TMI Blog1995 (2) TMI 407X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or direction, directing the opposite party Nos. 1 to 3 to certify and send up to this Court all documents and papers in connection with sections 2(c), (d), (jj), 5(2)(A)(a)(1) and 5(2)(AA)(1) of the Orissa Sales Tax Act, 1947 and the notice in annexure 1, so that they may be examined and quashed. (2) For issue of a writ in the nature of mandamus quashing sections 2(c), (d), (jj), 5(2)(A)(a)(1) and 5(2)(AA)(1) of the Orissa Sales Tax Act, 1947 and the notice in annexure 1; and (3) For allowing this application with costs and passing such other order and/or orders as this Court deems fit and proper. 3.. Apart from challenging the vires of sections 5(2)(A)(a)(1) and 5(2)(AA)(i) of the Orissa Sales Tax Act inasmuch as the aforesaid two sections requiring a dealer to include in the gross turnover transactions which have, inter alia, interState export and import elements since covered under sections 3 and 5 of the Central Sales Tax Act, 1956, passed by the Parliament under entry 92-A, List I of Schedule VII, there is challenge to the notice dated May 28, 1992, issued by the Sales Tax Officer, opposite party No. 3, calling upon the petitioner to submit returns for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sake of brevity "NTPC") Page No: 326for supply of steam generator package and spares, for handling, transportation, storage at the NTPC site, verification, preservation, arranging comprehensive insurance for supplies, arranging erection insurance, erection and commissioning of the said equipments at the NTPC site at Talcher and several other contracts at different material points of time as detailed in the writ application. 7.. It is contended that in terms of the above referred various contracts entered into between the petitioner-company with NALCO and NTPC, the petitioner-company designed the equipment, got the designs approved by the respective customers like NALCO/NTPC and thereafter proceeded to manufacture some of the equipments at its manufacturing units situated throughout the country, procured certain equipment from outside the country by placing purchase orders with the foreign suppliers and also placed sub-supply orders with the sub-suppliers inside the country for manufacture of certain equipments. The equipment so manufactured is to be thereafter packed as per the international norms of packing of heavy equipment and loaded for transport inside and outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993] 88 STC 204 (SC), the parties might move the High Court for necessary relief. 10.. Thereafter the Sales Tax Officer, opposite party No. 3, directed the petitioner to produce the books of account for the assessment year 1990-91 for the assessment proceeding on June 25, 1993 and the petitioner produced the same pursuant to the notice under section 12(5) on June 25, 1993, July 26, 1993 and August 25, 1993 and also submitted its documents. 11.. It appears further that the petitioner had filed an earlier writ petition before this Court and the judgment has since been reported in [1988] 71 STC 25 (Bharat Heavy Electricals Ltd. v. Union of India). The said judgment was carried to the Supreme Court in S.L.P. (Civil) Nos. 12291 of 1988, 12340 of 1988, 12367 of 1988, 12482 of 1988 and 12484 of 1988 and in the meantime the Supreme Court was pleased to dispose of a batch of cases from Rajasthan where, it is alleged, pari materia provisions were introduced authorising imposition of tax on the transfer of property in goods "as goods or in some other form" involved in the execution of works contract. The Supreme Court quashed the same provisions of the Rajasthan Act by the judgment repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the notice issued by the Sales Tax Officer and the same is challenged as arbitrary, illegal and without jurisdiction. 15.. Developing all these facts and making detailed averments, the petitioner has sought the reliefs as indicated above. 16.. The case is strongly opposed by the State of Orissa by filing a counteraffidavit on behalf of opposite parties 2 and 3. It is disclosed, inter alia, that the question of examining the vires further does not arise as at no point of time the taxing authorities under the Orissa Sales Tax Act have assessed anybody by including in his turnover the transactions which are, inter alia, inter-State or export or import ones. According to the opposite parties, the writ application is misconceived and is nothing but a ruse in the name of challenging certain sections of the Act to stall and defer payment of the tax liability. It is further disclosed that the Sales Tax Officer was well within his power to issue the notice dated May 28, 1992, calling upon the petitioner to submit returns for the assessment year 1991-92 and to make assessment. In view of such facts and circumstances, the claim of the petitioner to quash the notice under annexure 1 do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held to be bad, no assessment under the State Act can proceed to impose a tax on such turnover under the provisions of section 5(2)(A) of the Orissa Sales Tax Act. According to him, the scene of imposing tax as has been made by the Revenue on such contracts being confusing and chaotic (i.e.,, divisible, indivisible inter-State excluded, taxed at 12 per cent or 4 per cent and many more), it needs to give a guideline particularly when the State has redefined "dealer", "goods" and "sale" in section 2(c), (d) and (g) and has given a specific meaning to "manufacture" and "works contract" in section 2(dddd) and 2(jj) in case of works contract, the goods for a particular customer either inter-State moved and Central sales tax paid or imported or exported which goes into the erection of the plant will get included in the gross and taxable turnover under the Orissa Sales Tax Act. He has developed his argument by drawing the attention of the court that the State's power and introduction of entry 92A in List I being read, taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade and commerce and the added clause (g) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax) where the Supreme Court analysed and held that a contract where not only work is to be done but the execution of such work requires goods to be used may take one of the three forms, i.e.,- (a) for work to be done for remuneration and for supply of materials used in the execution of the works for a price; (b) for work in which the use of the materials is ancillary or incidental to the execution of the work; and (c) basically for supply of goods where some work is required to be done as incidental to the sale. The court while considering as to whether a particular contract is a works contract or not has to appreciate the tests. He has tried to demonstrate that in works contract when goods are supplied which would ultimately go into executing the works, it may be silent as to the passing of the property and if it is so in the construction of an immovable property when used in the said works, the same would be transferred to the owner on the doctrine of acquisition and the transfer is not resultant of contract but as the owner of the land. There are various aspects of the matter and those goods which are components ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be of special importance in inter-State trade or commerce under section 14 of the Central Sales Tax Act. Clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules also suffers from the same infirmity. Section 5(3) of the Rajasthan Sales Tax Act and clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules must, therefore, be held to be unconstitutional and void. 23.. The said Supreme Court decision indicates, inter alia, that since the invalidity of section 5(3) goes to the root of the imposition of tax and in the absence of the said provision the tax cannot be levied, the assessees as appellants were found entitled to succeed. In the aforesaid circumstances, the Supreme Court found it not necessary to examine the other questions relating to validity of Explanation I to clause (o) of section 2 of the Rajasthan Sales Tax Act, Explanation (i) to clause (t) of section 2, sub-section (2-C) of section 7, clause (ii) of sub-rule (2) of rule 29 and sub-rule (2) of rule 46 of the Rajasthan Sales Tax Rules. 24.. Mr. Mohanti argues that similar facts and circumstances arise so far as the provision of section 5(2)(A)(a)(i) or 5(2)(AA)(i) of the Orissa Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Orissa Sales Tax Act as also the Rajasthan Sales Tax Act. 27.. According to Mr. Mohanty, the learned Standing Counsel, the concept of "dealer" as defined in section 2(c), "goods" as defined in section 2(d), "gross turnover" as defined in section 2(dd), "manufacture" as defined in section 2(dddd), "sale" as defined in section 2(g) and the Explanation to section 2(g) as also the definitions of "sale price", "turnover of sales" and "turnover of purchases" have got to be properly appreciated and in particular section 5(2)(AA) is not contrary to and inconsistent with the overall provisions of the Orissa Sales Tax Act. The non obstante clause in section 5(2)(AA) is not de hors the Act. By section 5(2)(AA) the State has not attempted to transgress the power nor has it included the inter-State sale and section 5(2)(AA)(i) is not pari materia with section 5(3) of the Rajasthan Sales Tax Act. He has mainly argued that looking at the scheme of the Orissa Sales Tax Act, it cannot be held by any stretch of imagination that the provisions as laid down under section 5(2)(AA) remain unchecked and unguided and the State has assumed power beyond the constitutional limits to levy tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (c) all amounts for which a dealer sells goods are not in his stock but which are obtained by him from another dealer specially to accommodate a customer, provided that the sale is entered in the accounts together with the name of the dealer from whom the articles were obtained; (d) all amounts for which goods excluded from the operation of the Act are sold, provided that separate accounts for the transactions in respect of such goods are maintained; e) the sale proceeds of goods exempted under section 4, provided that separate account for the transactions in respect of such goods maintained and provided also that a certificate of exemption issued under rule 8 to the dealer is in force; (f) all amounts realised by a dealer on account of sale of business as a whole; and (g) the amounts to which the provision of section 5-E apply. (2) In case of a works contract, tax shall be computed on the turnover of the contractor after deducting- (i) the value of the goods transferred in execution of works contract, whether as goods or in some other form, which have already suffered tax at the rate prescribed under section 5 or which are exempted from tax under section 4 (sic) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. The levy and collection of such tax is governed by article 269. This shows that the legislative power under entry 54 of the State List is not available in respect of transactions of sale or purchase which take place in the course of inter-State trade or commerce. Similarly article 286(1) prohibits the State from making a law imposing or authorising the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State or (b) in the course of the import of goods into or export of the goods out of the territory of India. As a result of the said provision, the legislative power conferred under entry 54 of the State List does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or which takes place in the course of import or export of goods. In view of the aforesaid limitations imposed by the Constitution on the legislative power of the States under entry 54 of the State List, it is beyond the competence of the State Legislature to make a law imposing or authorising the imposition of a tax on tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions contained in sections 3, 4 and 5. For the same reasons sections 14 and 15 would also be applicable to the deemed sales resulting from transfer of property in goods involved in the execution of a works contract and the legislative power under entry 54 in State List will have to be exercised subject to the restrictions and conditions prescribed in those sections in respect of goods that have been declared to be of special importance in inter-State trade or commerce. The absence of any amendment in the definition of "sale" contained in section 2(g) of the Central Sales Tax Act, 1956, so as to include transfer of property in goods involved in the execution of a works contract does not in any way affect the applicability of the sections 3, 4 and 5 and sections 14 and 15 to such transfers. 32.. The ratio of the Supreme Court decision indicates further that in view of article 366(29A)(b), the State Legislatures are competent to impose tax on transfer of property in goods involved in the execution of a works contract and under article 286(3)(b) Parliament has been empowered to make a law specifying restrictions and conditions in regard to the system of levy, rates or incidence of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neer or any other mercantile agent, by whatever name called, who carries on the business of purchasing, selling, supplying or distributing goods on behalf of any principal whether disclosed or not; (iv) a casual dealer; (v) a person who transfers, otherwise than in pursuance of a contract, property in any goods for cash, deferred payment or other valuable consideration; (vi) a person who transfers property in goods (whether as goods or in some other form) involved in the execution of a works contract; (vii) a person who delivers goods on hire-purchase or any system of payment by instalments; (viii) a person who transfers the right to use in goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (ix) a person who supplies by way of or as part of any service or in any other manner, goods, being food or any other article of human consumption or any drink (whether or not intoxicant), whether such supply or service is for cash, deferred payment or other valuable consideration. ................." "Section 2(d): 'Goods' means all kinds of movable property other than actionable claims, stock, share or secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the definition of "turnover" contained in clause (t) of section 2 was amended, and clause (cc) was inserted in sub-section (2) of section 26 to confer power to frame rules to provide for the determination of the amount payable to the dealer for the transfer of property in goods (whether as goods or in some other form) made in the course of execution of a contract or works contract. By the Rajasthan Sales Tax (Amendment) Act, 1988 (9 of 1988), certain further amendments were made in the definition of "sale" contained in clause (o) and definition of "turnover" contained in clause (t) of section 2. Clause (u) was introduced in section 2 to define "works contract". Sub-section (3) was added in section 5 and sub-section (2-C) was inserted in section 7. By such Rajasthan Sales Tax (Second Amendment) Act, 1988 (13 of 1988), the definition of "works contract" contained in clause (u) of section 2 was substituted. After the decision of the Supreme Court in Builders Association case [1989] 73 STC 370, the Rajasthan Sales Tax (Amendment) Act, 1990 (3 of 1990) was enacted whereby some minor changes were made in the definition of "sale" contained in clause (o) and the last proviso, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, delivery or supply by a dealer in any of the ways referred to in clause (o) wherein the expression "sale" is defined. The Legislature has not made any express provision for exclusion of transactions constituting deemed sales which take place in the course of inter-State trade or commerce or outside the State or in the course of import and export in relation to which the State Legislature lacks the competence to impose a tax under entry 54 of the State List nor has any provision been made with regard to sales of goods which are declared to be of special importance in inter-State trade or commerce and are governed by sections 14 and 15 of the Central Sales Tax Act. The matter has been left to the discretion of the rule-making authority to prescribe whether deductions in respect of such transactions should be allowed or not. 40.. It has been specifically found by the Supreme Court that a comparison of the provisions contained in sub-section (3) of section 5 read with section 2(t) and sub-section (1) of section 5 read with section 2(s) would indicate that in relation to works contract the Legislature has made a departure in the matter of chargeability of the tax and by using the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections of the Orissa Act, it would be appreciated that the Legislature has not sought to transgress its constitutional limits to levy taxes and if any such attempt is made, the aggrieved assessee may certainly canvass its point that the provisions of the Orissa Sales Tax Act cannot be interpreted and such powers cannot be exercised beyond the guidelines as found in the decision of the Supreme Court in [1993] 88 STC 204 (Gannon Dunkerley Co. v. State of Rajasthan). The interpretation as given, and the law as laid down by the Supreme Court to define the legislative power to impose and levy tax has to be borne in mind in interpreting and explaining section 2 as to various definition clauses of the Orissa Sales Tax Act and to appreciate the scope of section 5(2)(AA)(i). There are sufficient checks and balances in the entire framing of the Orissa Sales Tax Act and in no way it may be observed that such provisions which were previously viewed are to be reopened in the light of the judgment of the Supreme Court in [1993] 88 STC 204 (Gannon Dunkerley Co. v. State of Rajasthan). On the contrary, we are of the view that looking at the provisions of the Orissa Sales Tax Act in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court, according to Mr. Mohanti, in considering section 5(3) of the Rajasthan Sales Tax Act clearly observed that the Legislature had not made any express provision for exclusion of offending materials over which the State lacks competence. This judgment, if read with the Builders Association case [1989] 73 STC 370 (SC) dealing with the Karnataka Act indicates, inter alia, that the Legislature could include value of transfer of property in goods involved in the execution of works contract into the turnover, but must exclude in the enactment the offending materials. With this scale, if the scope of the Orissa Act is considered, the offending sections cannot be sustained. It is argued that section 5(2)(A)(a)(i) cannot also be sustained as it does not exclude either in itself or reading the entire Act as a whole the offending materials. The chaotic situation by the Revenue will necessitate the court to indicate that in a case of works contract when goods become involved in its execution, the taxable event takes place when it is involved in the contract and passes by way of accretion and whether such transfer can have, inter-State character. The Supreme Court, as suggested by Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax authorities cannot enlarge the ambit of the provisions of the Orissa Sales Tax Act to cover such transactions within its catch-net to make assessment and levy sales tax. 45.. On close scrutiny, we do not find that in the light of the judgment of the Supreme Court reported in [1993] 88 STC 204 (Gannon Dunkerley Co. v. State of Rajasthan), the question as to vires of the challenged provisions of the Orissa Sales Tax Act is to be reopened and in our view we do not find that such provisions of the Orissa Sales Tax Act as being challenged before us suffer from any inherent defect or infirmity as to constitutional limitations. Those succeed the tests as laid down under law and the contentions raised by the petitioner have no merit in this regard. We, however, find that the challenge to the show cause notice by the petitioner is premature. It is open to the petitioner-assessee to file its show cause replies by raising all the points permissible under law and it is equally open to the Revenue to adjudicate the matter strictly in terms of the decision of the Supreme Court whether the State Legislature cannot transgress its constitutional limitations. With such observation, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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