TMI Blog1986 (2) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... re contractors registered with various departments of Government of Bihar for executing works contracts. In terms of the contracts, materials like bitumen, cement, steel rods, etc., are/were to be supplied to the petitioners by the Government. The value of the materials supplied was to be deducted from the bills of the contractors. In terms of annexures I series and annexure 2 the departments deducted 4 per cent from their entire bills. That brought the petitioners rushing to this Court. According to the petitioners, they were liable to pay tax only upon the value of the materials supplied/sold by them to the Government. On the face of it the contention of the petitioners appeared sound. Rules were, therefore, issued and by various ad interim orders, it was ordered that deduction of only 4 per cent of the value of materials supplied/not of the entire bills could be deducted. The rest of the bills should be paid to the contractors. 4.. The broad questions falling for consideration are only two. The first question agitated before the Bar is that payments made in respect of works contract as a whole cannot be subjected to sales tax by the State Legislature or by the State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; " In a way this amendment of the Constitution removed the difficulty created by the decision of the Supreme Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560 in levying sales tax on materials sold by the contractors. That was a composite contract for supply of materials as well as for labour. The levy of sales tax on materials supplied was countered by the assessee on the footing that the labour contract and contract for supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow up of section 25A, the Bihar Government framed new rules. Rule 26A laid down that the deduction was to be made at the rate notified by the Government from time to time. In November, 1984, comprehensive amendments were made in the Rules. The first amendment is annexure 1 to C.W.J.C. No. 3420 of 1985. Rule 26A prescribed the modality for deduction of sums from bills of contractors. Rule 26A so far as is relevant reads as follows: "26A. Deduction of the tax from the bills/invoices of works contractors under section 25A.-(1) The deduction referred to in sub-section (1) of section 25A shall be made at the rate notified in this behalf from time to time by the Government. (2) Such deduction shall be made from all payments being made in respect of all works contracts executed, whether in part or in full, after 1st April, 1984, provided the total value of works contract or contracts exceeds Rs. 25,000." In this batch of cases we are concerned with cases involving works contract of the total value of sums exceeding Rs. 25,000. While rule 26A (annexure 1) enjoins deduction from all payments, annexure I/A prescribes the authority who has the right/liability to make the deduction. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of labour charges involved in the execution of works contract..................... Rs." (h) Deduction on account of transfer of right to use any goods for purposes other than in course of business......... Rs." The amended rule 9 (amended by paragraph 15) reads thus: "9. Maintenance of separate accounts by dealers.-(1) Every dealer who sells or purchases goods, involved in execution of any works contract shall keep accounts separately in respect of each works contract of all goods, purchased or received and sold, supplied or delivered (whether as goods or in some other form) as well as of all receipts and payments. (2) Every dealer who makes first sale in the State of Bihar of goods notified under sub-section (2) of section 11 shall keep a separate trading account in respect of goods mentioned in the notification." Rule 26A lays down an elaborate procedure in regard to the duties of the officer who makes the deduction. The person making the deduction is required to deposit the sum by the 15th of the following month in the Government treasury by separate treasury chalans in form XVII in quadruplicate. After depositing the sum deducted, the person making the deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons, firm or voluntary organisation or any other Organisation authorised or made responsible for making any payment or discharge of any liability on account of valuable consideration payable for transfer of property in goods as the person lawfully competent to deduct. Surely corporations, clubs, society, etc., cannot assess or impose tax. They can only deduct. The deduction thus is certainly no taxation. It is only a mode of recovery of sales tax and is meant to secure Government revenue. Section 25A may be read as an extension of section 25. The heading of section 25 is "Payment and recovery of tax". Section 25A must also, therefore, be read as the mode of recovery of tax. Section 27 prescribes for "Special mode of recovery" of tax. Thus, sections 25, 25A and 27 are modes of recovery of sales tax. Section 28 deals with the period of limitation for recovery of tax. From the study of these provisions, it is thus obvious that section 25A is not a taxing section, but it is only law in regard to recovery of tax. 9.. It partakes the character of advance tax. The principle of recovery of advance tax is not new. That concept of advance tax finds place in the Incometax Act as well. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of tax in advance. Section 12 of the Bihar Finance Act, 1981, as amended in 1984 provides that sales tax may be levied between eight per cent and twenty-five per cent. Deduction of four per cent, therefore, cannot be held to be excessive. The Indian Income-tax Act enjoins deduction of two per cent. The Bihar Sales Tax Act enjoins deduction of four per cent. It is well-known that in most works contracts the percentage of the value of goods to be supplied is more than the payment for labour. It is, therefore, not unreasonable to deduct four per cent of the total bills. This cannot be said to be excessive, where the total bill is to the tune of rupees five lacs, the sum deducted will be about Rs. 20,000. This is certainly not excessive and beyond the means of the contractors. In my view, there will be very few cases where the value of materials supplied would be less than four per cent of the total bill. I have, therefore, not the least hesitation in holding that the provisions relating to deduction of four per cent of the total bills are not confiscatory. 11.. Having looked at the entire scheme of law, I have not the least hesitation in holding that section 25A, rule 26A and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby order that the statutory deduction of four per cent of the bill will not be done by the person making the payment if there is no transfer of property in goods. 14.. Mr. Bindeshwari Choudhary, the learned counsel for the petitioner, as stated earlier, contended that in terms of section 64-A of the Sales of Goods Act, in case there is a statutory deduction, Government was liable to reimburse such contractors. We are not concerned with the rights of the parties. If the contractors are entitled to reimbursement on account of levy of sales tax, they will rough it out with the Government and claim reimbursement. That is a separate matter. That does not affect the vires or validity of the power to deduct. The submission of Mr. Bindeshwari Choudhary, therefore, has no substance and must be rejected. 15.. For the reasons, stated above, I am of the view that section 25A is intra vires the Constitution. So is rule 26A of the Bihar Sales Tax Rules, 1983. The notifications (annexures 1 series) and notice (annexure 2) are not open to attack. The deductions effected in annexure 3 are perfectly right. The applications must, therefore, fail. They are dismissed accordingly with costs. Hea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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