STATE OF KERALA versus SOUTH INDIA CORPORATION(P) LTD

Citation: [1971] SUPP. 1 S.C.R. 236 · Decided: 29-03-1971 · Supreme Court of India · Bench: S.M. SIKRI · Disposal: Dismissed

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Judgment (excerpt)

236 
A 
B 
c 
D 
E 
F 
G 
H 
STATE OF KERALA 
v. 
soum INDIA CORPORATION(P) LTD. 
March 29, 1971 
[S. M. SIICRI, C. J., G. K. MITTER, K. S. HEGDE, A. N. GROVER 
AND P. JAGANMOHAN REDDY, JJ.) 
Constitution of India, 1950, Arts. 271 and 218-Repea/ and re-enact· 
ment of tax laws: if affects continuity of levy-Agreement under Art. 278 
by which State agrees with Union not to impose tax-If breaks continuity 
of levy. 
The State of Travancore and Cochin, before 26th January 1950, bad 
plenary powers of legislation and under the Travancore General Sales Tax 
Act, 1948, and the Cochin General Sales Tax Act, 1945, as amended in 
1948, they levied sales-tax on works contracts. As a result of the merger 
of the two states into a Part B State under the Constitution. the Travancore-
Cochin General Sales Tax Act, 1950, was enacted, and, after the State of 
Kerala came into existence in 1956, the Act was called the Kerala General 
Sales Tax Act, arrd its operation was extended the whole of the State. 
That Act enabled the imposition of sales tax on works contracts, but, on 
February, 25, 1950, an agreement was entered into between the Raj Pra-
mukh and the Union of India, under Art. 278 of the Constitution, under 
which. the State had no power to impose sales-tax in respect of works 
contracts. That agreement, was to enure for ten years. 
For the period 26th January 1960 to 3bt March, 1960, the State 
levied sales tax on works contracts. On the question whether the levy was 
saved by Art. 277 of the Constitution. 
HELD: Under Art. 277, any taxes which, immediately before the 
commencement of"the Constitution, were· being lawfully levied by a State, 
may, notwithstanding that the taxes are mentioned in the Union list in 
the Constitution continue to be levied by the State until provision to the 
contrary is made by Parliament. The impost of sales-tax on works contracls 
is, under the Constitution, beyond the competence of the States but would 
be within that of Parliament by virtue of item 97, List I, VII Schedule 
and Art. 248 of the Constitution. Therefore, sales-tax on works contracts 
which were being lawfully levied by the States of TravanCore and Cochin 
before 26th January 1950, could under Art. 277, be continued to be levied. 
The fact that former Acts were repealed and re-enacted would not take 
the case out of Art. 277, because, all that the Article requires is a continuity 
in the levy of taxes without any change in their character. But this essen-
tial condition of continuity in the levy for the validity of the imposition 
of the tax was broken in the present case, by the agreement under Art. 
278. 
Articles 277 and 278 were engrafted in the Constitution with the 
object of maintaining financial stability of the new States. The agreement 
shows that there \\'as liberal financial assistance to make up for the los.s of 
revenue which the State was deriving from the sales-tax on works contracts. 
Since the agreement broke the continuity of the levy of sales-tax on werks 
contracts, and there was nothing in Art. 277 to resuscitate it when the 
agreen1ent came to an end in 1960, no sales-tax on works conti::acts was 
leviablo by the State after 26th January 1960. [240A·B, E·A; 241A; 243A· 
F] 
South India Corporation (P) Ltd. v. Secretary Board of Revenue, 
Trivandrum, [1964] 4 S.C.R. 280, referred to. 
KERALA v. s. I. CORP. (Mitter, J.) 
.237 
Civil Appellate Jurisdiction : Civil Appeals Nos. 175 to 178 
A 
of 1969. 
Appeals from the judgements and orders dated February 6, 
1968 and September 5, 1967 of the Kerala High Court Writ Appeal. 
No. 243 of 1967, T.R.C. Nos. 22 and 23 of 1966 and Original 
Petition No. 1046 of 1966. 
B 
M. C. Chaghla and A. G. Puddissery, for the appellants (in 
all the appeals.) 
S. T. Desai A. S. Nambiar and K. R. Nambiar, for the res-
pondent (in all the appeals). 
c 
The Judgment of the Court was delivered by 
Mitter, J.-All these four appeals are by certificate granted 
by the High Court of Kerala. 
Three of them arise out of a 
common judgement in T.R.C. Nos. 22 and 23 of 1966 and Origi-
nal Petition No. 1046 of 1966. Appeal No. 175 of 1969 is from 
the judgment in Writ Appeal No. 243 of 1967 arising out of 
original Petition No. 1723 of 1965. 
The respondent, a private limited company having its princi-
pal place of business at Mattancherry originally in the State of 
Cochin but now in the S!aite of Kerala, was assessed by th~ State 
tax Officer, Special Circle, Mattancherry, to sales-tax fo

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