Mithan Lal v. The State of Delhi & Another

Case Analysis

Mithan Lal v. The State of Delhi & Another

June 12, 2025

A) ABSTRACT / HEADNOTE

This case scrutinizes the constitutional validity of imposing sales tax on the supply of materials involved in building contracts within Delhi, particularly through the extension of the Bengal Finance (Sales Tax) Act, 1941 to a Part C State. The petitioners, Mithan Lal and others, who were building contractors operating in Delhi, contested the legality of this imposition under Article 32 of the Constitution, claiming infringement of their fundamental rights. They argued that no “sale” occurs in such contracts to warrant a sales tax and contended that the extension of the Bengal Act to Delhi, via a notification under Section 2 of the Part C States (Laws) Act, 1950, amounted to unconstitutional delegation of legislative powers. However, the Supreme Court upheld the validity of the tax, emphasizing that Parliament’s power under Article 246(4) was plenary and that the delegation effected under Section 2 was constitutionally sound, distinguishing this case from State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [1959] SCR 379. The Court further held that such taxation was within the scope of Parliamentary competence and was valid even when effected through delegated legislation.

Keywords: Sales Tax, Building Contracts, Delegated Legislation, Article 246(4), Part C States, Constitutional Validity

B) CASE DETAILS

i) Judgement Cause Title: Mithan Lal v. The State of Delhi & Another

ii) Case Number: Petitions Nos. 15 & 16 of 1955

iii) Judgement Date: April 7, 1958

iv) Court: Supreme Court of India

v) Quorum: S. R. Das C.J., Venkatarama Aiyar J., S. K. Das J., A. K. Sarkar J., and Vivian Bose J.

vi) Author: Justice Venkatarama Aiyar

vii) Citation: [1959] SCR 445

viii) Legal Provisions Involved:

Article 246(4), Constitution of India
Article 248(2), Constitution of India
Article 32, Constitution of India
Section 2, Part C States (Laws) Act, 1950
Sections 2, 4, Bengal Finance (Sales Tax) Act, 1941

ix) Judgments overruled by the Case: None

x) Case is Related to: Constitutional Law, Taxation Law, Federalism, Administrative Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The petitioners, building contractors operating in Delhi, faced sales tax assessments under provisions of the Bengal Finance (Sales Tax) Act, 1941, extended to Delhi by notification. Delhi, classified as a Part C State, was administered directly by the President under Article 239. Under the Part C States (Laws) Act, 1950, Parliament empowered the Central Government to extend laws applicable in Part A States to Part C States. The petitioners complied initially but challenged the assessments citing lack of “sale” in works contracts and claimed violation of Article 19(1)(g). Relying on the Supreme Court’s later decision in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1959] SCR 379, which clarified the meaning of “sale” under tax laws, the petitioners sought relief from the imposition. The respondents contended that Parliament, under Article 246(4), could validly impose such tax in Part C States, thereby legitimizing the notification and tax demands.

D) FACTS OF THE CASE

The petitioners were engaged in the construction business in Delhi. They executed building contracts and were taxed under the Bengal Finance (Sales Tax) Act, 1941, which had been extended to Delhi by the Chief Commissioner’s notification dated April 28, 1951. This extension was made pursuant to Section 2 of the Part C States (Laws) Act, 1950. The petitioners complied with the assessments for three years. However, after the Madras High Court decision in Gannon Dunkerley, they challenged the imposition, arguing that building contracts involve no sale of materials, and therefore such taxation violated Article 19(1)(g) and was unconstitutional. They approached the Supreme Court under Article 32 after their writ petitions under Article 226 were dismissed summarily by the Punjab High Court.

E) LEGAL ISSUES RAISED

i) Whether the extension of the Bengal Finance (Sales Tax) Act, 1941 to Delhi, a Part C State, by the Central Government under the Part C States (Laws) Act, 1950 was constitutionally valid.

ii) Whether tax on the supply of materials in building contracts could be treated as a “sale” within the meaning of the Act and Constitution.

iii) Whether the impugned notification and taxation provisions infringed the petitioners’ fundamental rights under Article 19(1)(g).

iv) Whether Section 2 of the Part C States (Laws) Act, 1950 constituted an unconstitutional delegation of legislative power.

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for the Petitioners submitted that there was no sale involved in building contracts. Hence, the imposition of a sales tax on such contracts was beyond the legislative competence under Entry 54 of List II, as clarified in Gannon Dunkerley & Co..

ii) They argued that the Bengal Finance (Sales Tax) Act, 1941, was enacted by the Bengal Legislature under Entry 48 (now Entry 54), and its provisions, including the definition of “sale” encompassing works contracts, were ultra vires.

iii) They contended that Section 2 of the Part C States (Laws) Act, 1950, by allowing the Government to extend laws with modifications, amounted to excessive delegation and violated the doctrine of separation of powers as held in Rajnarain Singh v. Chairman, Patna Administration Committee, [1955] 1 SCR 290[1].

iv) The petitioners further argued that the assessments and collections made under this Act violated their rights under Article 19(1)(g), as these were not backed by a valid law.

G) RESPONDENT’S ARGUMENTS

i) The counsels for Respondents submitted that Parliament had plenary powers under Article 246(4) to make laws for Part C States, including imposing taxes on matters even in the State List.

ii) They maintained that the notification extending the Bengal Act derived its authority from a Parliamentary enactment and thus bore the force of law enacted by Parliament.

iii) They distinguished the Gannon Dunkerley case as being applicable only to States legislating under Entry 54, not to laws enacted by Parliament under Article 246(4), which permits broader legislative competence.

iv) They also contended that the Act did not amount to excessive delegation, citing In re Delhi Laws Act, [1951] SCR 747, where similar powers of extension were held valid[2].

H) RELATED LEGAL PROVISIONS

i) Article 246(4), Constitution of India: Grants Parliament power to legislate for Part C States on any matter.

ii) Article 248(2), Constitution of India: Grants Parliament power to legislate on residuary matters, including taxation.

iii) Article 32, Constitution of India: Guarantees the right to constitutional remedies.

iv) Section 2, Part C States (Laws) Act, 1950: Empowers the Central Government to extend laws from Part A to Part C States with modifications.

v) Sections 2(d), 2(g), 2(h), 2(i), and 4 of the Bengal Finance (Sales Tax) Act, 1941: Define “goods”, “sale”, “sale price”, “turnover”, and provide the charging provision respectively.

I) JUDGEMENT

a. RATIO DECIDENDI

i) Parliament is competent under Article 246(4) to legislate on any matter for Part C States, even on subjects in the State List, including taxation on non-sale transactions like building contracts.

ii) When the Central Government extends a State law to a Part C State under Section 2 of the Part C States (Laws) Act, 1950, the extended law becomes Parliamentary legislation. Thus, any tax imposed thereby is valid as a tax by Parliament[3].

iii) Section 2 is not an unconstitutional delegation. The extension of an entire law with or without modifications does not constitute excessive delegation if the framework and purpose are clearly defined, as affirmed in Delhi Laws Act case[4].

b. OBITER DICTA

i) Even if the Bengal Act’s provisions regarding works contracts were invalid in the originating State (West Bengal), their extension with modifications to Delhi would render them effective due to the central legislative authority involved.

c. GUIDELINES

Any law extended under the Part C States (Laws) Act becomes Parliamentary law.
Such extended law may be modified to suit local conditions, as long as the purpose is preserved.
Taxation in Part C States does not require adherence to the Sale of Goods Act definition of “sale”.
Previous invalidity of a law in the originating State does not invalidate its extension under Parliamentary authority.

J) CONCLUSION & COMMENTS

This case decisively affirms Parliament’s plenary power under Article 246(4) to legislate for Part C States, even in matters generally reserved for State Legislatures. The Supreme Court upheld the legality of taxing materials supplied in execution of works contracts under an extended law, distinguishing it from State-enacted laws constrained by the narrow definition of “sale.” The judgment also reinforces the constitutional legitimacy of conditional legislation and delegated authority where legislative guidelines exist, significantly expanding the interpretative approach to federal legislative competence.

K) REFERENCES

a. Important Cases Referred

State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [1959] SCR 379
In re The Delhi Laws Act, 1912, [1951] SCR 747
Rajnarain Singh v. The Chairman, Patna Administration Committee, [1955] 1 SCR 290

b. Important Statutes Referred