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

Citation: [1992] SUPP. 3 S.C.R. 103 · Decided: 17-11-1992 · Supreme Court of India · Bench: M.H. KANIA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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 
DAYAL AND DR. A.S. ANAND, JJ.] 
Constitution of India 195(}-Artic/es 286, 366 (29-A) (b ), Schedule VII 
List II Entry 54-Transf er of property in goods involved in execution of works 
contract-:-Levy of sales tax-State Legislature whether'f:ompetent to legis-
late-Value of goods-Whether would constitute measure of t~Value of 
goods-How to be determined-Need for central legislation emphasised. 
B 
c 
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 
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 
F 
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 
c 
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 
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 
F 
necessary relief. 
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 
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GANNON DUNKERLEY CO. v. STATE OF RAJASTHAN 
105 
Section 2 was substituted. 
After the decision 

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