1991 (6) TMI 217 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Vires of Section 25B of the Haryana General Sales Tax Act, 1973.
2. Validity of the notification issued under Section 25B.
3. Assessment and deduction of tax at source for works contracts.
4. Delay in finalizing assessments.

Detailed Analysis:

1. Vires of Section 25B of the Haryana General Sales Tax Act, 1973
The primary issue was the constitutionality of Section 25B, which mandates contractees to deduct tax at source from payments made to contractors for works contracts involving the transfer of property in goods. The petitioners argued that this provision was invalid without prior assessment. However, the court upheld the vires of Section 25B, stating that the provision was in line with the 46th Amendment of the Constitution, which allows states to levy sales tax on the value of goods involved in works contracts. The court emphasized that the contractor is responsible for providing evidence of the value of goods versus labor charges, and the tax is levied on the value of transferred goods.

2. Validity of the Notification Issued Under Section 25B
The notification in question required contractees to deduct 2% of the amount payable to contractors and remit it to the state government. The petitioners challenged this notification on similar grounds as Section 25B. The court found no reasonable argument or justification to strike down the notification. It was noted that the notification was a mechanism to ensure tax collection and was consistent with the statutory framework. The court concluded that the notification (annexure R/2) was valid and upheld it.

3. Assessment and Deduction of Tax at Source for Works Contracts
The court discussed the procedure for tax deduction and assessment under Section 25B. It clarified that the deducted tax is provisional and will be adjusted against the final tax liability determined after assessment. The court compared this mechanism to Section 194-C of the Income-tax Act, 1961, which also provides for tax deduction at source. The court rejected the argument that deductions could not be made without assessment, highlighting that the deducted amount is subject to final adjustment and refund if necessary.

4. Delay in Finalizing Assessments
The petitioners expressed concern over potential delays in finalizing assessments, which could result in prolonged withholding of funds. The court acknowledged this concern and issued specific directions in one of the cases (Civil Writ Petition No. 3782 of 1990) where assessments for the years 1986-87 to 1988-89 had not been completed. The court directed the Assessing Authority to finalize these assessments within four months and to refund any excess amounts without delay. This direction was limited to the specific case, while the other writ petitions were dismissed.

Conclusion
The court upheld the constitutionality of Section 25B and the validity of the notification issued under it. It emphasized that the mechanism for tax deduction at source was a legal and practical method to ensure tax collection on works contracts. The court addressed concerns about delays in assessments by issuing specific directions for timely completion and refund where applicable. All writ petitions were dismissed, except for Civil Writ Petition No. 3782 of 1990, which was dismissed with a limited direction for timely assessment.