TMI Blog1991 (9) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... used in entry 54 of List II (State List) of the Seventh Schedule to the Constitution of India or entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935, has the same meaning as in the Sale of Goods Act, 1930. It was further held that an indivisible works contract cannot be broken up into its component parts. The aforesaid decision was followed by the Supreme Court in its later decisions and the Supreme Court held that various other transactions which resemble in substance transactions by way of sales to be not liable to sales tax. As a result of these decisions, a transaction in order to be subject to the levy of sales tax under entry 92-A of List I or entry 54 of the State List, should have the ingredients, namely parties are competent to contract, mutual assent and transfer of property in goods from one of the parties to the contract to the other party thereto for a price. As a result of the aforesaid decisions there became scope for evasion of tax in various ways and therefore the Constitution (Forty-sixth Amendment) Act, 1982, was made by the Parliament and it received the assent of the President on February 2, 1983. By the aforesaid amendment a new c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Table given below: TABLE -------------------------------------------------------------------------- Sl. Type of contract Labour charges at a No. percentage of the value of the contract. 1 2 3 -------------------------------------------------------------------------- 1. Fabrication of and installation of plant and machinery. 25 ----------------------------------------------------------------------------------- 1 2 3 ----------------------------------------------------------------------------------- 2. Fabrication and creation of structural work of iron and steel including fabrication, supply and erection of iron trusses, purlins, etc. 15 3. Fabrication and installation of cranes and joists. 15 4. Fabrication and installation of elevators (lifts) and escalators. 15 5. Fabrication and installation of rolling shutters and collapsible gates. 15 6. Civil works like construction of the buildings, bridges, roads, dams, barrages, canals and diversions. 25 7. Installation of doors, door frames, windows, frames and grills. 20 8. Supply and fixing of tiles, slabs, stones and sheets 20 9. Supply and installation of air-conditioners and air-coolers. 15 10. Suppl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Act) and the contractor shall be liable to pay the said tax together with interest at the rate specified in the Act from the date of the receipt of the payment by him." 3.. The constitutionality of the Constitution (Forty-sixth Amendment) Act, 1982, came up for consideration before the Supreme Court of India in the case of Builders Association of India v. Union of India [1989] 73 STC 370; [1989] 2 SCC 645. The Supreme Court held that the aforesaid Constitution amendment was valid but did not agree with the plea put forward on behalf of the State that on the passing of the Forty-sixth Amendment the Constitution had conferred on the State a larger freedom than what they had before in regard to their power to levy sales tax under entry 54 of the State List. The court in para 40 (at pages 402-403 of STC) of the judgment said: "The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contract as if there was a sale of such goods and materials. We do not accept the argument that sub-clause (b) of article 366 (29-A) should be read as being equivalent to a separate entry in List II of the Seventh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 STC 446 (SC); AIR 1955 SC 661 each of the restrictions in article 286 are different and each has to be obeyed by the State while levying sales tax. After the Forty-sixth Amendment the works contract which was an indivisible one is by a legal fiction altered into contract which is divisible into one for sale of goods and the other for supply of labour and services. It has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts. (v) The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work. (vi) The properties that are transferred to the owner in the execution of a works contract are the goods involved in the execution of the works contract and not the conglomerate, that is, the entire building that is actually constructed. After the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than one stage. By the Rajasthan Act No. 9 of 1988 [section 4(b)] with effect from April 1, 1987, sub-section (3) was inserted in section 5 of the Act and the said sub-section (3) of section 5 has already been extracted in the earlier part of this order. 6.. Mr. V.K. Singhal, learned counsel for the petitioners, contended that the aforesaid provision of sub-section (3) of section 5 of the Act is against the decision of the Apex Court in the case of Builders Association [1989] 73 STC 370; [1989] 2 SCC 645. According to the learned counsel the whole turnover of the works contract has been subjected to tax under the aforesaid provision and it is not permissible because the position of law despite the Constitution of India (Forty-sixth Amendment) Act under which clause (29-A) was inserted in article 366 does not change and has not changed and the entire turnover of the works contract cannot be subjected to sales tax. There can be no dispute so far as this submission of the learned counsel for some of the petitioners is concerned. A bare perusal of ratio of the aforesaid case will show that the aforesaid Constitutional amendment does not confer a larger freedom on the State than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be included; (iv) Where for accommodating a particular customer or a purchaser a dealer obtains goods from another dealer and immediately disposes of the same to the said customer or purchaser, the sale in respect of such goods shall be included in the turnover of the latter dealer alone." A perusal of the aforesaid extracted definition of "turnover" will show that the amount for which the goods are sold or supplied in relation to a works contract shall be deemed to be the amount payable to the dealer for carrying out such contract less the cost of labour up to such extent, as may be prescribed. "Taxable turnover" under section 2(s) means that part of turnover which remains after deducting therefrom the aggregate amount of the proceeds of sale of goods (i) on which no tax is leviable under the Act, (ii) which have already been subjected to tax under the Act, (iii) which have been sold to persons outside the State for consumption outside the State and (iv) which are taxable at a point of sale within the State subsequent to the sale by the dealer and such sale is covered by a declaration as may be required under any provision of the Act or the Rules made thereunder. There a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges shall be allowed by the assessing authority according to the limits prescribed in column 3 for the type of contract specified in column 2 of the Table which has already been extracted in the earlier part of this order. Learned counsel for the petitioners contend that total labour charges including service charges if any should have been allowed to have been deducted from the turnover of the works contract, but it has not been so allowed. In support of his contention that such provision is unreasonable and is against the decision of the Apex Court in the case of Builders Association [1989] 73 STC 370; [1989] 2 SCC 645, learned counsel has referred to the case of Jamshedpur Contractors' Association v. State of Bihar [1989] 75 STC 132 (Pat). Rule 13-A was introduced in the Bihar Sales Tax Rules, 1983, vide Notification dated October 8, 1986. It provided for the deduction of labour charges at the percentage on different types of works contract. Dealing with the challenge to the aforesaid rule 13-A, the court said even if the contractor might have spent more on labour charges than the prescribed percentage stated in the rule, the contractor shall not be entitled to claim deduction b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, if the contractor has kept proper accounts and satisfies the assessing authority that so much of the sum towards labour charges which is directly correlated with the goods, property in which has passed in the execution of works contract, whether as goods or in some other form, and we may say that labour charges will include even service charges, then the assessing authority has to allow the actual amount of labour charges and only in case the contractor does not keep proper account or the labour charges are not determinable from his accounts and if the assessing authority considers the same to be unreasonably high considering the nature of contract, the assessing authority will fall on the Table and will allow the deduction of labour charges. It was contended by the learned counsel for the petitioner that the assessing authority, may for no reason say that he considers the labour charges unreasonably high considering the nature of the contract and therefore refuse to allow complete deduction of labour charges incurred by the contractor in the execution of a works contract. But we are of the opinion that hierarchy of the authorities is provided and general presumption is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under challenge in the case of Sood Enterprises (D.B. Civil Writ Petition No. 1698 of 1989 decided on November 30, 1990), though the validity of section 7(2-C) of the Act was under challenge. In none of the writ petitions before us, there is challenge to sub-section (2-C) of section 7 of the Act. The said provision provides that in case of a works contract, the tax may be deducted in such manner and under such circumstances as may be prescribed, from every bill of payment to a contractor. This Court at Jodhpur in the aforesaid case of Sood Enterprises (D.B. Civil Writ Petition No. 1698 of 1989 decided on November 30, 1990) has upheld the validity of section 7(2-C) of the Act. The legislative competence of section 7(2-C) of the Act can hardly be challenged and as said earlier there is no challenge to the said provision in these writ petitions. This is a machinery provision and such a provision has been recognised as a mode of recovery of tax in almost all taxing statutes. A reference in this connection may be made to section 194(C) of the Incometax Act, 1961. Mr. Singhal, learned counsel for the petitioner with reference to section 194(C) has contended that there is a sub-section in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain other cases, and a perusal of the aforesaid section 23-BB will show that where an amount of tax is collected at any check-post from any person who is not registered under the Act and such tax is not found payable by him, or where any tax is deducted in any manner by an awarder from any bill of payment to a contractor who is not liable to pay tax under the Act or where an amount of set-off, which a registered dealer is entitled to, is not fully adjusted against the amount of tax payable by such dealer, the amount so collected or deducted or unadjusted shall be refundable in the prescribed manner. The "prescribed manner" is provided in section 23 and a perusal of that section will show that the amount is refunded to a dealer either by cash payment or by deduction of such excess from the amount of tax due in respect of any other period and it will carry an interest at the rate of 12 per cent per annum with effect from the date of deposit of the amount to be refunded, as per sub-section (2) of section 23. It can therefore, be said that the provisions contained in sub-rule (2) of rule 46 are machinery provisions and it prescribes a mode of recovery to check the evasion of tax. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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