BUILDERS ASSOCIATION OF INDIA Vs. UNION OF INDIA

JUDGEMENT

(1.) In this batch of Writ Petitions and Civil Appeals two questions arise for consideration. The first question relates to the constitutional validity of the Constitution (Forty-sixth Amendment) Act, 1982 (hereinafter referred to as 'the 46th Amendment') by which the Legislatures of the States were empowered to levy sales tax on certain transactions described in sub-clauses (a) to (f) of clause (29-A) of Article 366 of the Constitution and the second question is whether the power of the State Legislature to levy tax on the transfer of property in goods involved in the execution of works contracts referred to in sub-clause (b) of clause (29-A) of Article 366 of the Constitution is subject to the restrictions and conditions contained in Article 286 of the Constitution.

(2.) An account of the history of the relevant constitutional and statutory provisions and of judicial decisions having a bearing on the said provisions has to be set out at this stage to appreciate the contentions of the parties. Prior to the commencement of the Constitution of India the power to levy sales tax had been conferred on the Provincial Legislatures by Entry 48 of the List II of the Seventh Schedule to the Government of India Act, 1935 which read as "Taxes on the sale of goods and on advertisements". In exercise of the said power some of the Provincial Legislatures had passed laws levying sales tax on the sale or purchase of certain commodities. There was no specific restriction or condition on the exercise of the said power under the Government of India Act, 1935. The Provincial Legislatures exercised power to levy sales tax acting on the principles of the territorial nexus, that is to say, they picked out one or more of the ingredients constituting a sale and made them the basis of the levy of sales tax under the legislation. Assam and Bengal made among other things the actual existence of the goods in the Province at the time of the contract of sale the test of taxability. In Bihar the production or manufacture of the goods in the Province was made in an additional ground. A net of the widest range perhaps was laid in Central Provinces and Berar where it was sufficient if the goods were actually found in the Province at any time after the contract of sale or purchase in respect thereof was made. Whether the territorial nexus put forward as the basis of the taxing power in each case would be sustained as sufficient was a matter of doubt not having been tested in a court of law. Such claims to taxing power led to multiple taxation of the same transaction by different Provinces and cumulation of the burden falling ultimately on the consuming public. By the time the Constituent Assembly took up for consideration the provisions relating to the power of the State Legislatures to levy sales tax the difficulties created by the sales tax laws passed by the various provinces and their effect on inter-State trade and commerce had come to be felt throughout the country. In order to minimise the adverse effects of the sales tax laws passed by the Legislatures of States the Constituent Assembly enacted Articles 286, 301 and 304 of the Constitution. Introducing an amendment to Article 264-A to the draft Constitution, which ultimately became Article 286 of the Constitution of India, Dr. Ambedkar observed on the floor of the Constituent Assembly thus :

(3.) Article 286 of the Constitution, as it was originally enacted, read as follows, :