Full Judgment Text
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PETITIONER:
FIRM BANSIDHAR PREMSUKHDAS
Vs.
RESPONDENT:
STATE OF RAJASTHAN
DATE OF JUDGMENT:
29/03/1966
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SARKAR, A.K. (CJ)
SUBBARAO, K.
CITATION:
1967 AIR 40 1966 SCR (8) 1
CITATOR INFO :
R 1971 SC 846 (7)
ACT:
Act of State-Contract with former Indian State-
Enforceability after merger against successor State.
HEADNOTE:
The former State of Bharatpur sold some plots for
establishing a Mandi, and the appellant was one of the
purchasers. Under the terms of the sale, a person trading
in the Mandi would get a reduction of 25 % in the customs
duty payable, if the commodities were imported into or
exported out of the State through the Mandi. The Government
of Bharatpur and after its merger the Government of the
United State of Matsya, and thereafter, the present
Rajasthan State (respondent herein) allowed the reduction to
the appellant, who was also a trader. In 1951, the
respondent revoked the concession. The appellant filed a
suit for the recovery of the excess amount of customs duty
paid on the basis that there was a valid contractual
liability to grant the concession. The suit was dismissed
by the High Court on appeal.
In appeal to this Court,
HELD:(i) The appellant’s suit must fail because there was no
recognition of the contractual right to the succeeding State
of Rajasthan.
The contractual liability of a former State is binding on a
succeeding sovereign State only if it recognises that
contractual liability. The enjoyment of the concession by
the appellant after the formation of the Rajasthan State did
not show any implied recognition of the contractual
liability by the respondent, because, the concession is
referable to s. 33 of the Matsya Customs Ordinance of 1948
under which the concession could be granted and recognised.
[85B 88C-D]
Case law referred to.
(ii) Even upon the assumption that there was an implied re-
cognition by the respondent of the contractual liability,
the suit must fail, for the contractual liability must be
taken to have been super. seded by the enactment of the
Rajasthan (Regulation of Customs Duties) Ordinance No. 16 of
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1949. [88 E-F].
Parliament and State Legislatures are, subject to any
prohibition in the Constitution, competent to enact laws
altering the terms and conditions of a previous contract or
of a grant under which the liability of the Government of
India or of the State Governments arises. There is nothing
in the provisions of the Ordinance which preserves the
alleged contractual rights of the appellant, and in the
absence of any express language in the Ordinance preserving
such rights. it must be held that the general law enacted in
the Ordinance supersedes the previous contract of the
appellant with the State of Bharatpur. [90 D-F]
Maharaj Umeg Singh v. The State of Bombay. [1955] 2 S.C.R.
164 and Maharaja Shree Umaid Mills Ltd. v. Union of lndia,
[1963] Supp. 2 S.C.R. 515, followed.
82
(iii)The levy of Customs duty is in conformity with Art. 306
of the Constitution. [91 D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 203 of 1964.
Appeal from the judgment and decree dated January 29, 1963
of the Rajasthan High Court in Civil Regular First Appeal
No. 29 of 1956.
Sarjoo Prasad and T. Satyanarayana, for appellant.
R. Ganapapathy Iyer and B.R.G.K. Achar, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate against
the judgment and decree of the Rajasthan High Court dated
January 29, 1963.
The appellant firm Bansidhar Premsukhdas brought a suit
which is the subject-matter of this appeal against the State
of Rajasthan on March 31, 1953 for the recovery of Rs.
86,646/3/- in the Court of District Judge, Bharatpur. The
case of the appellant was that the former State of Bharatpur
with a view to increase the trade and commerce in the said
State decided to establish a Mandi at Bharatpur where at the
material time a T.B. Hospital was located, It decided to
sell plots for certain fixed amounts and, therefore, issued
a notification on May 18, 1946 offering the plots by public
advertisement for sale on certain terms and conditions. The
notifification--Ex. 4-was published in Bharatpur Rajpatra
and one of the concessions proposed to be granted was
embodied in cl. 3 of the notification which stated:
"If any commodity is imported from outside
into the Mandi and is sold for consumption
within the State, or if any commodity received
in the Mandi from within the State and is
exported in both cases, a reduction of 25% in
the customs duty prevailing at the time of the
import and export of such commodities will be
allowed. This concession shall not be
available in case of vegetable Ghee."
The notification contained other terms and conditions
relating to auction sale such as the prices for different kinds
of plots available and the maximum number of plots
which a person could purchase. A committee for supervising
the auction was also formed and the notification laid down
the procedure for the sale of plots and certain other
conditions such as deposit of one-fourth sale money at the
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time of auction etc. The appellant purchased plots Nos. 8
and 9 for Rs. 4,600 at a public auction and two sale deeds
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(sanad nilam) were issued to the appellant on October 10,
1946. The Government of Bharatpur and after its merger, the
Government of United State of Matsya and thereafter the
present Rajasthan State carried out the promise contained in
cl. 3 of the Bharatpur notification and allowed reduction of
25 per cent in the customs duty, but on January 16, 1951 the
Rajasthan Government issued notification No. F.4(18) SR/49
which reads as follows:
"Now therefore Government of Rajasthan is
hereby pleased to direct that with an
immediate effect all free Mandies and Zones
including the area comprising the former
Kishangarh State and the Bhim District of the
former Rajasthan State shall be abolished and
that in consequence all the Customs concession
hitherto enjoyed by or applicable to these
Mandies or Zones shall cease to have force and
duties of customs shall be levied and
collected in such Mandies or Zones in
accordance with the revised tariff, amended
from time to time."
The appellant and other traders thereupon made
representation to the Rajasthan Government on January 29,
1951 and pending the disposal of the representation the
Customs authorities agreed to keep the amount of 25 per cent
by way of ’Amanat’. The State of Rajasthan ultimately
decided on May 25, 1951 that the reduction in the customs
duty could not be conceded. On March 31, 1953 the appellant
filed the present suit in the Court of the District Judge of
Bharatpur for the recovery of the excess amount of customs
duty paid to the Rajasthan Government. The main defence of
the State Government was that item No. 3 of the Bharatpur
notification was a matter of concession and could not be
claimed as of right and the Rajasthan State as successor
State was not bound by the contracts of the former State and
the applicability of the concessions had also become
impracticable on the formation of Rajasthan. The District
Judge of Bharatpur, by his judgment dated March 31, 1956,
held that item No. 3 of Bharatpur notification was a term of
sale between the parties and the Rajasthan State was bound
by it and the succeeding States have recognised the
concessions granted to the appellant and therefore the suit
of the appellant should be decreed. The State of Rajasthan
took the matter in appeal to the Rajasthan Nigh Court which
allowed the appeal and dismissed the suit holding that item
No. 3 of the Bharatpur notification was not a part of the
contract of sale, and even if it was held to be a part of
the contract, the successor State of Rajasthan did not
recognise it and was not, therefore, bound by it.
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The first question involved in this appeal is whether cl. 3
of the Bharatpur notification-Ex. 4, was a term of the
contract of sale between the appellant and the State of
Bharatpur. It Was argued on behalf of the appellant that
Ex. 4 which is the notification dated May 18, 1946 regarding
the sale of plots by the Bharatpur State was an offer of
purchase of plots on terms and conditions made in that
notification. It was contended that the offer was made to
the public as a whole and after it was accepted by the
appellant a valid contract came into existence. The
opposite view point was presented on behalf of the
respondent. It was submitted that the concession granted in
cl. 3 did not relate to, nor did it form a part of the
contract of sale of the plots of the Mandi. It was pointed
out that the concession of 25 per cent reduction in customs
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duty will not merely enure to the benefit of the purchaser
of the plots but also enure to the benefit of the person
trading in the shop. The benefits were generally offered
for trade and business in the Mandi and cannot be considered
as an offer of benefit only to the prospective purchasers of
the plots. The commodities for which the concession was
granted might be in the hands of purchasers and builders of
plots, their tenants and licensees or other dealers. It was
therefore not possible to hold that the State Government
offered the tax concessions as a reciprocal promise in
connection with the contracts of sale with the appellant and
the latter had no justification for treating the benefits
offered as consideration in return for the purchase of the
plots and the construction of shop buildings. It is also
pointed out by learned Counsel on behalf of the respondent
that there are certain conditions in the Bharatpur
notification-Ex. 4, which can. not, in the nature of things,
be treated as terms of the sale. Reference was made, in
this connection, to cls. 5, 6, 7, 10 and 11. In our opinion,
there is much force in the argument advanced on behalf of
the respondent but it is not necessary to express any
concluded opinion on this aspect of the case. We shall
assume in favour of the appellant that cl. 3 of the
Bharatpur notification, Ex. 4, was a term of the contract of
sale of plots 8 and 9 of the Mandi. Even upon that
assumption the suit of the appellant must fail, for we shall
presently show that there was no recognition of the
contractual right by the succeeding State of Rajasthan, and
in the absence of such recognition the contract between the
former State of Bharatpur and the appellant cannot be
legally enforced.
We shall proceed, therefore, to consider the next question,
namely, whether the term of the contract was binding upon
the successor State of Rajasthan on the assumption that cl.
3 of the Bharatpur notification, Ex. 4, was an integral term
of the contract between the appellant and the Government of
Bharatpur State.
It is not correct to say as a matter of law that the
successor State automatically inherits the rights and
obligations of the merged State. There is no question of
suborgation-the successor State is not
85
subrogated ipso jure to the contracts with the merged State.
The true legal position is that the contract of the
predecessor State terminates with the change of sovereignty
unless the contract is ratified by the succeeding sovereign
State. It is now well-established in law that the
contractual liability of a former State is binding on a
succeeding sovereign State only if it recognises that
contractual liability. The season is that the taking over
of sovereign powers by a State in respect of territory which
was not till then a part of it is an. act of State" and the
municipal courts recognised by the new sovereign have the
power and jurisdiction to investigate and ascertain only
such rights as the new sovereign has chosen to recognise or
acknowledge; and such recognition may be express or may be
implied from circumstances. In other words, accession of
one State to another is an "act of State... and the subjects
of the former State may claim protection of only such rights
as the new sovereign recognises as enforceable by the
subjects of the former State in his municipal courts. In
The Secretary of State in Council of India v. Kamachee Boye
Saheba(1) the jurisdiction of the courts in India to
adjudicate upon the validity of the seizure by the East
India Company of the territory of Rajah of Tanjore as an
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escheat, on the ground that the dignity of the Raj was
extinct for want of a male heir, and that the property of
the late Rajah lapsed to the British Government, fell to be
determined. The Judicial Committee held that as the seizure
was made by the British Government, acting as a sovereign
power, through its delegate, the East India, Company, it was
an act of State and the Municipal Court had no jurisdiction
to inquire into the propriety of the action. At page 529 of
the Report Lord Kingsdown observed:
"The transactions of independent States
between each other are governed by other laws
than those which Municipal Courts administer:
Such Courts have neither the means of deciding
what is right, nor the power of enforcing any
decision which they may make."
In another case-Vajesingji Joravarsingji v. Secretary of
State for India in Council(1)-the Judicial Committee
observed as follows:
"... when a territory is acquired by a
sovereign State for the first time that is an
act of State, It matters not how the
acquisition has been brought about. It may be
by conquest, it may be by cession following on
treaty, it may be by occupation of territory
hitherto unoccupied by a recognized ruler. In
all cases the result is the same. Any
inhabitant of the territory can make good in
the municipal courts established by the new
sovereign only such rights as that sovereign
has, through his officers, recognised. Such
rights as he had under the rule of precedes-
(1) Moore’s I.A. 476. (2) 51 I.
A. 357.
86
sors avail him nothing. Nay more even if in a
treaty of cession it is stipulated that
certain inhabitants should enjoy certain
rights, that does not give a title to those
inhabitants to enforce these stipulations in
the municipal courts. The right to enforce
remains only with the high contracting
parties."
In Secretary of State v. Sardar Rustom Khan and Others(1) a
question arose whether the rights of a grantee of certain
proprietary rights in lands from the then Khan of Kalat,
ceased to be enforceable since the agreement between the
Khan and the Agent to the Governor-General in Baluchistan
under which the Khan had granted to the British Government a
perpetual lease of a part of the Kalat territory, at a quit
rent, and had ceded in perpetuity with full and exclusive
revenue civil and criminal jurisdiction and all other forms
of administration. In delivering the opinion of the
Judicial Committee, Lord Atkin observed as follows:
"In this case the Government of India had the
right to recognise or not recognise the
existing titles to land. In the case of the
lands in suit they decided not to recognize
them, and it follows that the plaintiffs have
no recourse against the Government in the
Municipal Courts."
The principle that cession of territory by one State to
another is an act of State and the subjects of the former
State may enforce only those rights which the new sovereign
recognises has been accepted by this Court in M/s. Dalmia
Dadri Cement Co. Ltd. v. The Commissioner of Income-tax(2).
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The State of Saurashtra v. Jamadar Mohamat Abdulla and
others(1). Maharaja Shree Umaid Mills Ltd. v. Union of
India (4), and State of Gujarat v. Vora Fiddali Badruddin
Mithibarwala(5).
On behalf of the appellant it was contended that there was
an implied recognition by the Rajasthan State of the
contractual liability since the exemptions were continued
upto January 13, 1951 and were revoked with effect from that
date by the notification No. F.4(18)SR/49. We are unable to
accept this argument as correct. Before the process of
integration began, each Covenanting State was a separate
geographical unit for customs purposes and had its own
customs laws and barrier. After the formation of the Matsya
Union on March 18, 1948 there was a promulgation of the
Matsya Customs Ordinance by the Raj Pramukh on September 21,
1948. The United State of Rajasthan was constituted on May
15, 1949 when there was merger of Matsya Union in the United
State of Rajasthan. On August 9, 1949 the Raj Pramukh
promulgated the Rajasthan (Regulation of Customs Duties)
Ordinance
(1) 68 I.A. 100. (2) [1959] S.C.R. 729.
(3) [1962] 3 S.C.R. 970. (4) [1963] Supp. 2 S.C.R.
515.
(5) [1964] 6 S.C.R. 461.
87
No. 16 of 1949. Section 3 of this Ordinance abolished duties
on the transport of goods within the territory of Rajasthan.Sectio
n
Section 3 reads as follows:
"3. No duty leviable on internal transport-
With effect from such date as may be notified
by the Government in the Rajasthan Gazette, no
duties of Customs shall be levied and
collected in respect of any goods transported
within Rajasthan, notwithstanding anything to
the contrary in any law, or rule, instrument
of usage having the force of law, in any part
of Rajasthan; and any such law, rule
instrument or usage shall be deemed to be
repealed to that extent:
Provided that the Government may, by
notification in the Rajasthan Gazette-(a)
Impose a duty of customs on the transport of
goods from or to any part of Rajasthan to or
from such other part thereof at such rate or
rates and with effect from such date as may be
specified in the notification, or (b) direct
that, in respect of the transport of goods of
such description and from or to such part of
Rajasthan as may be specified in the
notification, a sum of money equal to the
amount of the duty leviable on the export on
such goods shall be deposited with the
appropriate Customs Officer of the place from
where the goods are intended to be
transported."
section 4 is the charging section with regard
to import and export duties. Section 4(1)
states:
"4. Duties on export and import: (1) Until a
revised tariff is introduced under sub-section
(2) Customs duties on the export or on the
import of goods shall be levied and collected
in accordance with the tariff for the time
being in force in the place from or into which
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goods leviable with a duty of Customs have
been exported or imported, as the case may
be."
sub-section (2) of s. 4 provides:
"The Government may, by notification in the
Rajasthan Gazette, issue a revised tariff
specifying the goods or class of goods in
respect of which, and the rate at which,
duties of Customs shall be levied and
collected with effect from such date as may be
specified in the notification on the export or
on the import of such goods or class of
goods."
eventually on August 15, 1949 a uniform revised tariff was
made applicable to the whole of Rajasthan. Section 6
provided that the existing law in force of the covenanting
States shall regulate the
GI-8
88
collection of such duties and other ancillary duties in
relation thereto, unless altered, modified or repealed by a
competent legislative authority of Rajasthan and thus saved
existing law with regard to the procedure and ancillary
matters. It is manifest on examination of the provisions of
this Ordinance that there was a repeal of all Customs laws
of the Covenanting States in so far as they provided for the
levy and collection of duties in the particular territorial
limits of the Covenanting States and the Ordinance
introduced a new law imposing duty on export and import into
Rajasthan State as a whole. Further, after the issue of a
revised tariff the old tariffs under the various laws of the
Covenanting States also stood repealed. There is no express
provision in the Ordinance saving the previous contractual
rights with regard to customs duty. In the absence of any
such express provision it must be held that all existing
contracts were repudiated and cancelled. The enjoyment of
the concession by the appellant after the formation of the
Rajasthan State is clearly referable to the law under which
customs concessions could be granted and recognised. This
is borne out by the notification dated January 16, 1951
which appeared in the Rajasthan Raj Patra, which itself
refers to ss. 10 and 33 of the Matsya Customs Ordinance No.
14 of 1948 by which customs concessions were revoked. We
are, therefore, of the opinion that the High Court has
rightly taken the view, upon an analysis of the evidence
adduced in the case, that there was no recognition of the
contractual liability by the succeeding State of Rajasthan.
We shall however ,assume in faboure of the appellant that
the State of Rajasthan recognised the contractual right of
the appellant with regard to the exemption of tax. Even
upon that assumption the suit of the appellant must fail,
for the contractual liability must be taken to have been
superseded by the enactment of the Rajasthan Regulation ’of
Customs Duties) Ordinance No. 16 of 1949 promulgated by the
Raj Pramukh on August 9,1949. Before we deal with this
question it is desirable to indicate the constitutional
developments which resulted in the inclusion of the former
Bharatpur State into the Part B State of Rajasthan, which
came into existence on January 26, 1950. The former
Bharatpur State remained a separate entity till March 18,
1948, though it had acceded to the Dominion of India after
August 15, 1947 with respect to three subjects, namely,
communications, defence and external affairs. In 1948,
however, the process of merger in Rajasthan began and the
first merger that took place was of the former States of
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Alwar, Bharatpur, Dholpur and Karauli, which formed the
Matsya Union as from March 18, 1948 by a Covenant entered on
February 28, 1948. After the formation of the Matsya Union
the Raj Pramukh promulgated the Matsya Customs Ordinance
1948 on September 21, 1948. Section 2 of that Ordinance
repealed the levy of
89
customs duty in force in all the Covenanting States and
applied the provisions of the new Ordinance to the whole of
the United State of Matsya. Section 10 of the Ordinance
provided for the charge of customs duty on goods or- class
of goods to be notified in the State Gazette from time to
time. Section 33 of the Ordinance similarly granted power
to the State Government to exempt any goods or class of
goods imported or exported from the United State of Matsya
from payment of customs duty leviable thereon. Then came
another union of certain other Rulers in Rajasthan in March
1948 by which these Rulers united under the Ruler of Udaipur
to form what later came to be known as the Former State of
Rajasthan. In March 1949, the United State of Rajasthan was
formed by Covenant entered into by fourteen Rulers of
Rajasthan, including those who had formed the Former State
of Rajasthan, and this State came into existence from April
7, 1949. There was a merger of the Matsya Union in the
State of Rajasthan on May 15, 1949 and thus the former
Bharatpur State came to be included in the United State of
Rajasthan through the Matsya Union. As we have already
stated, the Raj Pramukh promulgated the Rajasthan
(Regulation of Customs Duties) Ordinance No. 16 of 1949 on
August 9, 1949. It is well-established that Parliament or
State Legislatures are competent to enact a law altering the
terms and conditions of a previous contract or of a grant
under which the liability of the Government of India or of
the State Governments arises. The legislative competence of
Parliament or of the State Legislatures can only be
circumscribed by express prohibition contained in the
Constitution itself and unless and until there is any
provision in the Constitution expressly prohibiting
legislation on the subject either absolutely or
conditionally, there is no fetter of imitation on the
plenary powers which the Legislature is endowed with for
legislating on the topics enumerated in the relevant Lists.
this view is borne out by the decision of the Judicial
Committee in Thakur Jagannath Baksh Singh v. The United
Provinces(1) in which a similar complaint was made by the
taluqdars of Oudh against the United Provinces Tenancy Act
(U.P. Act 17 of 1939).
It was held by the Judicial Committee that the Crown cannot
deprive itself of its legislative authority by the mere fact
that in the exercise of its prerogative it makes a grant of
land within the territory over which such legislative
authority exists, and no court can annul the enactment of a
legislative body acting within the legitimate scope of its
sovereign competence. If therefore, it be found that the
subject-matter of a Crown grant is within the competence of
a Provincial legislature nothing can prevent that
legislature from legislating about it unless the
Constitution Act itself expressly prohibits legislation on
the subject either absolutely or conditionally. accordingly,
in the absence of any such express prohibition, the
(1) [1946] F.C.R. III.]
I-8(a)
90
United Provinces Tenancy Act, 1939, which in consolidating
and amending the law relating to agricultural tenancies and
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other matters connected therewith in Agra and Oudh, dealt
with matters within the exclusive legislative competence of
the Provincial legislature under item 21 of List 11 of the
7th Sch. to the Government of India Act, 1935, was intra
vires the Provincial legislature notwithstanding that
admittedly some of its provisions cut down the absolute
rights claimed by the appellant taluqdar to be comprised in
the grant of his estate as evidenced by the sanad granted by
the Crown to his predecessor. The same principle has been
reiterated by this Court in Maharaj Umeg Singh and others v.
The State of Bombay and others(1). It was pointed out that
in view of Art. 246 of the Constitution, no curtailment of
legislative competence can be spelt out of the terms of
clause 5 of the Letters of Guarantee given by the Dominion
Government to the Rulers of "States" subsequent to the
agreements of Merger, which guaranteed, inter alia, the
continuance of Jagirs in the merged ’States’. This
principle also underlies the recent decision of this Court
in Maharaja Shree Umaid Mills Ltd. v. Union of India(2) in
which it was pointed out that there is nothing in Art. 295
of the Constitution which prohibits Parliament from enacting
a law altering the terms. and conditions of a contract or of
a grant under which the liability of the Government of India
arises. It was further held that there was nothing in Art.
295 prohibiting Parliament from enacting a law as to excise
duty or income-tax in territories which became Part B
States, and which were formerly Indian States, and such a
prohibition cannot be read into Art. 295 by virtue of some
contract that might have been made by the then Ruler of an
Indian State with any person. As we have already indicated,
there is nothing in the provisions of the Rajasthan
(Regulation of Customs Duties) Ordinance No. 16 of 1949
which preserves the alleged contractual rights of the appel-
lant, and in the absence of any express language in the
Ordinance preserving such alleged contractual rights, it
must be held that the general, law enacted in the Ordinance
supersedes the previous contract of the appellant with the
State of Bharatpur.
Lastly, it was argued on behalf of the appellant that the
notification dated January 16, 1951 revoking the tax
concessions was in violation of Art. 306 of the Constitution
which provides as follows:
"Notwithstanding anything in the foregoing
provisions of this Part or in any other
provisions of this Constitution, any State
specified in Part B of the First Schedule
which before the commencement of this Consti-
tution was levying any tax or duty on the
import of goods into the State from other
States or on the export of goods
(1) [1955] 2 S.C. R. 16
[1963] Supp. 2 S.C.R. 515.
91
from the State to other States may, if an
agreement in that behalf has been entered into
between the Government of India and the
Government of that State, continue to levy and
collect such tax or duty subject to the terms
of such agreement and for such period not
exceeding ten years from the commencement of
this Constitution as may be specified in the
agreement.
The argument is based on the assumption that the appellant
was enjoying concessions under s. 40 of the Customs Circular
No. 15 and continued to enjoy the concessions in the State
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of Matsya under s. 34 of the Matsya Customs Ordinance No. 14
of 1948, and subsequently in the State of Rajasthan under s.
6 of the Rajasthan (Regulation of Customs Duties) Ordinance
No. 16 of 1949. It is the admitted position that the
agreement entered between the Government of India and the
United State of Rajasthan on February 25, 1950 incorporated
certain recommendations of the Federal Finance Enquiry
Committee Report 1948-49. The agreement having been
executed and the condition under Art. 306 having been
satisfied in this case, the continuance of the customs duty
is in conformity with the provisions of this Article. In
any case, the claim of the appellant is not based on any
provision of Bharatpur law but upon a contractual liability
of Bharatpur State and to a case of this description the
provisions of Art. 306 cannot be attracted.
For the reasons expressed, we hold that the judgment of the
High Court is right and this appeal must be dismissed with
costs.
Appeal dismissed.
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