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TMI Blog1992 (11) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant had challenged the validity of various provisions of the Karnataka Sales Tax Act, 1957, as amended by Amending Act No. 27 of 1985 and the Karnataka Sales Tax Rules, 1957, made thereunder. The appellant is an association of contractors engaged in the work of construction. The provisions of the Karnataka Sales Tax Act which have been impugned by the appellant in the writ petition were introduced in the said enactment after the Constitution (Forty-sixth Amendment) Act, 1982, whereby clause (29-A) was introduced in article 366 of the Constitution so as to enable State Legislatures to impose tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The validity of the Forty-sixth Amendment came up for consideration before this Court in Builders Association of India v. Union of India [1989] 73 STC 370; [1989] 2 SCR 320 wherein the said amendment was upheld as valid and it was declared that sales tax laws passed by the Legislature of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the goods which are involved in execution of the works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in the execution of a works contract for the purpose of levying the tax referred to in article 366(29-A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract. (6) The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works, (ii) amount paid to a subcontractor for labour and services; (iii) charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract; (iv) charges for planning, designing and architect's fees; (v) cost of consumables used in execution of the works contract; (vi) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (vii) other similar expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; Explanation (1)-[Omitted] Explanation (2)-[Omitted] Explanation (3)(a) The sale or purchase of goods other than in the course of inter-State trade or commerce or in the course of import or export shall be deemed, for the purposes of this Act, to have taken place in the State wherever the contract of sale or purchase might have been made, if the goods are within the State- (i) in the case of specific or ascertained goods at the time the contract of sale or purchase is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation. (b) Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places. (c) Notwithstanding anything contained in the Sale of Goods Act, 1930 (Central Act 3 of 1930), for the purpose of this Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of inter-State trade or commerce and a sale in the course of import or export. Construing clause (c) in the light of clauses (a) and (b) of explanation (3) we are unable to hold that in fixing the situs in respect of deemed sales resulting from transfer of property in goods involved in execution of a works contract the Legislature has included a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. The other provision which has been challenged in section 5B which provides as under: "5B. Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts.- Notwithstanding anything contained in sub-section (1) or sub-section (3) of section 5, but subject to sub-sections (5) and (6) of the said section, every dealer shall pay for each year, a tax under this Act on his taxable turnover of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract mentioned in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule." It has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny goods specified in the said serial numbers and falling under Second Schedule are purchased from registered dealers liable to pay tax under the Act, (ii) all amounts actually expended towards 'labour charges' for erection, installation, fixing, fitting out, or commissioning of the goods specified in the said serial numbers, (iii) all amounts paid to sub-contractors as the consideration for execution of works contract whether wholly or partly: Provided that, no such deduction shall be allowed unless the dealer claiming deduction produces proof that the sub-contractor is a registered dealer liable to tax under the Act and that the turnover of such amounts is included in the monthly statement or return of turnover as the case may be, filed by such sub-contractor; Clause (n) relates to works contracts specified in serial numbers 6, 13, 14, 15, 16, 18, 20, 23, 24 and 25 of the Sixth Schedule and makes provision for the following deductions: "(i) all amounts for which any goods specified in the Second and Fourth Schedules are purchased from registered dealers liable to pay tax under the Act, (ii) all amounts for the purchase of any goods which are specifically exempted from tax u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of clause (in) and the expression "labour charges and other like charges" in sub-clause (iv) of clause (n) are, in our opinion, wide enough to include the charges for labour and services, as indicated by us in our judgment in Gannon Dunkerley and Co. v. State of Rajasthan [1993] 88 STC 204 (SC) supra to which reference has been made earlier. It cannot, therefore, be said that section 5B provides for levy of tax not on the value of the goods involved in the execution of a works contract but also on something which is not part of that value. The learned counsel for the appellant has challenged the fixation of the percentage on account of labour and other charges in the Table under sub- clause (v) of clause (n) of sub-rule (4) of rule 6. The said Table is applicable in cases where the amounts actually incurred towards "labour charges and other like charges" are not ascertainable from the books of account maintained and produced by a dealer before the assessing authority. The submission is that the percentage of the value of the contract fixed in column (3) of the said Table is arbitrary and further that it varies with the nature of the contract. In Gannon Dunkerley case [1993] 88 ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h [1980] 45 STC 36; [1980] 1 SCR 769 purchase tax was levied at the rate of Rs. 1.25 per quintal on sugarcane sold to sugar factories and at the rate of 50 paise per quintal on sugarcane sold to khandsari units. The challenge to differential rate for levy of tax was negatived by this Court. Similarly, in Kerala Hotel & Restaurant Association v. State of Kerala [1990] 77 STC 253; [1990] 1 SCR 516, this Court upheld the constitutional validity of the provisions contained in the Kerala General Sales Tax Act, 1963, and the Tamil Nadu General Sales Tax Act, 1959, whereby tax was imposed on cooked food sold in luxury hotels while there was exemption from tax on cooked food sold in modest eating places. Classification based on the use of the goods for the purpose of imposition of the tax was upheld in these cases. It cannot, therefore, be held that in prescribing different rates of tax for particular types of works contract in the Sixth Schedule, the State Legislature has contravened the provisions of article 14 of the Constitution. We may, in this context, mention that the High Court while upholding the validity of the rates fixed in the Sixth Schedule has held that while under the Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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