in which has passed
in the execution of works contract, whether as goods or
E in some other form :

"Provided that where the labour charges are not deter-
minable from the accounts of the contractors, or are
considered unreasonably high considering the nature of
the contract, the deduction towards labour charges shall
F be allowed by the assessing authority according to the
limits prescribed in column 3 for the type of contract
specified in column 2 of the table given below -

(TABLE - Omitted)"
G Sub-s.(2-C) of Section 7 lays down -

(2C) Notwithstanding anything contained in this Act, in
the case of a works contract, the tax may be deducted in
such manner and under such circumstances as may be
H prescribed, from every bill of payment to a contractor.
GANNON DUNKERLEY CO. v. SfATE OF RAJASTHAN (AGRAWAL, J.] 155

Sub-rule (2) of Rule 46 of the Rajasthan Sales Tax Rules provides A
as under -

"46(2)(a) - In a works contract, the awards in case of its
being a department of-any Government, a Corporation, a
Government Undertaking, a Cooperative Society, a local
body, trust or a Private or Public limited company, respon- B
sible for paying any sum to a contractor for carrying out
any works shall at the time of credit of such sum to the
account of the contractor or at the time of payment
thereof in cash or by issue of a cheque or draft or by any
other mode, deduct an amount equal to the present of c
such sum towards the tax and shall issue a certificate of
deduction of tax to the contractor in form ST-45 :

Provided that such de.duction of tax shall be subject to
adjustment at the time of assessment of the contractor-
D
(b) The tax deducted under clause (a) of this sub-section
rule by the awarder of a contract shall be deposited by
such awarder of a contract challan in Form ST-10 for all
the contractors falling within the jurisdiction of one As-
sessing Authority in the account of such authority, within
E
15 days of the close of each month ·and a mon.thly state-
ment of such deposits shall be furnished by him to such
authority in Form ST-46 alongwith part IV of the deposit.

(c) If the tax is not deducted from the bill as provided in
cl.(a) above, the awarder shall be liable to pay (as F
provided in the Act) and the contractor shall be Liable to
pay the said tax together with interest at the rate specified
in the Act from the date of the receipt of the payment by
him."

We will first examine the validity of sub-s.(3) of Section 5 read with G
sub-rule (2) of Rule 29 of the Rajasthan Sales Tax Rules. In this regard, it
is necessary to mention that while making provision in relation to works
contracts, section 5(3) makes a departure from the other provisions inas-
much as in the case of a works contract the tax is to be levied on the
turnover of such contract and not on the taxable turnover as provided in H
156 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A sub-section (1) of section 5 in respect of other sales. The proviso to
sub-s.(3) of section 5 prescribes that the deductions, as may be prescribed,
may be allowed to the contracto~ while determining his tax liability.

The expression 'turnover' as defined in clause (t) of section 2 of the
Rajasthan Sales Tax Act, 1954 means the aggregate of the amount of sale
B
prices received or receivable for a sal<t, transfer, delivery or supply by a
dealer in any of the ways referred to in clause ( o) wherein the expression
'sale' is defined. With regard to works contracts, Explanation (i) to clause
(t) of section 2 lays down that the amount for which the goods are sold or
supplied shall, in relation to a works contract, be deemed to be the amount
c payable to the dealer for carrying out .such contract Jes~ the cost of labour
up to such extent as may be prescribed. Section 5(3) read with clause (t)
of section 2 of the Rajasthan Sales Tax Act, thus, provides that in relation
to a works contract, tax would be leviable on the value of the works
contract after deducting (i) the cost of labour upto such extt<ilt as may be
D prescribed in the rules framed under the Act in view of the Explanation (i)
to section 2(t); and (ii) such deductions as may be prescribed under the
rules in view of the proviso to s. 5(3). The legislature has not made any
express provision for exclusion of transactions constituting deemed sales
which take. place in the course of inter-State trade or commerce or outside
E the State or in the course of import and export in relation to which the
State legislature lacks the competence to impose a tax under Entry 54 of
the State List. Nor has any provision been made with regard to sales of
' .
goods which are declared to be of special importance in inter-State trade
or commerce and are governed by sections 14 and 15 of the Central Sales
Tax Act. The matter has been left to the discretion of the rule making
F
authority to prescribe whether deductions in respect of such transactions
should be allowed or not.

In this context reference may be made to sub-section (1) of section
5 of the Rajasthan Sales Tax Act which applies to other transactions of sale
G that are taxable under the Rajasthan Sales Tax Act. Section 5(1) provides
that the tax payable by a dealer under the Act shall be at such single point
in the series of sales by successive dealers as may be prescribed and shall
be -levied at such rate not exceeding fifty percentage on the taxable turn-
over, as may be notified by the State Government in the Official Gazette.
H In this provision the legislature has used the expression 'taxable turnover',
GA~ONDUNKERLEYCO. v. STATEOFRAJASfHAN(AGRAWAL,J.) 157

which has been defined under clause(s) of section (2) to mean that part of A
turnover which remains after deducting therefrom the aggregate amount
of the proceeds of sale of goods : (i) on which no tax is leviable under the
Act, (ii) which have already been subjected to tax under the Act, (iii) which
have been sold to persons outside the State for consumption outside the
State, and (iv) which are taxable at a point of sale within the State B
subsequent to the sale by the dealer and such sale is covered by .a decla-
ration as may be required under any provision of the Act or the rules made
thereunder. These provisions indicate that in respect of other sales the
amount of the proceeds of sale of goods on which tax is not leviable 'under
the Act has to be excluded from the turnover before it becomes chargeable C
to tax. This position is further clarified by the proviso to sub-section (1) of
section 5 which prescribes that the tax in respect of the sale of any goods
which are not included in the Schedule, shall not be leviable (a) if such
·. sale takes place in the course of inter-State trade or cor~merce within the
meaning of section 3 of the Central Sales Tax Act, or (b) if such sa}e takes D
place outside the State within the meaning of sub-section (1) of section 4
of the Ceneral Sales Tax Act; or (c) if such sale takes place in the course
of impc.rt or export within the meaning of section 5 of the Central Sales
Tax Act. In the said proviso, reference has also been made to sale of goods
which have been declared by section 14 of the Central Sales Tax Act to be E
of special importance in inter-State trade or commerce as well as to section
15 of the Ceneral Sales Tax A<;t and it has been directed that in resp~ct of
such goods the tax shall not exceed the limits laid down in clause (a) of
section 15 of the Central Sales Tax Act, and that tax shall not be payable
on such goods if the sale takes place outside the State within the meaning
of section 4 of the Central Sales Tax Act and further that the tax shalt not
F
be leviable in the State at more than one stage. In view of non-obstante
clause in sub-section (3) of section 5, the said provisions contained in
sub-section (1) are not applicable to works contracts and sub-section (3)
of section 5 alone is applicable.
G
A comparison of the provisions contained in sub-section (3) of
section 5 read with sel:tion 2(t) and sub-section (1) of section 5 read with
section 2(s) would indicate that in relation to works contracts the legisla-
ture has made a departure in the matter of chargeability of the tax and by
using the expression "turnover" instead of "taxable turnover" in section 5(3) H
158 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A it has enlarged the field of taxability to permit tax being levied on sales in
the course of inter-State trade or commerce, sales outside the State· and
sales in the course of import and export and to ignore the conditions and
restrictions placed by Section 15 of the Central Sales Tax Act in relation
to imposition of tax on goods which are declared to be of special impor-
tance in inter-State trade or commerce under section 14 of the Central
B
Sales Tax Act. The proviso to section 5(3) does not oblige the rule-making
authority to frame a rule allowing deductions for the turnover of the
amount of proceeds of sale of goods on which no tax is leviable under the
Act so as to exclude the above-mentioned sales from levy of tax. The rule
making authority would not be contravening the mandate of the statute if
c it does not allow deduction of the amount of proceeds for sale of goods
on which no tax is leviable under the Act from the turnover ...

The constitutional validity of a statute has to be determined on· the
basis of its provisions and on the ambit of its operation as reasonably
D construed and if, so judged, it does not pass the test of constitutionality .it
cannot be pronpunced valid merely because it is administered in a manner
which might not conflict with the constitutional requirements. [See : The
Collector of Customs v. Nathe/la Sampathu Chetty &A11r., [1962) 3 SCR 786,
at pp.825-6). The rules framed under the Rajasthan Sales Tax Act would
E not, therefore, be of any assistance in resolving the question regarding the
validity of section 5(3). We have, however, examined the rules that have
been framed and we find that they do not improve the position. The
relevant provisions in this regard are contained in sub-rule (2) of Rule 29
of the Rajasthan Sales Tax Rules which makes provision for deductions
from the turnover in the case of a works contract. The said sub-rule (2)
F contains two clauses. Clause (i), which is referable to the proviso to
sub-section (3) of section 5, provides for deduction of the value of the
goods transferred in execution of works contract, whether as goods or in
some other form, which have already suffered tax at the rates prescribed
by section 5 or which are exempted from tax under section 4. Clause (ii)
G is referable to Expla11atio11 (i) of section 2(t) and it provides for deduction
of all sums towards labour charges, which are directly co-related with the
goods, property. in which has passed in the execution of works contract,
whether as goods or in some other form.

H Shri Krishnamoorthy Iyer, the learned counsel appearing for the
GANNON DUNKERLEY CO. v. STATEOFRAJASTHAN[AGRAWAL,J.] 159

State of Rajasthan has submitted that the words "which have already A
suffered tax at the rates prescribed under Section 5" are wide enough to
permit deduction in respect of goods on which no tax is leviable under
sub-s.(1) of Section 5 of the Act, namely, sales in the course of inter-State
trade or commerce or sales outside the State or in the course of import
and export as well as sales of goods which have declared to be of special B
importance in the course of inter-State trade or wmmerce under Section
14 of the Central Sales Tax Act and are governed by section 15 of the said
Act. We find it difficult to accept this contention. The words "which have
already suffered at the rates prescribed under Section 5" only refer to the
goods which have already been subjected to tax under the Act at the rates c
specified under Section 5, and their value is to be excluded from the
turnover. The goods on which no tax is leviable under sub-s.(1) of Section
5 are not subject to any tax under the Act and there is no question of such
goods having suffered tax at the rates prescribed under Section 5. In this
context we may again refer to the definition of taxable turnover contained D
in section 2(s) of the Rajasthan Sales Tax Act wherein provision is made
under clauses (i) to (iv) for deduction from the turnover for arriving at the
taxable turnover. Cl.(i) refers to sale of goods "on which no tax is leviable
under this Act" and cl.(ii) refers to sale of goods "which have already been
subjected to tax under this Act." These clauses sho~ that the Legislature
E
has made a dis•inction between ·a sale of goods on which no tax is leviable
and a sale of goods which has already been subjected to tax under the Act.
Cl.(i) of sub-rule (2) of Rule 29 is a provision similar to that contained in
cl.(ii) of section 2(s). It is, therefore, not possible to construe cl.(i) of
sub-Rule (2) of Rule 29 to mean that sales on which no tax is leviable under
sub-s.(1) of Section 5 are to be excluded from the turnover for the purpose
F
of computing tax on such turnover in relation to a works contract.

The High Court has upheld the validity of sub-s.(3) of Section 5 by
taking into account the provisions of sub-Rule (2) of Rule 29. But, while
considering the said provisions the High Court has failed to notice that G
under cl.(i) of sub-Rule (2) of Rule 29, transfer of property in goods
involved in the execution of a works contract, on which no tax is leviable
under Section 5, are not required to be deducted from the turnover. The
High Court also failed to attach importance to the use of the word
'turnover' (instead of word 'taxable turnover') in sub-s.(3) of Section 5 as H
160 SUPREME COURT REPORTS [1992) SUPP. 3 S.C.R.

A a result of which the amplitude of the incidence of tax has been widened
so as to include transactions which are outside the sphere of taxation
available to the State Legislature under Entry 54 of the State List. We are,
therefore, unable to uphold the decision of the High Court in this regard
and it must be held that sub-s.(3) of section 5 transgresses the limits of the
B legislative power conferred on the State Legislature under Entry 54 of the
State List. inasmuch as it enables tax being imposed on deemed sales
resulting from transfer of property in goods (whether as gMds or in some
other form) i~volved in the execution of a works contract which take place
in course of inter-State trade or commerce, or which take place outside
the State or which take place in the course of import and export within the
c meanfo.g of sections 3, 4 and 5 respectively of the Central Sales Tax Act
and it does not take into account the conditions and restrictions imposed
by section 15 of the Central Sales Tax Act on goods declared to be of
special importance in iriter-State trade or commerce under section 14 of
the Central Sales Tax Act. Cl.(i) of sub-Rule (2) of Rule 29 of the
D Rajasthan Sales Tax Rules also suffers from the same infirmity. Section
5(3) of the Rajasthan Sales Tax Act and clause (i) of sub-Rule (2) of Rule
29 of the Rajasth.an Sales Tax Rules must, therefore, be held to be uncon-
stitutional and void.

E Since the invalidity of section 5(3) goes to the root of the imposition
of tax and in the absence of the said provision the tax cannot be levied, the
appellants in the appeals are entitled to succeed. In the circumstances, it
is not necessary to examine the other questions relating to the validity of
Explanation-I to cl.( o) of section 2 of the Rajasthan Sales Tax Act, Explana-
tion (i) to cl. (t) of section 2, sub-s. (2-C) of s.7, cl.(ii) of sub-Rule (2) of
F Rule 29 and sub-Rule (2) of Rule 46 of the Rajasthan Sales Tax Rules.

The appeals are, therefore, allowed. The judgment and order of the
High Court is set aside, and it is declared that sub-s. (3) of section 5 of the
Rajasthan Sales Tax Act and clause (i) of sub-Rule (2) of Rule 29 of the
G Rajasthan S(J.les Tax Rules are unc0nstitutional and void. The parties are
left to bear their own cos~s.i!l these appeals.

In view of the declaration that section 5(3) of the Rajasthan Sales
Tax Act is unconstitutionai and void, the assessment order dated Septem-
H ber 1, 1990 passed by the Commercial Taxes Officer, Kota, which is under·
GANNON DUNKERLEY CO. v. SfATEOFRAJASfHAN[AGRAWAL,J.] 161

challenge in W.P. No. 197 of 1991, cannot ,stand. The said writ petition, _A
insofar as it relates to the provisions of the Rajasthan Sales Tax Act and
the said assessment order dated September 1, 1990 is allowed to the extent
that the assessment order dated September 1, 1990 is quashed. We do not
express any opinion on the questions raised in the writ petition with regard
to the validity of the provisions of the Tamilnadu General Sales Tax B
(Fourth Amendment) Act, 1984, Tamilnadu General Sales Tax Act (Fourth
Amendment) Act, 1986 and the rules and order,s issued thereunder and
the proceedings for assessment of tax payable by the petitioner under the
Andhra Pradesh General Sales Tax Act, 1957 and orders passed therein.
The petitioner would be at liberty to institute appropriate proceedings for
c
red.ress of its griev3:nce _in respect of those matters before the appropriate
forum. The writ petition will stand disposed of accordingly \\ith no order
as to costs.

N.P.V. Appeals and Petitions allowed.

' '

l. ! .

"\ -.; ...