Bhaiyalal Shukla vs State of Madhya Pradesh

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Not extracted

Decision Date: 31 December, 1961

Coram: M. Hidayatullah, Bhuvneshwar P. Sinha, J.L. Kapur, J.C. Shah, J.R. Mudholkar

In the matter of Bhaiyalal Shukla versus the State of Madhya Pradesh, the Supreme Court of India delivered its judgment on 31 December 1961. The opinion was authored by Justice M. Hidayatullah and was pronounced by a bench comprising Justices M. Hidayatullah, Bhuvneshwar P. Sinha, J. L. Kapur, J. C. Shah and J. R. Mudholkar. The petitioner, Bhaiyalal Shukla, was engaged in the business of construction as a contractor for the Public Works Department in what was then Vindhya Pradesh, now part of Madhya Pradesh. He challenged the imposition of sales tax on building materials that he supplied during the years 1953‑54 through 1958‑59, contending that the tax could not be levied in accordance with the rulings of the Supreme Court in the Gannon Dunkerley case and the Pandit Banarsi Das case. The respondents, representing the State of Madhya Pradesh, countered that the tax was payable because the situation fell within the exception recognized in the Mithan Lal case.

The legislative backdrop involved several enactments and notifications. The Rajpramukh of the United State of Vindhya Pradesh originally promulgated the Vindhya Pradesh Sales Tax Ordinance 2 of 1949. When Vindhya Pradesh became a Part C State of the Indian Union, the ordinance was extended to the entire state with effect from 1 April 1950 by way of Notification No. 7 dated 28 March 1951. Subsequently, under section 2 of the Part C States (Laws) Act, 1950, the Central Provinces and Berar Sales Tax Act, 1947 (Act 21 of 1947) was extended to Vindhya Pradesh by Notification S.R.O. 6 dated 29 December 1950. That notification also inserted section 29 into the Madhya Pradesh Act as extended, thereby repealing the 1949 ordinance. The Supreme Court, in the Delhi Laws Act case, held that the insertion of section 29 was unconstitutional.

In response to that judgment, Parliament enacted the Part C States (Miscellaneous Laws) Repealing Act, 1951 (Act 66 of 1951). Section 2 of that Act deemed the Vindhya Pradesh Sales Tax Ordinance of 1949 to have been repealed effective from 29 December 1950. Further, the Vindhya Pradesh Laws (Validating) Act, 1952 (Act 6 of 1952) declared that the Central Provinces and Berar Sales Tax Act, 1947, which had been extended to Vindhya Pradesh under section 2 of the Part C States (Laws) Act, 1950, shall be deemed to have been in force in Vindhya Pradesh from 1 April 1951. The judgment also cited various authorities, including the citations 1962 AIR 981, 1962 SCR Supplement (2) 257 and numerous subsequent citations, and referenced the Constitution of India, article 14, in its analysis. The court’s consideration therefore centered on whether the extended sales‑tax statute was validly applicable to the petitioner’s supplies and whether the constitutional principles articulated in earlier cases barred the levy of tax in the circumstances presented.

The Central Provinces and Berar Sales Tax Act defined terms such as contract, goods and sale. Under those definitions, materials used or supplied by a building contractor in construction were liable to sales tax at the schedule rates. The first issue was whether the Central Provinces and Berar Sales Tax Act was first extended to Vindhya Pradesh by the Vindhya Pradesh Legislature in 1952 through the Vindhya Pradesh Laws (Validating) Act, excluding the order in notification No. S.R.O. 6. The second issue was whether the Act had continued to be in force in Vindhya Pradesh before 1952, and whether the 1952 Act merely dispelled doubts about its validity. The appellant argued that if the Vindhya Pradesh Legislature had extended the Central Provinces and Berar Sales Tax Act, the extended Act would suffer from the disability identified in the Gannon Dunkerley case. The respondents maintained that if the extension had been effected by the notification issued under Part C States (Laws) Act, 1950, the Act would be treated as incorporated in the legislation. Such incorporation would give the Act the full authority of Parliament, which imposed no limitation on legislation for Part C States. The Court held that the extension of the Central Provinces and Berar Sales Tax Act, 1947, did not depend on the repeal of the earlier law for its validity. The Court observed that the extended law would have been operative even if the earlier law had not been repealed. However, the earlier law was in fact repealed from December 29, 1950, and therefore no question of conflict between the new and the old law ever arose. The Court further held that the Vindhya Pradesh Amending Act made only verbal changes and did not alter the essential structure of the tax. The Act contained provisions under which sales of building materials were taxable, and if the authority to tax those sales had originated from a State Legislature, the law would have been invalid. The Court noted that the law was first extended to Vindhya Pradesh by the Central Government, Parliament's authority to legislate for a Part C State. Parliament and the Central Government were not subject to the disabilities identified in the Gannon Dunkerley case, and the issue was addressed in the Mithan Lal case. Even if notification S.R.O. No. 6 failed to repeal Ordinance 2 of 1949, Parliament by legislation removed that ordinance in Vindhya Pradesh as of December 29, 1950, declaring it deemed repealed from that date. Consequently, Ordinance 2 of 1949 did not continue to operate in Vindhya Pradesh until January 8, 1953, because it was deemed repealed as of December 29, 1950. The Court also held that laws applicable to different portions of the newly formed State of Madhya Pradesh had been enacted by different legislatures. Section 119 of the States Reorganisation Act provided that all laws in force in a state would continue until they were repealed or altered by the legislature. The Court noted that the different sales tax laws in different parts of Madhya Pradesh existed.

In this matter, the Court observed that the various sales‑tax statutes applicable in different parts of Madhya Pradesh were valid because the distinctions among them were based on historical factors, and a geographical classification founded on history did not run afoul of Article 14 of the Constitution. The Court referred to a series of earlier decisions to support this view, namely State of Madras v. Gannon Dunkerley & Co. [1959] S.C.R. 379, Pandit Banarsidas v. State of Madhya Pradesh [1959] S.C.R. 427, Mithan Lal v. State of Delhi [1959] S.C.R. 445, In re the Delhi Laws Act, 1912 [1951] S.C.R. 747, Gannon Dunkerley v. State of Madras [1954] 1 S.C.R. 216, Behram Khurshed Pesikaka v. The State of Bombay [1955] 1 S.C.R. 613, Deepchand v. State of Uttar Pradesh [1959] Supp. 2 S.C.R., John M. Wilkerson v. Charles A. Rahrer (1891) 140 U.S. 545, M. K. Prithi Rajji v. State of Rajasthan C.A. No. 327/56 decided on 2‑11‑60, and State of Madhya Pradesh v. The Gwalior Sugar Co. Ltd. C.A. Nos. 98 and 99 of 1957 decided on 30‑11‑1960.

The petitions, numbered 110 to 115 of 1960, were filed under Article 32 of the Constitution for the enforcement of fundamental rights. The petitioner was represented by counsel consisting of a senior advocate and three junior counsel, while the respondents were represented by a team of senior and junior advocates. The petitions were decided on 21 December 1961, and the judgment was delivered by Justice Hidayatullah.

All six petitions were filed by a single individual, Bhaiyalal Shukla, who carried on a construction contracting business that supplied building materials for the erection of structures, roads and bridges on behalf of the Public Works Department in the Rewa Circle of the former Vindhya Pradesh State, now incorporated into Madhya Pradesh. The petitioner challenged the levy of sales tax on the materials he supplied for the periods 1953‑54 through 1958‑59. For the first year, 1953‑54, a sales‑tax demand of Rs 1,840‑5‑0 had already been assessed, collected and paid, and the petitioner sought a refund of that amount. For the remaining years, assessment proceedings had been completed for all years except the last two; however, the tax amounts for those years had not been paid. For the final two years, 1957‑58 and 1958‑59, assessment proceedings were still pending.

The respondents in the proceedings were the State of Madhya Pradesh, which had succeeded the State of Vindhya Pradesh, together with various officials who were involved in the assessment and collection of the tax. The petitioner contended that the tax could not be imposed because of the principles laid down by this Court in two earlier cases: The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. and Pandit Banarsidas v. The State of Madhya Pradesh. The respondents countered that the tax was valid, relying on the authority of the Court’s decision in Mithan Lal v. The State of Delhi.

The Court also noted the historical background of the United State of Vindhya Pradesh, which had been created by the rulers of the Baghelkhand and Bundhelkhand regions who agreed to merge into a single entity under the leadership of the Maharaja of Rewa, who served as the Rajpramukh. A covenant executed at that time provided that until a constitution for the United State was enacted, the Rajpramukh was empowered to issue ordinances for the peace and good government of any part of the United State, and that such ordinances would possess the same force as laws passed by a legislature. Exercising these powers, the Rajpramukh promulgated the Vindhya Pradesh Sales Tax Ordinance 2 of 1949 to impose a tax on the sale of goods throughout Vindhya Pradesh. Subsequent constitutional developments transferred Vindhya Pradesh from Part B to Part C of the Constitution, and the ordinance was applied to the whole of the former State from 1 April 1950 by appropriate notification.

In the formation of the United State of Vindhya Pradesh, the Maharaja of Rewa served as the Rajpramukh. The parties entered into a Covenant at that time which stipulated that, until a Constitution for the United State was established, the Rajpramukh would be empowered to make and promulgate Ordinances for the peace and good government of any part of the United State, and that every Ordinance issued by him would possess the same force as an Act passed by the legislature of the United State. Exercising the authority conferred by the Covenant, the Rajpramukh issued the Vindhya Pradesh Sales Tax Ordinance 2 of 1949, thereby creating a tax on the sale of goods throughout Vindhya Pradesh. When the Constitution of India came into force, Vindhya Pradesh was initially classified as a Part B State, but subsequently, by operation of the Constitution (Amendment of the First and Fourth Schedules) Order, 1950, it was transferred to the category of a Part C State. The Rajpramukh’s Ordinance was given effect over the whole of Vindhya Pradesh from 1 April 1950 by means of Notification No. 7 dated 28 March 1950, which was issued by the Chief Commissioner of Vindhya Pradesh in accordance with section 1(2) of the Ordinance. Later, Parliament enacted the Part C States (Laws) Act, 1950. Section 2 of that Act authorized the Central Government, by a notification in the Official Gazette, to extend to any Part C State, or any part thereof, any enactment that was in force in a Part A State on the date of the notification, with such restrictions and modifications as the Central Government deemed appropriate, and also permitted the inclusion of a provision in any extended enactment for the repeal or amendment of any corresponding law (other than a Central Act) that was then applicable to that Part C State. Acting under the power conferred by this section, the Central Government issued Notification No. S.R.O. 6 on 29 December 1950, extending to the State of Vindhya Pradesh the Central Provinces and Berar Sales Tax Act, 1947 (21 of 1947) as it was then operative in the State of Madhya Pradesh, subject to certain modifications required for its application to the new territory. The same notification inserted a new section, numbered 29, into the Madhya Pradesh Act, which provided that the Vindhya Pradesh Sales Tax Ordinance 2 of 1949 was thereby repealed, while also preserving certain provisions of the Ordinance as saved clauses. Subsequently, on 20 March 1951, the Central Government issued Notification No. 52/ECON, exercising the authority under sub‑section (3) of section 1 of the Central Provinces and Berar Sales Tax Act, 1947 as extended to Vindhya Pradesh by Notification No. S.R.O. 6, and ordered that the extended Act would become operative in the State of Vindhya Pradesh from 1 April 1951. Finally, on 23 May 1951, this Court delivered its judgment in the matter then under consideration.

In the earlier decision concerning the Delhi Laws Act of 1912, the majority of this Court held that section 2 of the Part C States (Laws) Act, 1950 was constitutionally valid, but that the final sentence of that provision – which allowed “provision may be made in any enactment so extended for the repeal or amendment of any corresponding law (other than a Central Act) which is for the time being applicable to that Part C State” – exceeded the powers of the Indian Parliament and was therefore ultra‑vires. Following that judgment, Parliament enacted the Government of Part C States Act, 1951 (Act 49 of 1951) on 6 September 1951. That statute created Legislative Assemblies for the Part C States and, by virtue of section 21, conferred upon those Assemblies, subject to specified limitations, the authority to legislate on any matters enumerated in either the State List or the Concurrent List. Section 22 of the same Act stipulated that if any provision made by a State Legislative Assembly conflicted with any provision made by Parliament, the parliamentary provision would prevail irrespective of the time of its passage, and the conflicting state provision would be void to the extent of the inconsistency. An explanatory note clarified that, for the purpose of this section, the expression “law made by Parliament” did not encompass any law that merely extended to the State an enactment already operative in another part of India. In light of the Court’s earlier decision in the Delhi Laws Act case, Parliament subsequently passed the Part C States (Miscellaneous Law) Repealing Act, 1951 (Act 66 of 1951) on 31 October 1951. Under section 2 of that Repealing Act, all laws listed in column 2 of its Schedule were either repealed outright or deemed repealed from the dates indicated in column 3 of the same Schedule. The Schedule expressly provided that the Vindhya Pradesh Sales Tax Ordinance, 1949 (Ordinance 2 of 1949) ceased to have effect from 29 December 1950. After the Vindhya Pradesh Legislative Assembly was constituted, it enacted the Vindhya Pradesh Laws (Validating) Act, 1952 (Act 6 of 1952). That Act, which was intended to apply throughout Vindhya Pradesh and was scheduled to become effective on 8 January 1953, contained a declaration in clause 2 removing all doubts that the Central Provinces and Berar Sales Tax Act, 1947, as extended to Vindhya Pradesh by section 2 of the Part C States Laws Act, 1950, had been and would be deemed in force in Vindhya Pradesh from 1 April 1951. Clause 7 of the same Act dealt with repeal and savings, providing that from the dates on which the Acts specified in clause 2 actually came into operation, the preceding laws in force in Vindhya Pradesh would be deemed repealed, without affecting any actions taken, rights accrued, or liabilities incurred under those earlier statutes.

The Court explained that Section 2 of the Central Provinces and Berar Sales Tax Act, 1947, as extended to Vindhya Pradesh, defined the term “contract” to include any agreement for the execution of work for cash, deferred payment or other valuable consideration, covering the construction, fitting‑out, improvement or repair of any building, road, bridge or other immovable property. The same section defined “goods” to comprise all kinds of property, including all materials, articles and commodities, whether or not such items were to be used in the construction, fitting‑out, improvement or repair of immovable property. It further defined “sale” to include the transfer of property in goods made in the course of executing a contract. By applying these definitions, the Court observed that the materials used or supplied by a building contractor in the construction of buildings, roads, bridges and similar works became liable to sales tax according to a schedule of rates, a reference that appeared unnecessary. The Court noted that the legality of these provisions, which attempted to impose sales tax on building materials through State legislation, had previously been examined by various High Courts in India, resulting in two well‑defined and opposing viewpoints. One viewpoint held that the State’s legislative power, derived from Entry 48 of List II in the Seventh Schedule of the Government of India Act, 1935 (corresponding to Entry 54 of the Constitution’s List), permitted the legislature to separate the sale of materials from the execution of works within a building contract and to tax that sale. Those cases concluded that, although a building contract was an integrated whole involving both labour and materials, the portion relating to materials constituted a sale involving transfer of property for consideration, and the legislature could define “sale” to distinguish the two components. The opposite viewpoint asserted that a building contract was an indivisible whole and that no “sale of goods” occurred within the meaning of the Indian Sale of Goods Act, the sense intended by the constitutional entry, which carried a well‑recognised legal import. The Court cited the decision in Gannon Dunkerley’s case, wherein it approved the latter view expressed by the Madras High Court in Gannon Dunkerley v. State of Madras, and disapproved the contrary view. It was pointed out that, although there might be a popular perception of a sale of materials, such a sale did not exist in the sense employed by the Sale of Goods Act because there was no agreement to sell the materials as movable goods, nor did the property in those materials pass as movable property. In contrast, the Court referred to Pandit Banarsi Das’s case, a simultaneous proceeding from Madhya Pradesh, which held that when the parties entered into distinct and separate agreements—one for the transfer of materials for monetary consideration and another for remuneration for services or works performed—then a sale, within the meaning of the Sale of Goods Act, did occur, and consequently the levy of tax on that sale was valid.

It was observed that, when the transaction fell within the definition supplied by the Sale of Goods Act, the imposition of tax on the transaction was proper; however, if the transaction constituted a single, indivisible contract, the levy of tax was beyond the authority of the legislature. The provisions of the Central Provinces and Berar Sales Tax Act that attempted to separate the contract into parts and to tax the alleged “sale of materials” were held to exceed the competence of the State Legislature. The petitioner therefore argued that the challenged sections of the Central Provinces and Berar Sales Tax Act, as they were applied to the former State of Vindhya Pradesh, fell within the two earlier rulings referred to above and consequently ought to be declared ultra vires the Vindhya Pradesh State Legislature, especially after the legislature enacted the Vindhya Pradesh Laws (Validating) Act, 1952.

The respondents countered that the notification identified as S.R.O. No. 6, which introduced section 29 and thereby repealed the Vindhya Pradesh Sales Tax Ordinance 2 of 1949, together with the Part C States (Miscellaneous Laws) Repealing Act, 1951 and the Vindhya Pradesh Laws (Validating) Act, 1952, all effectively removed Ordinance 2 of 1949 as of 29 December 1950, while leaving the operation of the Central Provinces and Berar Sales Tax Act intact because it had been extended to Vindhya Pradesh by S.R.O. No. 6 of 1950. The Vindhya Pradesh Laws (Validating) Act, 1952 merely dispelled any doubt by reaffirming that the Central Provinces and Berar Sales Tax Act “had been and shall be deemed to be in force in Vindhya Pradesh from 1 April 1951,” without re‑enacting the Act itself. According to the respondents, the Central Provinces and Berar Sales Tax Act therefore continued to be operative in Vindhya Pradesh by virtue of its extension under the (Econ) provision, with the repeal of Ordinance 2 of 1949 being accomplished by the Part C States (Miscellaneous Laws) Repealing Act, 1951. The respondents relied upon the Supreme Court’s decision in Mithan Lal’s case, which held that the limitations applicable to State Legislatures under List II did not constrain Parliament, whose authority over Part C States derived not only from the three lists but also from the residuary power of taxation under Article 248(2). The Court in that case further held that section 2 of the Part C States (Laws) Act, 1950 was not inconsistent with Article 248(2), that the extended law became incorporated by reference in that Act, and that the tax therefore constituted a parliamentary levy. Consequently, the respondents contended that, as established in Mithan Lal’s case, when Parliament enacted the Part C States (Laws) Act, 1950 and empowered the Central Government to extend any law of a Part A State to a Part C State, that power carried the full legislative competence of Parliament; thus, even if the underlying law would have been beyond the competence of the State Legislature that extended it, its extension under parliamentary authority rendered it a valid piece of legislation for the Part C State.

In this case, the Court observed that the competing arguments could be condensed to the following proposition: if the State Legislature of Vindhya Pradesh had extended the Central Provinces and Berar Sales Tax Act, then that extended legislation would have been affected by the disability identified in Gannon Dunkerley’s case (1). Conversely, if the Central Provinces and Berar Sales Tax Act had been extended through a Notification issued under the Part C States (Laws) Act, 1950, then that Notification would be deemed to incorporate the Act into the Part C States (Laws) Act and would possess the full authority of Parliament, which, with respect to Part C States, bore no limitations. Accordingly, the Court needed to determine whether the Central Provinces and Berar Sales Tax Act of 1947 was first extended by the Vindhya Pradesh Legislature in 1952, when it enacted the Vindhya Pradesh Laws (Validating) Act, 1952, thereby excluding the order contained in Notification No. S. R. O. 6, or whether the Act had already been in force in Vindhya Pradesh prior to that date and the Vindhya Pradesh legislation merely served to dispel doubts about its validity. The petitioner contended that the latter part of the Notification dated 29 December 1950 was invalid, as held by this Court in the Delhi Laws Act case (2). That portion dealt with the repeal of Ordinance 2 of 1949, and the petitioner argued that if the Notification were invalid in that respect, then the Central Provinces and Berar Sales Tax Act, which was extended by the opening part of the Notification, could never have come into force. Counsel for the respondent, Mr Viswanatha Sastri, argued that the Notification must be read as a whole and that it was inconceivable that the Central Government would have extended the Central Provinces and Berar Sales Tax Act while the earlier Ordinance remained operative. He relied on the observations of this Court in Pesikaka’s case (3) to assert that the portion of the Notification beyond the Central Government’s powers should be treated as a nullity, and maintained that if the invalid portion was essential to the functioning of the valid portion, then the valid portion must also fail, because the legislature could not have intended two laws on the same subject to operate simultaneously in Vindhya Pradesh. According to him, the extension of the Central Provinces and Berar Act could not have occurred unless the Ordinance had first been repealed. Section 29, although divided into two parts, was, in his view, part of a single scheme, and the repeal of the Ordinance and the extension of the Central Provinces and Berar Act were interdependent; since the Ordinance had never been validly repealed, it continued to operate in Vindhya Pradesh until its repeal on 31 October 1951 by the Part C States (Miscellaneous Laws) Repealing Act, 1951, and when the Act repealed it from 29 December 1950, the effect was that there was no sales tax law in operation in Vindhya Pradesh.

The effect was that there was no sales‑tax law operating in Vindhya Pradesh because the Part C States (Miscellaneous Laws) Repealing Act, 1951 did not enact or extend any statute dealing with sales tax in or to that State. According to the submission, up to the date on which the Vindhya Pradesh Laws (Validating) Act 6 of 1952 was enacted on 8 January 1953, there was no law imposing a sales tax in Vindhya Pradesh; it was only after that date that the Legislature of Vindhya Pradesh purported to create such a law by extending the Central Provinces and Berar Sales Tax Act so that it would apply from 1 April 1951. The argument continued that the constitutionally allotted powers of the Vindhya Pradesh Legislature did not include the authority to levy a sales tax on building materials, and therefore, if the extended Act attempted to impose tax on building materials, it would fall within the rule laid down in Gannon Dunkerley’s case and would have to be declared void. The counsel further referred to Act 9 of 1953, which was passed by the Vindhya Pradesh State Legislature and amended the earlier Act, and asserted that the extended Act, as amended, derived its existence neither from Parliament nor from the Central Government acting under the Part C States (Laws) Act, but solely from the Vindhya Pradesh Laws (Validating) Act, 1952 and the Vindhya Pradesh Amendment Act, 1953. The Court identified a fundamental fallacy in this line of reasoning. The point for determination was the applicability of the Central Provinces and Berar Sales Tax Act as it was extended to Vindhya Pradesh. The Vindhya Pradesh Amending Act merely altered the language of the legislation; it did not change the substantive structure of the tax. Undeniably, the amended Act contained provisions that made sales of building materials taxable, and if the authority to tax those sales originated in a State Legislature, the law would be invalid. However, the Court noted that the original extension of the Central Provinces and Berar Sales Tax Act to Vindhya Pradesh was effected by the Central Government exercising the power conferred on Parliament to legislate for a Part C State. Neither Parliament nor the Central Government was subject to the limitations highlighted in Gannon Dunkerley’s case, and the issue had already been addressed by the Court in Mithan Lal’s case. Even assuming that Notification S.R.O. No. 6 failed to repeal Ordinance 2 of 1949, Parliament subsequently nullified that Ordinance in Vindhya Pradesh by deeming it repealed effective 29 December 1950. Consequently, after Parliament passed the Repealing Act, it was untenable to argue that Ordinance 2 of 1949 remained in force in Vindhya Pradesh up to 8 January 1953, because, by legal fiction, the Ordinance had been repealed on 29 December 1950. In effect, parliamentary legislation rescued the Notification by creating the necessary space for the extension of the Central Provinces and Berar Sales Tax Act through the repeal of Ordinance 2 of 1949, which the Notification intended to achieve by its own operative force.

The Court observed that the Central Government’s notification identified as S.R.O. No 6 together with Act 66 of 1951 both acted to remove Ordinance 2 of 1949 on 29 December 1950 and, on the same day, to extend the Central Provinces and Berar Sales Tax Act to Vindhya Pradesh. Counsel for the petitioner, relying on the decision in Deepchand v State of Uttar Pradesh, contended that the validity of any statute must be assessed at the moment of its enactment; if the statute was unconstitutional at that juncture, it should be treated as if it never existed unless it is later reenacted. The argument was supported by a passage stating that “the validity of a statute is to be tested by the constitutional power of a legislature at the time of its enactment… an after‑acquired power cannot, ex proprio vigore, validate a statute that was void when enacted.” The Court noted that such reasoning would apply only if the issue were confined to the independent validity of Notification S.R.O. No 6. The notification was being challenged because it purported to repeal Ordinance 2 of 1949, a power it in fact did not possess. However, the Court emphasized that the present case could not be decided on the basis that Ordinance 2 of 1949 continued to operate, because the Part C States (Miscellaneous Laws) Repealing Act 1951 had expressly declared that the ordinance was deemed repealed from 29 December 1950. Thus the premise underlying the petitioner’s reliance on Deepchand was inapplicable to the present factual and legislative context.

The Court further referred to judicial commentary drawn from Willoughby on the Constitution of the United States (second edition, volume 1, p. 10), which cited the ruling in John M. Wilkerson v Charles A. Rahrer, indicating that when the source of unconstitutionality is removed, the law need not be reenacted to regain its validity. It held that the circumstances of the present case differed markedly from those in Deepchand. The extension of the Central Provinces and Berar Sales Tax Act did not depend on the prior repeal of Ordinance 2 of 1949 for its legal force; the extended law would have been operative even had the earlier ordinance remained in force. In reality the ordinance was repealed on 29 December 1950, and consequently no conflict arose between the old and the new statutes. By repealing the ordinance, Parliament rendered the ineffective portion of the notification surplusage, allowing the operative part to survive. Accordingly, the Central Provinces and Berar Sales Tax Act of 1947 was validly extended to Vindhya Pradesh and, following the reasoning in Mithan Lal’s case, remained a valid law. The Court concluded that the extended law did not suffer from the defects identified in Gannon Dunkerley’s case because it was not enacted by a State Legislature and therefore was not subject to the same constitutional infirmities.

The Court proceeded to examine the final contention raised by the petitioners, namely that the Central Provinces and Berar Sales Tax Act had been re‑extended to Vindhya Pradesh by virtue of Act 6 of 1952 and that, consequently, the Act derived its authority from a law enacted by the Vindhya Pradesh Legislature, which the Court held was not competent to legislate that building materials supplied under a works contract, being a whole, should be subject to sales tax. The Court observed that the preamble of Act 6 of 1952 expressly stated that the purpose of the enactment was to dispel doubts regarding the date from which the extended Sales Tax Act became operative in Vindhya Pradesh. The doubt concerned whether the Act became effective on 31 October 1951, the date on which Act 66 of 1951 was passed, or on an earlier date, namely 1 April 1951, the date on which the Act had been brought into force in Vindhya Pradesh by Notification No. 52 (Econ.) dated 20 March 1951. To remove the uncertainty, the Vindhya Pradesh Laws (Validating) Act, 1952, which had received the President’s assent, declared in section 2 that the Central Provinces and Berar Sales Tax Act "had been and shall be deemed to be in force in Vindhya Pradesh from 1 April 1951." The Court clarified that this declaration did not create a fresh extension of the Central Provinces and Berar Sales Tax Act; rather, it merely affirmed that the Act should be considered validly in force from the earlier date. Section 7 of the same Act, on which the petitioners placed considerable reliance, provided that: "Repeal and savings – As from the dates of the actual enforcement of the Acts specified in Section 2 of this Act, the corresponding laws in force in Vindhya Pradesh immediately before the said dates shall be deemed to have been repealed without prejudice to anything done or suffered thereunder or any right, privilege, obligation or liability acquired, accrued or incurred thereunder before the aforesaid dates." The Court noted that when read together, the two provisions were argued to imply that the Central Provinces and Berar Sales Tax Act had been newly extended from 1 April 1951 by the Vindhya Pradesh Act and that any earlier law had been repealed to accommodate this extension. The Court held this argument to be erroneous. It began by recalling that the legislative competence of the Vindhya Pradesh Legislature was limited by section 22 of the Government of Part C States Act, 1951, which had been quoted earlier. Under that provision, the powers of the State Legislatures did not extend to making statutes repugnant to any law made by Parliament. The explanation to that section defined the term "law made by Parliament" and expressly excluded a law that provided for the extension to a State of any law already in force elsewhere in the territory of India. Accordingly, the Vindhya Pradesh Legislature had not repealed either section 2 of the Part C States (Laws) Act or the relevant Notification; it had merely added its own declaration to the existing extended law. The original extension had first been effected by Notification S.R.O. No. 6 dated 29 December 1950, and the Court concluded that the later declaration did not create a new legislative basis for the tax but only confirmed the operative status of the previously extended Act.

In this case, the Court observed that the Central Provinces and Berar Sales Tax Act became operative in Vindhya Pradesh only through Notification No 52 (Econ.) dated 20 March 1950, which specified that the Act would take effect from 1 April 1951. The earlier Notification S.R.O. No 6, issued on 29 December 1950, had replaced sub‑section (3) of section 1 of the said Act with the wording, “It shall come into force on such date as may be notified by the Central Government in the Official Gazette.” Consequently, although the Act had been extended by the 29 December notification, it remained non‑operational in Vindhya Pradesh until the later Notification No 52 (Econ.) was issued. The Court noted a distinction between a law being extended subject to a later commencement and the law actually commencing on a specified later date. Section 7 of Act 6 of 1952, the Court explained, repealed only those statutes that were in force prior to the date on which the Central Provinces and Berar Sales Tax Act became operative. This provision referred to “laws in force in Vindhya Pradesh immediately before 1 April 1951.” Since the Sales Tax Act had not yet been brought into force by that date, it could not be regarded as the law in force; rather, the applicable law would have been Ordinance 2 of 1949, assuming it had not already been successfully repealed. The former Act had indeed been extended on 29 December 1950 but only became effective on 1 April 1951, and Section 7’s reference to “laws in force” therefore pointed to Ordinance 2 of 1949, which would have been in effect immediately before 1 April 1951 if it had not been repealed. The Court further clarified that Section 7 merely removed, from 1 April 1951 onward, the Ordinance 2 of 1949, which some might have thought to have continued as law until 31 October 1951 when it was formally repealed by Act 66 of 1951. In reality, and as a matter of law, the Ordinance was effectively repealed on 29 December 1950 under the repealing legislation identified as Act 66 of 1951. Accordingly, the Court concluded that Vindhya Pradesh Act 6 of 1952 could not be said to have introduced for the first time the commencement of the Central Provinces and Berar Sales Tax Act from 1 April 1951 in Vindhya Pradesh; it merely affirmed a legal fact that already existed without its declaration. Moreover, the Court held that the existence of the Central Provinces and Berar Sales Tax Act did not depend on Act 6 of 1952; the 1952 Act only restated the consequences of earlier statutes and granted the Vindhya Pradesh Legislature the authority to eliminate doubts and protect the law from challenges based on an alleged improper repeal of the Ordinance or improper extension of the Sales Tax Act. The Court therefore rejected the argument that the 1952 Act created any new legal effect. The Court also identified an additional argument, not previously addressed, and indicated that it would now be considered.

Following the reorganisation of the States, the State of Madhya Pradesh possessed four distinct Sales Tax Acts in force. It was submitted that a person residing in the area that formerly constituted the State of Madhya Pradesh should not be liable to sales tax on building materials supplied under a works contract. The liability was to be determined according to the Central Provinces and Berar Sales Tax Act, and the submission relied upon the decision in Pandit Banarsi Das's case(1). Conversely, it was argued that a person living in the territory that had formed part of the former Vindhya Pradesh should be liable to sales tax under the same Act. The argument further contended that the Central Provinces and Berar Sales Tax Act had been formally extended to the area of Vindhya Pradesh. The submission asserted that this differential treatment contradicted the principle of equal protection embodied in Article 14 of the Constitution. The Court noted that the various statutes applicable to different portions of the newly formed Madhya Pradesh had been enacted by separate legislatures. It further observed that, under section 119 of the States Reorganisation Act, every law then in force continued to operate until it was repealed or amended by the competent legislature. The Court had previously determined that the sales tax legislation of Vindhya Pradesh had been validly enacted by the appropriate authority. It also held that, by virtue of section 119, the law’s validity was carried forward when Vindhya Pradesh merged into Madhya Pradesh. Consequently, the Court explained that the existence of distinct tax statutes in different geographic areas of Madhya Pradesh could be justified on the basis that the differentiation stemmed from historical circumstances. The Court further observed that the Supreme Court had upheld classifications based on historical geography in M. K. Prithi Rajji v. The State of Rajasthan(1) and again in The State of Madhya Pradesh v. The Gwalior Sugar Co. Ltd. (2). In the latter precedent, a sugarcane cess imposed in the former Gwalior State but not in the remainder of Madhya Bharat was challenged on the same constitutional ground. The Court, however, held that the distinction made by the cess did not constitute a violation of the equal protection guarantee contained in Article 14. Relying on these authorities, the Court rejected the claim that the differing tax liabilities amounted to an impermissible breach of equal protection. Accordingly, the Court concluded that the writ petitions were untenable and ordered their dismissal, while expressly refraining from making any order as to costs.