TMI Blog1995 (3) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year," ...................... (iv)(a) In the case of transfer of goods involved in the execution of works contract where transfer is in the form of goods at the rates and at the points specified against such goods in the First, Second or Fifth Schedule. (b) In the case of transfer of goods involved in the execution of works contract (where the transfer is not in the form of goods but in some other form) specified in the Fourth Schedule, at the rate specified against such contract in the said Schedule: Provided that no tax is payable in respect of the turnover of goods the transfer of which was effected without any processing or manufacture on which tax was levied under clause (i) on any earlier sale in the State or which are exempted from tax and for goods coming under the Fifth Schedule, no tax specified for the first sale is payable, on which tax was levied in any earlier sale in the State: Provided further that tax payable in respect of turnover of goods coming under the Second Schedule the transfer of which was effected without any processing or manufacture shall not exceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng those relating to levy of penal interest and penalty shall apply as if the awarder is the assessee for the purposes of this Act. (11) Any contractor who opts for the payment of tax in accordance with the provisions of sub-sections (7) and (7A) shall file the returns showing all the contracts he has undertaken along with certificates from the awarders, showing the whole amount of contract and the details of tax deducted and remitted to Government and if the particulars are correct and complete, the assessing authority may summarily make an assessment on that basis. (12) After the close of the year or at the completion of the works contract and on receipt of final statement of accounts and return, if the tax on purchases is found to be in excess of the tax payable under the compounded rates, no refund of such excess tax paid shall be made. ................. Rule 8. Determination of total turnover" ................ (4) For the purpose of sub-rule (1), the amount for which goods are sold by a dealer shall," (a) in relation to a works contract in which the transfer of property takes place in the form of goods, the whole amount payable to the dealer for carrying out su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54, List II of the State List and entry 92-A of List I to levy tax on transfer of property in goods involved in the execution of works contract. Kerala Government introduced amendments to its General Sales Tax Act from April 1, 1984, enabling the levy of sales tax on works contract by enacting a separate charging section and Schedule classifying works contract. Amendments were also made in the Rules providing for reduction of fixed percentage of labour in determining total turnover. A batch of writ petitions had been filed against the said amendment. While so, the Supreme Court taking note of batch of writ petitions pending in the different High Courts challenging the constitutional validity of Forty-sixth Amendment considered the matter in the decision reported in Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371 and upheld the validity of the Constitution Forty-sixth Amendment. According to the petitioners while these batch of writ petitions were pending, the respondents have introduced the amendment by Act 23 of 1991 amending the KGST Act. 3.. The main challenge of the petitioners in these batch of writ petitions relates to the imposition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illegal; (c) there is no proper machinery to fix tax liability of the contractor before directing the awarder to deduct 2 per cent as sales tax; (d) under the scheme of sales tax law except the dealer a third party awarder cannot collect sales tax; (e) the provision which enables deduction at source even in the case where the dealer has not opted for composition as per rule 22A is inconsistent with the provisions of section 7. The provision relating to imposition of penalty against the awarder who is not a dealer for not deducting the tax at source without being so assessed and not for filing returns is inconsistent with the scheme of the Sales Tax Act. The learned single Judge held that it is well-established that a legislative entry is to be liberally construed as comprehending within it all the powers which are necessary, incidental or ancillary for the effective implementation of the power conferred by the said entry. According to the learned Judge in the case of a taxing statute, it is open to the Legislature to enact provisions which would check evasion of tax. The power to tax includes the power to provide the means to make the realisation of the tax effective. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate List to the Constitution. The learned Judge is of the view that the deduction is only a machinery for collection of tax and hence valid. 4.. Aggrieved by this judgment, the appellants have preferred these appeals contending, inter alia, that the learned Judge failed to understand that the deduction of tax by the awarder from the whole of the bill amount and advance payments has got no correlation with the taxable liability of the contractor. There is no machinery for the awarder to compute the tax liability of the contractor and that the awarder is not competent to decide the tax liability of the contractor, to deduct the percentage from the whole bill amount. If the major portion of the bill amount is labour charges or relates to tax suffered purchases then the deduction will affect the business carried on by the contractor. According to the learned counsel, the recovery will amount to extraction of the money for which there is no authority. Learned counsel relied on the following decisions in support of his contentions: In Builders Association of India v. State of Bihar [1992] 85 STC 362 (Pat) the Full Bench declared section 25A of the Bihar Finance Act, 1981, as amended by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being made in respect of all works contracts executed, whether in part or full.......' if the total value of works contracts exceeds Rs. 25,000. The words 'all payments being made in respect of all works contracts executed' used in sub-rule (2) of rule 26A has to be read to mean payment made for the transfer of property in goods whether as goods or in some other form, involved in the execution of a works contract. No deduction is to be made in respect of the amount spent over labour charges and other services in which no transfer of any property in goods is involved. This interpretation of the words 'all payments' is not only be consistent with section 25A of the Act but also with the judgment of the Supreme Court in the case of Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371. Sub-rule (2) of rule 26A cannot cover a field beyond that prescribed by section 25A of the Act and article 366(29A)(b) of the Constitution." 7.. In Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204, the Supreme Court held that sections 14 and 15 of the Central Sales Tax Act, 1956, would be applicable to transfers and the legislative power of the State Legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he liability that is absent for which the State lacks authority to collect tax. 8A. In the judgment reported in Tirath Ram Ahuja Limited v. State of Haryana [1991] 83 STC 523, a Division Bench of the Punjab and Haryana High Court upheld the validity of section 26 of the Haryana General Sales Tax Act, 1973, dealing with payment of lump sum in lieu of sales tax. The Division Bench took the said view since there is a provision for refund of surplus if found that there was no transfer of goods. On the contrary in section 7(12) of the KGST Act there is a specific provision disentitling any refund, even if the tax is found to be in excess on final settlement of accounts. Further the Division Bench did not consider the question of the exemptions such as labour charges, using of declared goods in the works, goods of inter-State trade before deciding the tax on the "whole amount". Hence this decision is not of any help to us. The submission made by the learned Additional Advocate-General that the special leave petition filed against this decision was dismissed, does not improve the position. In the decision reported in Geeta Prasad Singh and Co. v. State [1986] 63 STC 337 (Pat) it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or excluded ultimately cannot be visualised at the stage of collection of advance tax. After collection of advance tax if the authorities find any component has been wrongly included or excluded, necessary adjustments have to be made either by refunding tax collected or demanding further tax. In that view of the matter the learned single Judge held that the collection of advance tax was within the jurisdiction of the State. In the absence of any such provision in the KGST Act for final adjustment of any tax collected without authority of law, the deduction of tax from the whole amount will, therefore, has to be held illegal. This conclusion is to be made because the provisions of the KGST Act make it very clear that once deductions are made even when it is found to be not liable, there cannot be any refund of the tax. Therefore, none of these decisions cited on behalf of the Revenue are of any help in support of the State. A tax deduction or recovery at source even as an incidental power for speedy recovery or to prevent evasion has to be confined to matters within the State List. The impugned provision on the whole amount is, therefore, ultra vires article 286(1) in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29-A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of 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 sub-contractor 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 plann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the works contract the expenses which are incurred by the contractor towards labour charges and other expenses, including amounts paid to sub-contractors. According to the Supreme Court, the rate of tax is fixed on the basis of the nature of the works in which the goods are incorporated, i.e., on the basis of the user of the goods and while so prescribing different rates of tax for particular types of works contracts does not contravene article 14 of the Constitution of India. In the said decision, the appellant therein sought to challenge the validity of section 19A of the Karnataka Sales Tax Act which provides for deduction of tax at source. But the Supreme Court did not permit the appellant therein to raise that question, because the same was not challenged before the Karnataka High Court. 10.. Relying on the above decisions, the learned Additional AdvocateGeneral submitted that the grounds of challenge are not sustainable. We have heard the arguments of the learned counsel for the petitioners and gone through the relevant provisions. Section 7 of the Act provides for payment of tax at compounded rates. Sub-section (7A) deals with the other contractors not covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceed the rate and only at the points specified against such goods in the said Schedule." But these exceptions are not taken into account and the "whole amount of contract" is the situs for imposing a compounded levy. This, according to the learned counsel, is arbitrary and unreasonable. While meeting this argument, the learned Additional Advocate-General submits that the dealer opts to pay tax at the compounded rate to avoid a complicated and prolonged procedure of assessment. It may be more or less those amounts that may be actually be payable by him if the assessment is made. But the said assessment is avoided and collection of tax is made easy by resorting to compounding. It is a matter of adjustment of rights and liabilities of both sides. As far as compounded levy is concerned, there is no question of making allowance for sales taking place in the course of inter-State trade, for declared goods and for labour charges. Once a person compounds to pay tax, then the whole amount has to be taken into account for the purpose of prescribing the rate of tax. As per the normal levy under section 5(1)(iv)(a) read with the Fourth Schedule, the rate of tax for civil works like construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods without excluding transactions made in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import and export. Thus it is seen that sub-sections (7) and (7A) are violative of article 366(29-A)(b) and article 14 of the Constitution of India read with sections 3, 4, 5, 14 and 15 of the Central Sales Tax Act, 1956. 13.. In so far as the challenge to section 5(1)(iv) is concerned, the learned single Judge's view has to be confirmed. Under sections 5(1)(iv) tax is leviable on the taxable turnover. The provisos to sections 5(1)(iv)(b) provide for exemptions. Under rule 8 clause (4) and rule 9 while determining the total turnover, the labour charges, the sale or purchase in the course of export or import of goods, the goods for which tax has been paid, etc., will have to be deducted from the total turnover of the dealer. Rule 22A(3) affords an opportunity to the contractor to avoid any deduction on production of certificate issued in that behalf. Therefore, in our view section 5(1)(iv)(a) and (b) is valid and the view of the learned single Judge in reference to the proviso to sec-tion 5(1)(iv)(b) read with rule 8(4)(b) is confirmed. In s ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
