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STATE OF MADRAS V. GANNON DUNKERLEY & CO. (MADRAS) LTD.1959 SCR 379

STATE OF MADRAS V. GANNON DUNKERLEY & CO. (MADRAS) LTD.

1959 SCR 379

 

FACTS

  • The appeal concerns the assessment of sales tax for the year 1949-1950 by the Sales Tax Authorities against a private limited company, the respondents, engaged in construction and sale of goods.
  • Disputes arose regarding two items:
  • a. A sum of Rs 29,51,528-7-4, representing the value of materials used by the respondents in their construction works.
  • b. A sum of Rs 1,98,929-0-3, being the price of foodgrains supplied by the respondents to their workmen.
  • The Madras General Sales Tax Act, particularly the provisions introduced by the Madras General Sales Tax (Amendment) Act, 1947, is central to the dispute.

ISSUE

  • Whether the supply of materials under a construction contract constitutes a "sale of goods" within the meaning of Entry 48 of the Government of India Act, 1935, thereby allowing the provincial legislature to impose a tax on it.

JUDGEMENT

  • The Supreme Court held that the supply of materials under a construction contract does not constitute a "sale of goods" within the meaning of Entry 48. Therefore, the provincial legislature does not have the competence to impose a tax on it.

LEGAL ANALYSIS

  • The court reasoned that the term "sale of goods" in Entry 48 should have the precise legal meaning it has in law, without fluctuating with different definitions in other statutes. It rejected arguments for a broader interpretation that encompassed all transactions resulting in the transfer of title to goods.
  • The court noted that since sales tax legislation was not prevalent at the time of the Government of India Act, 1935, arguments based on legislative practice relating to sales tax legislation were inconclusive.
  • Arguments for a broader meaning of "sale" were also rejected. The court emphasised that the legal sense of "sale" should prevail, requiring an agreement between parties for the sale of specific goods.
  • The court rejected the argument for interpreting constitutional provisions flexibly to encompass future developments. It emphasised that since sales tax was known at the time of the enactment of the Government of India Act, 1935, it should be interpreted based on the understanding at that time.

COMMENTARIES RATIO

  • The Supreme Court observed in State of Madras v Gannon Dunkerley & co that a claim for quantum meruit is a claim for damages for breach of contract.The Value of the material used or supplied in a factor which furnish a basis for assessing the amount of compensation. The claim is not for the price of goods sold and delivered but for damages. That is also the position under Section 65.