TMI Blog1994 (8) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... essential ingredients being an agreement to sell moveables for a price and property passing therein pursuant to that agreement. The Supreme Court further held that in a works contract which is entire and indivisible, there is no sale of goods and no tax could be imposed on the supply of the materials used in such a contract treating it as a sale. The Supreme Court observed that the expression "sale of goods " has the same meaning as the expression "sale of goods" in the Sale of Goods Act, 1930. 2.. After the decision of the Supreme Court with regard to the taxability of the goods involved in the execution of the works contract, the Law Commission in its 61st report made suggestion to insert in article 366 a wide definition of "sale" so as to include works contracts. Keeping in view the recommendation of the Law Commission, the Constitution was amended by 46th amendment by inserting clause (29-A) in article 366 and clause (3) of article 286 was substituted. The relevant portion of clause (29-A) of article 366 reads as follows: "(29-A) Tax on the sale or purchase of goods includes- (a).......... (b) a tax on the transfer of property in goods (whether as goods or in some othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 370; AIR 1989 SC 1371 (Builders Association of India v. Union of India). The Builders Association also claimed before the Supreme Court that it was not open to the State to ignore the provisions contained in article 286 of the Constitution and the provisions of the Central Sales Tax Act, 1956, while making assessment under the sales tax laws passed by the Legislatures of the States. The Supreme Court held that it was essential for the State Legislature to comply with the requirement of clause (3) of article 286. The Supreme Court did not accept the claim that the 46th amendment has conferred on the States a larger freedom than what they had before in regard to the power to levy sales tax under entry 54 of the State List. 4.. The Maharashtra Legislature, consequent to the decision of tile Supreme Court in Builders Association of India's case [1989] 73 STC 370 (SC); AIR 1989 SC 1371 felt that it was necessary to bring the Works Contract Act, 1985 in conformity with the decision. The State Legislature realised that it was expedient to maintain continuity and for that purpose to enact a new Act in place of 1985 Act, but by giving retrospective effect from October 1, 1986, being a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dity of the Act was challenged on the ground of legislative incompetency and violation of fundamental rights conferred under articles 14 and 19 of the Constitution. 5.. During the pendency of this petition, the Supreme Court in the decision reported in [1993] 88 STC 204; [1993] 1 SCC 364 (Gannon Dunkerley Co. v. State of Rajasthan) examined the ambit and scope of article 366(29-A) as well as the legislative power of the States under entry 54 of the State List. The Supreme Court reiterated the view taken earlier in the Builders Association of India's case [1989] 73 STC 370; AIR 1989 SC 1371 and pointed out that the tax leviable by virtue of clause (29-A) of article 366 is subject to the discipline to which any levy under entry 54 of the State List is made. The Supreme Court further held that the legislative power of the States under entry 54 of the State List is subject to two limitations-one flowing from the entry itself which makes the said power subject to the provisions of entry 92-A of List I and the other flowing from the prohibition contained in article 286. The Supreme Court observed that the measure for levy or imposition of tax in the execution of works contract is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paid on the goods so purchased. (B) The tax shall be levied at the following rates, namely: (i) in respect of declared goods, the rate of tax shall be four paise in a rupee on the turnover of sales of such goods; (ii) in respect of goods other than declared goods, the rate of tax shall be ten paise in a rupee on the turnover of sales of such goods. (2)(A) There shall be levied a tax on the turnover of sales in respect of goods covered by the Schedule at the rates specified in clause (B), after deducting from such turnover- (a) the turnover of sales in respect of declared goods purchased from a dealer registered under the Bombay Sales Tax Act, and sold in the same form in which they were purchased or without doing anything to them which amounts to, or results in, any manufacture;" In addition to what is set out hereinabove, the sub-section (2)(B) provides for the rates at which the taxes shall be levied. The Statement of Objects and Reasons for amendment of section 6 of the Principal Act was appended to the Bill and clause 4 therein, inter alia, provides that "Government has noticed that in respect of certain items the sales tax on the transfer of property in goods inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Supreme Court in Builders Association of India's case [1989] 73 STC 370; AIR 1989 SC 1371 and Gannon Dunkerley's case [1993] 88 STC 204; [1993] 1 SCC 364. 7.. In view of the rival submission, the first question which requires determination is whether the State Legislature was competent to enact the provisions of 1989 Act. Shri Chandrachud did not dispute that as the consequence of the 46th amendment, the State Legislature had ample powers to enact the legislation. It was submitted that the decision in Builders Association of India's case [1989] 73 STC 370 (SC); AIR 1989 SC 1371 creates a legal fiction by dividing the total consideration of the works contract into cost or value of the goods and the labour charges. Shri Chandrachud did not dispute that State Legislature is competent to enact legislation to levy tax on the value of goods involved in works contract. It was urged that while enacting 1989 Act, the Legislature has ignored constitutional restraints prescribed under article 286(3) of the Constitution and consequently the legislation suffers from legislative incompetency. The grievance of the learned counsel is of no merit. Article 286 provides for restrictions in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods involved in the execution of the works contract the cost of incorporation of the goods in the works can be included in the measure for levy of tax. Incorporation of the goods in the works forms part of the contract relating to work and labour which is distinct from the contract for transfer of property in goods and therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure for levy of tax contemplated by article 366(29-A)(b)." Relying on the ratio laid down by the Supreme Court, Shri Chandrachud submitted that the provisions of section 6 of the Act are required to be struck down. It was urged that the tax is levied on the turnover of sales and the expression "turnover of sales" as defined under section 2(p) means the aggregate of the amount of sale price received or receivable by a dealer in respect of any transfer of property in goods involved in execution of any works contract. Shri Chandrachud submitted that the expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provided sales tax has been paid on the goods at earlier stage and the goods are sold by the contractor in the same form in which they have been purchased. It was contended that the condition imposed that the goods must be sold in the same form is illegal. It was urged that the Supreme Court had held that the measure of tax in works contract cannot be the cost of acquisition of goods and consequently the requirement that the goods shall be in the same form should be held illegal. It was further urged that the condition has no rational nexus to the object of the deduction granted from the taxable turnover and therefore the condition is arbitrary, discriminatory and unreasonable. It is not possible to accede to the submission. The turnover of the sales in respect of declared goods purchased from a registered dealer under the Bombay Sales Tax Act are required to be sold in the same form in which they were purchased and without doing anything which amounts to manufacture. The object of the Legislature in putting such condition is that the contractor who had purchased the goods in pursuance of the works contract will not be entitled to convert into different form with different identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been used for public purpose and in case the Legislature felt that the double taxation should be avoided with effect from the date of amendment of the Act, then the validity of the legislation cannot be questioned. We find considerable merit in the submission urged on behalf of the learned Government Pleader. In the Supreme Court's decision reported in AIR 1979 SC 321 (Avinder Singh v. State of Punjab), it was observed that merely because tax is levied on the same article on more than one occasion that would not result in the levy being illegal. The Legislature was conscious that it is desirable to avoid double taxation and consequently amendment was carried out in the year 1991. The mere fact that the double taxation was not removed from the earlier date cannot lead to the conclusion that the amending clause is invalid. The Legislature has to take into consideration a large number of circumstances while determining from what date the double taxation should be avoided. The claim of the petitioners that the amendment should have been made effective from October 1, 1986, cannot be accepted because the Legislature must have taken into consideration that returns must have been filed on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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