2001 (9) TMI 1114 - HC - VAT and Sales Tax

Summary

Issues involved: Interpretation of article 366(29-A) of the Constitution in relation to section 3-B(2)(b) of the TNGST Act regarding deduction for goods used in works contract.

Summary:
1. The Court considered the contention that the provision in section 3-B(2)(b) of the TNGST Act is inconsistent with article 366(29-A) of the Constitution, which pertains to taxation on the transfer of property in goods involved in works contracts.

2. Sub-section (2) of section 3-B allows for deduction from the total turnover of a dealer engaged in works contracts, with sub-clause (b) specifying conditions for such deduction related to goods purchased from registered dealers and used in the works contract in the same form.

3. The rationale behind including "in some other form" in article 366(29-A) was to tax items that would otherwise remain untaxed, such as materials like paint used in creating a painting.

4. The argument was made that any change in the form of goods used in a works contract should not result in an additional tax burden, as the focus should be on the goods purchased and their use in the contract, disregarding changes in form.

5. Reference was made to a decision by the Andhra Pradesh High Court regarding similar provisions, where it was held that transformation of goods in the execution of a contract should not lead to double taxation.

6. The Court disagreed with the reasoning of the Andhra Pradesh High Court's decision, emphasizing the importance of the specific provisions and intent of the TNGST Act.

7. A previous judgment by the Court had also considered the consistency of section 3-B(2)(b) with article 366(29-A) before the Andhra Pradesh High Court's decision, highlighting the ongoing legal scrutiny of the matter.

8. In the earlier case, the Court concluded that the conditions in section 3-B(2)(b) did not lead to multiple taxation stages and were in line with the relevant legal provisions.

9. The Court affirmed the validity of section 3-B(2)(b) and the deduction criteria for goods used in works contracts, emphasizing the importance of adhering to the statutory framework.

10. It was reiterated that the intent of article 366(29-A) was not to provide undue benefits to parties involved in works contracts but to ensure appropriate taxation of goods and properties transferred in such contracts.

11. The Court clarified that goods and properties transferred in works contracts retain their distinct taxability, even if they were originally purchased as raw materials, emphasizing the commercial nature of the transactions.

12. The legislative intent behind the amendment related to article 366(29-A) was to prevent tax evasion and ensure that taxable items are not exempted through technical interpretations.

13. The change in form referred to in article 366(29-A) does not pertain to transforming goods into commercially distinct taxable items but rather to include items that would otherwise escape taxation.

14. Ultimately, the Court found no merit in the writ petitions challenging the provisions, leading to the dismissal of the petitions.