TaxTMI 
TaxTMI 
2000 (2) TMI 729
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....y S.P. BHARUCHA, J.-Before it was held to be unconstitutional on 28th April, 1993, section 13-AA of the Orissa Sales Tax Act read thus: "13-AA. Deduction of tax at source from the payment of works contractor.- (1) Notwithstanding anything contained in section 13 or any other law or contract to the contrary, any person responsible for paying any sum to any contractor for carrying out any works contract in pursuance of a contract between the contractor and- (a) Central Government or any State Government, or (b) any local authority, or (c) any authority or corporation established by or under a statute, or (d) any company incorporated under the Companies Act, 1956 (1 of 1956) including any State or Central Government undertaking, or (e) any co-operative society or any other association registered under the Societies Registration Act, 1860 (21 of 1860). Shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier, deduct an amount towards sales tax equal to two per centum of such sum in respect of the works contract: Provided that ....
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....e and, therefore, the same had to be struck down. The High Court added that by conferring arbitrary, unbridled and uncanalised powers on the person concerned to deduct two per cent from the sum payable to the contractor, irrespective of the question whether, ultimately, the transaction was liable for payment of any sales tax at all, could not be held to be a levy of tax under any valid legal provision. It was true that the deduction of two per cent under section 13-AA was to be ultimately adjusted where the transaction in question was liable for levy of sales tax, but where the transaction was not at all liable for levy of sales tax, there the question of adjustment would not arise and, therefore, the deduction would be confiscatory in character and effect and it could not be held to be a valid provision within the legislative competence of the Legislature imposing the tax and authorising the collection thereof. A bare reading of section 13-AA made it explicitly clear that the amplitude of the incidence of tax had been widened so as to include transactions which were outside the sphere of taxation available to the State Legislature under entry 54 of List II of the Seventh Schedule ....
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....by the contractor in this behalf, the Commissioner is satisfied that any works contract of the nature referred to in sub-section (1) involves both transfer of property in goods and labour or service, or involves only labour or service and, accordingly, justifies deduction of tax on a part of the sum in respect of the works contract or, as the case may be, justifies no deduction of tax, he shall, after giving the contractor a reasonable opportunity of being heard, grant him such certificate as may be appropriate, in the manner prescribed: Provided that nothing in the said certificate shall affect the assessment of the sales tax liability of the contractor under this Act. (b) Where such a certificate is produced by a contractor before the deduct- ing authority, until such certificate is cancelled by the Commissioner, the deducting authority shall either make no deduction of tax or make the deduction of tax as the case may be, in accordance with the said certificate. (6) If any person contravenes the provisions of sub-section (1) or (2) or (3) or of clause (b) of sub-section (5), the Sales Tax Officer shall, after giving him an opportunity of being heard, by an order in writing imp....
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.... hearing on the show cause notices but the final order thereon was made subject to the result of the writ petition. Thereafter, the High Court ordered that no coercive steps for recovery should be taken against the appellant. Pursuant to the show cause notices, the Sales Tax Officer imposed penalties upon the appellant for the assessment years 1994-95 and 1995-96 on the ground that the appellant should have deducted four per cent of the totality of its payments to Mukund. The penalties, in the sum of Rs. 26.98 crores imposed by the order dated November 11, 1997, for the assessment years 1994-95 and 1995-96, were challenged by the appellant in a fresh writ petition. On the earlier writ petition the order under challenge in the appeal was passed. It held that section 13-AA was not ultra vires the Constitution. On the second writ petition an order of deposit of fifty per cent of the demand was made, and that order is separately challenged. 7.. Upon the petition for leave to appeal to this Court, recovery of tax and penalty was stayed pending the disposal of the appeal. 8.. By virtue of entry 54 of List II of the Seventh Schedule read with article 246 of the Constitution of India, th....
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....les tax that is payable to the State upon the works contract and it is of four per cent of the value of the works contract. Sub-section (2) requires the owner to grant to the contractor a certificate in respect of such deduction. By reason of sub-section (3), the amount that the owner has deducted must be deposited by him into the Government treasury within a week of the deduction. By reason of sub-section (4), such deposit is required to be adjusted by the Sales Tax Officer towards the sales tax liability of the contractor and it constitutes good and sufficient discharge of the liability of the owner to the contractor to the extent of the amount deposited. Sub-section (5)(a) permits the contractor to make an application to the Commissioner of Sales Tax and if the Commissioner is satisfied thereon that any works contract "involves both transfer of property in goods and labour or service or involves only labour or service and, accordingly, justifies deduction of tax on a part of the sum in respect of the works contract or, as the case may be justifies no deduction of tax, he shall, .............grant him such certificate as may be appropriate in the manner prescribed". To the exte....
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....that it is enacted for the purposes of deduction at source of the State sales tax that is payable by a contractor on the value of a works contract. For the purposes of the deduction neither the owner nor the Commissioner who issues to the contractor a certificate under section 13-AA(5) is entitled to take into account the fact that the works contract involves transfer of property in goods consequent upon of an inter-State sale, an outside sale or a sale in the course of import. The owner is required by section 13-AA(1) to deposit towards the contractor's liability to State sales tax four per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract includes the value of inter-State sales, outside sales or sales in the course of import. There is, in our view, therefore, no doubt that the provisions of section 13-AA are beyond the powers of the State Legislature for the State Legislature may make no law levying sales tax on inter-State sales, outside sales or sales in the course of import. 14.. It was contended on behalf of the State that the appellant, as owner, had no locus to challenge the validity of section 13-AA. I....