Supreme Court Upholds Assessee in Sales Tax Dispute Over Building Contracts. Court Holds Building Contracts Are Entire and Indivisible and Not Sale of Goods, Thus State Legislature Lacks Power to Tax Supply of Materials Under Entry 48 of Government of India Act, 1935.

Challenge to validity of sales tax assessment on building contracts under Madras General Sales Tax Act, 1939 as amended by Madras Act XXV of 1947; question whether provincial legislature had power to tax supply of materials in construction contracts as sale of goods.

Respondent company sought to quash the sales tax assessment and have the impugned provisions declared ultra vires the provincial legislature.

Sales tax authorities sought to include the value of materials used in execution of building contracts within the taxable turnover, which the respondent contended was beyond legislative competence because no sale of goods occurred.

Sales Tax Appellate Tribunal rejected the respondent's contention; on revision, the Madras High Court held the impugned provisions ultra vires and quashed the assessment, accepting the respondent's arguments.

Whether the expression 'sale of goods' in Entry 48, List II, Schedule VII of the Government of India Act, 1935 has the same meaning as in the Sale of Goods Act, 1930. Whether a building contract which is one, entire and indivisible involves a sale of goods. Whether the provincial legislature has power to impose a tax on the supply of materials used in construction works treating it as sale. Whether the Madras General Sales Tax (Amendment) Act, 1947 is bad under Section 107 of the Government of India Act, 1935 for not having been reserved for the assent of the Governor-General.

For the appellant State: Legislative entries should be construed liberally; 'sale of goods' in Entry 48 should have a wide meaning, not restricted to the Sale of Goods Act definition; building contracts involve sale of materials and can be split up; tax on composite transaction permissible. For the respondent company: Entries fix the bounds of legislation; 'sale of goods' in Entry 48 must be interpreted in light of existing law, i.e., Sale of Goods Act, 1930; building contracts are entire and indivisible and do not involve sale of goods; the Madras Act's definition of sale conflicts with the Sale of Goods Act and is repugnant under Section 107.

The expression 'sale of goods' in Entry 48 of the Government of India Act, 1935 must be interpreted as having the same meaning as in the Sale of Goods Act, 1930, being a term of well-recognised legal import. A building contract which is one, entire and indivisible involves no sale of goods, and the provincial legislature cannot tax the supply of materials used in such a contract as a sale. The Madras General Sales Tax Act is a law relating to tax on sale of goods, not sale of goods itself, so the amendment Act is not bad under Section 107 for want of reservation.

In a building 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 therefor receive payment as provided therein, and in such an agreement there is neither a contract to sell the materials used in the construction, nor does property pass therein as moveables. In a building contract which is one, entire and indivisible, there is no sale of goods and it is not within the competence of the Provincial Legislature under Entry 48 in List II in Sch. VII of the Government of India Act, 1935, to impose a tax on the supply of the materials used in such a contract treating it as sale. The expression 'sale of goods' was, at the time when the Government of India Act, 1935, was enacted, a term of well-recognised legal import in the general law relating to sale of goods and in the legislative practice relating to that topic and must be interpreted in Entry 48 in List II in Sch. VII of the Act as having the same meaning as in the Sale of Goods Act, 1930.

The respondent company was assessed to sales tax by sales tax authorities who included the value of materials used in building contracts in the taxable turnover. The respondent challenged the assessment before the Sales Tax Appellate Tribunal, which rejected the contention. On revision, the Madras High Court in Civil Revision Petition No. 2292 of 1952 held the impugned provisions ultra vires and quashed the assessment. The State of Madras appealed to the Supreme Court by way of Civil Appeal No. 210 of 1956.

• Sale of Goods Act, 1930: Section 4
• Madras General Sales Tax Act, 1939: Sections 2(c), 2(h), 2(i), Explanation 1(i), Rule 4(3)
• Government of India Act, 1935: Section 107, Schedule VII, List II, Entry 48, List III, Entry 10