TMI Blog2002 (9) TMI 816X X X X Extracts X X X X X X X X Extracts X X X X ..... sector), or a local authority or a statutory body, shall deduct out of the amounts payable by them to a dealer in respect of works contracts of the nature specified in the Sixth Schedule executed for them, an amount calculated,- (a) at the rate of two per cent of the total amount payable to such dealers, if the works contract executed is as specified under serial number 6 of the Sixth Schedule; or (b) at the rate of four per cent of the total amount payable to such dealers, if the works contract executed is other than those specified in serial number 6 of the Sixth Schedule: Provided that no such deduction shall be made if the amounts payable by them to the dealer is less than rupees one lakh in a year;" 4.. The division Bench of this Court did not strike down section 19-A on the ground that the State Legislature did not have the power to pass a legislation for collection of advance tax in respect of works contract. It was struck down on the ground that section 19-A authorises deduction of tax on total amount of works contract without making any provision for deduction of value of certain components of works contract amounts which are not exigible to sales tax at all. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dealer, as the case may be; (iv) in case of a dealer mentioned in clause (b), in respect of any other works contract which involves partly labour or service and partly transfer of property in goods, the total amount on which tax is calculable under sub-section (1), shall be the total amount payable to the dealer as reduced by twenty-five per cent thereof as tentatively representing cost of labour or service. (2) The authority making deduction under sub-section (1), shall send every month to the prescribed authority a statement in the prescribed form containing particulars of tax deducted during the preceding month and pay full amount of the tax so deducted by it within twenty days after the close of the preceding month in which such deductions were made and the amounts so payable shall for the purposes of section 13 be deemed to be an amount due under this Act: Provided that, where default is made in complying with the provisions of this sub-section, the prescribed authority may, after such enquiry as it deems fit and after giving opportunity to the concerned authority of being heard, determine to the best of its judgment, the amount payable under this sub-section by such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice. 4.. Section 19-A(1A).-Permits a dealer to pay 4 per cent of the total turnover by way of composition. 7.. It will have to be seen whether these "concessions" would satisfy the rationale of the judgment rendered by the division Bench of this Court which struck down section 19-A on the earlier occasion. 8.. The first concession relates to total exemption on a certification by the Commissioner. Rule 13-B empowers the Commissioner to grant exemption on advance tax on certain conditions. One of the conditions is that the dealer whose turnover is less than Rs. 5 crores cannot approach the Commissioner. 9.. A person who is a dealer for a period less than three years cannot seek exemption. There is also no specification of the time within which the Commissioner has to exercise his powers under section 19-A(1)(ii) read with rule 13-B. 10.. In other words dealers whose turnover is less than Rs. 5 crores cannot seek relief. No doubt one of the appellant has secured total exemption from the Commissioner for the years 1999-2000 to 2001-2002. It is believed that apart from the appellant only one other dealer has been given this benefit. However, the exemption conferred by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he charging section rightly deals with taxable turnover. The mechanism section deals with total turnover. The concession of 25 per cent given in the mechanism section does not resolve the mandate of law that non-exigible items can be subject to advance tax to be ultimately refunded after adjustments. 16.. The other concession given in the re-enacted statute was the right of a dealer for composition. Section 19-A permits a dealer to pay 4 per cent of the total turnover. The system of composition has been upheld by the Supreme Court in Mycon Construction Ltd. case reported in [2002] 127 STC 105. However the system of composition is voluntary and will not apply for a dealer who does not opt for compounding. 17.. These are the four concessions that have been given to a dealer under section 19-A which was not there in the original section which was struck down by this Court. 18.. These concessions may appear to be reasonable at first blush. However on a closer scrutiny the mechanism section undoubtedly includes those items which are not exigible to tax in the charging section. There is bound to be a retention of dealers money paid as advance tax on the gross turnover including tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in [1996] 100 STC 533 dealt with the difference between total turnover and taxable turnover. The matter under consideration before the division Bench was section 5-C of the Karnataka Sales Tax Act, 1957 (Act 4 of 1992) which was introduced with retrospective effect. This Court held that the tax levied under section 5-C of the Karnataka Sales Tax Act, 1957, on the transfer of right to use goods is with reference to the definition of "total turnover" contained in section 2(u-2) of the Act. "Taxable turnover" in section 2(u-1) excludes turnover of purchases or sales in the course of inter-State trade or commerce or in the course of export or import of goods outside or inside the territory of India, while "total turnover" is the aggregate of turnover including the transactions whether or not the whole or any portion of turnover is liable to tax or in the course of inter-State trade or commerce or in the course of import or export of goods into the country. The Legislature has made a distinction between turnover of the sale of goods on which tax is not leviable and sale of goods on which tax is leviable. As a result of the use of the words "total turnover" in section 5-C, the ambit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Seventh Schedule to the Constitution. Such power is circumscribed by the limitations contained in article 286 of the Constitution which are that no tax can be imposed on sale or purchase taking place outside the State or in the course of import into or export out of India or in the course of inter-State trade and commerce. This limitation of State's taxing power by way of sales tax is in total contrast to the power of the Centre to levy income-tax traceable to entry 82 of List I of the Seventh Schedule which is virtually unfettered. This is settled position of law and suffice to refer to the Supreme Court's judgments in the cases of Builders' Association of India v. Union of India reported in [1989] 73 STC 370 and Gannon Dunkerley Co. v. State of Rajasthan reported in [1993] 88 STC 204. 28.. We are concerned not with concessions but with the purity of law as laid down by catena of judgments rendered by courts. 29.. Section 19-A as originally enacted provided for tax deduction on the gross amount payable which can be more than even the total turnover. It did not provide any mechanism for confining the quantum of TDS to the tax attributable to the taxable turnover. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of sub-section (3) of section 5 by taking into account the provisions of sub-rule (2) of rule 29. But, while considering the said provisions the High Court has failed to notice that under clause (i) of sub-rule (2) of rule 29, transfer of property in goods involved in the execution of a works contract, on which no tax is leviable under section 5, are not required to be deducted from the turnover. The High Court also failed to attach importance to the use of the word 'turnover' (instead of words 'taxable turnover') in sub-section (3) of section 5 as a result of which the amplitude of the incidence of tax has been widened so as to include transactions which are outside the sphere of taxation available to the State Legislature under entry 54 of the State List. We are, therefore, unable to uphold the decision of the High Court in this regard and it must be held that sub-section (3) of section 5 transgresses the limits of the legislative power conferred on the State Legislature under entry 54 of the State List inasmuch as it enables tax being imposed on deemed sales resulting from transfer of property in goods (whether as goods or in some other form) involved in the execution of a wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax under the charging section, viz., under section 5-B of the Act. These figures no doubt are approximate but it indicates that in most cases the taxable turnover would be far less than the total turnover. What we are concerned is that there should be an approximate nexus between TDS and the charging section and the scope of TDS cannot be widened and forbidden fruits cannot be the subject-matter of TDS. The learned single Judge took the view that the machinery provided in the Act cannot to the last farthing be calculated, it is only an interim stage of deduction at source and that the concessions given in the re-enacted section 19-A are reasonable and dismissed the writ petition which is under challenge in the writ appeals. 37.. In B. Seenaiah Co. v. Deputy Commissioner of Commercial Taxes (Assts.), Dharwad case reported in [1998] 110 STC 290 (Kar) the learned single Judge held as follows: "In the present case also, the deduction at source is made on a presumptive basis only though the method prescribed for such deduction is different. Here instead of the assessee depositing money at the prescribed rate for the purchase of goods of the prescribed nature, it is the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment it is not permissible for the State Legislature to impose tax which is not exigible to tax. The court further held that a provision intended to collect tax in advance can be sustained only when the State is competent to impose tax. The machinery provision has an inevitable nexus with the charging provision. If the charging provision cannot be sustained, the machinery provision also cannot be sustained. If the State does not have power to impose tax on the sale of goods which does not fall within the realm of its legislative competence, any provision regarding recovery of such tax on such sale of goods cannot be within the legislative power and has to be declared ultra vires. The same view was taken by the Patna High Court in [2000] 118 STC 370 (National Building Construction Corporation Limited v. State of Bihar). 41.. The judgment rendered by the Patna High Court in Larsen and Toubro Ltd. v. State of Bihar [2000] 117 STC 41 became final when the special leave petition filed by the State in SLP (Civil) Nos. 18605 to 18608 of 1999 was dismissed on January 4, 2000. 42.. The Gujarat High Court in the case of Larsen and Toubro Ltd. v. Commissioner of Sales Tax, Gujarat repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as levied on that part of the amount credited or paid that related to inter-State sales, outside sales and sales in the course of import, particularly after the previous section 13-AA has been struck down by the Orissa High Court. The previous section was struck down since it was couched in terms wider than what it was permissible to the State Legislature. 47.. In the course of the judgment the Supreme Court placed reliance on Bhawani Cotton Mills Ltd. v. State of Punjab [1967] 20 STC 290. In Bhawani Cotton Mills Ltd.'s case [1967] 20 STC 290, the Supreme Court pronounced as follows: "If a person is not liable for payment of tax at all, at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid; because, if particular sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax." (Emphasis supplied by the Court) 48.. Ultimately the Supreme Court pronounced as follows: "13. There can be no doubt, upon a plain interpretation of section 13-AA, that it is enacted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the transfer of property in goods and not other payments. The High Court further noticed that the rule also does not enable any person to deduct any amount other than what is contemplated by the section and, therefore, it does not suffer from any invalidity. 51.. The Supreme Court did not accept the reasoning of the High Court and held as follows: "4. A bare perusal of the two provisions will make it clear that in either provision there is an obligation to deduct from transactions Here italicised. relating to works contract on bills or invoices raised by the works contractor an amount not exceeding 4 per cent or 2 per cent, as the case may be. Though the object of the provision is to meet the tax in respect of the transactions on all works contract on the valuable consideration payable for the transfer of property in goods involved in the execution of the works contract, the effect of the provision is that, irrespective of whether the sales are inter-State sales or outside sales or export sales which are outside the purview of the State Act and those transactions in respect of which no tax can be levied even in terms of the enactment itself, such deductions have to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment rendered by the learned Single Judge which is impugned in this case. 54.. The learned Single Judge did not have the advantage which we had in reading the case of Steel Authority of India Limited reported in [2000] 118 STC 297 (SC). 55.. Following the judgment of the Supreme Court in Steel Authority of India Limited v. State of Orissa reported in [2000] 118 STC 297 (SC) and for the reasons stated therein we have no alternative except to strike down section 19-A of the Karnataka Sales Tax Act as it presently stands, since the section ought to have been precisely drafted to make it clear that no advance tax was levied on that part of the amount credited or paid related to inter-State sales, outside sales or sales in the course or import. 56.. Accordingly, writ appeals are allowed and the judgment under appeals are set aside and section 19-A of the Karnataka Sales Tax Act as it presently stands in struck down as being beyond the purview of the State Legislature. 57.. It is made clear that any advance tax collected and paid to the Sales Tax Department under section 19-A shall be adjusted in the future assessments of the assessee. Appeals allowed. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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