TMI Blog1997 (12) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... re referring to the contentions urged by the learned counsel for the petitioners and the learned Government Advocate, it is useful to refer to the genesis of the provisions of law, which will have a bearing for the disposal of these petitions. (a) By means of Constitution (46th Amendment) Act, 1982, clause (29A) was introduced to article 366 of the Constitution. Sub-clause (b) of clause (29A) of article 366 reads as under: (29A) 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 other form) involved in the execution of a works contract; Thereafter, section 5-B of the Act came to be introduced to the Karnataka Sales Tax Act (hereinafter referred to as the Act ) by means of Act No. 27 of 1985 with effect from April 1, 1986. The said section reads as hereunder: 5-B. Levy of tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts.-Notwithstanding anything contained in sub-section (1) or sub-section (3) or sub-section (3-C) of section 5, but subject to sub-section (4), (5) or (6) of the said section, every deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lects, accept in lieu of the amount of tax payable by him during the year under this Act, by way of composition an amount on the total consideration for the works contracts executed by him in that year in the State in respect of works contract specified in column (2) of the Sixth Schedule at the rates specified in the corresponding entries in column (4) of the said Schedule. Thereafter, by means of Act No. 7 of 1997, sub-section (6) of section 17 of the Act came to be amended with effect from April 1, 1997. The amendment made to clause (i) of sub-section (6) of section 17 of the Act, reads as hereunder: (a) for the words and brackets on his total turnover relating to transfer of property in goods (whether as goods or in some other form) involved in the execution of such works contract , the words on the total consideration received or receivable by him in respect of such works contract executed by him in that year in the State , shall be deemed to have been substituted with effect from the first day of April, 1988; (b) for the words, brackets and figure, at the rates specified in the corresponding entries in column (4) of the said Schedule , the words at the rate of fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where there is no transfer of goods in the property involved; and, therefore, the said provision is unconstitutional as being violative of sub-clause (b) of clause (29A) of article 366 of the Constitution of India and also being contrary to the mandate contained in section 5-B of the Act. In support of his submission, he drew my attention to clause (29A)(b) of article 366 of the Constitution and also section 5-B of the Act where it is specifically stated that the tax is leviable only on transfer of property in the goods, whether as goods or in some other form, which is involved in the execution of the works contract. He also relied upon the decisions of the Supreme Court in the case of (1) Builders Association of India v. Union of India [1989] 73 STC 370; and (2) Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204. He particularly drew my attention to the following observations made in the judgment in the case of Builders Association of India [1989] 73 STC 370, which reads as hereunder: Sub-clause (b) of clause (29A) states that tax on the sale or purchase of goods includes among other things a tax on the transfer of property in the goods (whether as goods or in som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Bench of the Supreme Court in the case of Builders Association [1989] 73 STC 370, the decision of the Supreme Court in the case of State of Kerala v. Builders Association of India [1997] 104 STC 134 cannot have binding effect and this Court should follow the decision of the Constitution Bench of the Supreme Court rendered in the case of Builder s Association of India [1989] 73 STC 370. He further pointed out that the decision of the Supreme Court in State of Kerala v. Builders Association of India [1997] 104 STC 134 turned on the facts of that case on the basis of the provisions contained in Kerala General Sales Tax Act. (a) Secondly, Sri Mallya submitted that even assuming that sub-section (6) of section 17 of the Act to the extent it has been made prospective in operation, is valid in law, Act No. 7 of 1997 to the extent it makes the said provision retrospective, is liable to be declared as unconstitutional as being violative of the rights guaranteed to the petitioners under articles 14, 19(1)(g) and 265 of the Constitution of India. It is his submission that in view of sub-section (6) of section 17 of the Act providing for composition as it stood prior to Act No. 5 of 1996, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er occasion, when the validity of the circular issued by the Commissioner came to be challenged wherein the Commissioner had directed levy of tax on total consideration of the works contract, has quashed the circular and directed the assessing authority to complete the assessment strictly in terms of the provisions contained in sub-section (6) of section 17 of the Act and without reference to the circular. The learned counsel for the petitioners further submitted that sub-section (6) of section 17 of the Act, under the circumstances, has to be treated as a charging section by itself and has to be read independently and de hors section 5-B of the Act with effect from April 1, 1997; and if it is so read, it enables the Sate to levy a tax on an item, which is not permissible to be levied in terms of sub-clause (b) of clause (29A) of article 366 of the Constitution of India. According to them, the acceptance of composition by the State has resulted in a concluded contract which the State cannot be permitted to rescind. 6. Sri D Sa, learned Government Advocate, while refuting each one of the grievances made out by learned counsel appearing for the petitioners, submitted that the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evy tax on total consideration in so far as the scheme providing for composition is concerned. In this connection, he drew my attention to the Budget Speech made on the Floor of the House by the Chief Minister of Karnataka, who was also the Finance Minister. The relevant portion of the Budget Speech, referred to by Sri D Sa, reads as under: (i) Extending the facility of payment of tax by way of composition under the Karnataka Sales Tax Act to dealers who are liable to pay tax on transfer of property in goods which are involved in the execution of civil works, an average rate of 2 per cent will be levied on the total turnover in such cases in lieu of all taxes including turnover tax payable under the Karnataka Sales Tax Act. He also referred to me the Statement of Objects and Reasons, which reads as hereunder: To give effect to the proposals made in the Budget Speech, it is proposed to amend the Karnataka Sales Tax Act, 1957. Hence, the Bill. From the Budget Speech made by the Chief Minister on the Floor of the House and also on the basis of the Statement of Objects and Reasons, Sri D Sa would submit that the intention was always to levy tax on the total consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1997, which has made Act No. 5 of 1996 retrospective in operation, is unconstitutional and as such, declared to be void? 8.. In so far as the first question is concerned, though Sri Kishore Mallya and other learned counsel appearing for the petitioners, took great pain and relying upon the decision in Builders Association of India v. Union of India [1989] 73 STC 370 (SC), submitted that sub-section (6) of section 17 of the Act to the extent it fastens tax liability on total consideration is liable to be declared as unconstitutional, in my view, the said question is no longer res integra in view of the decision of the Supreme Court in the case of State of Kerala [1997] 104 STC 134. In the said decision, the Supreme Court has observed as follows: With great respect, we are unable to agree. The first feature to be noticed is that the alternate method of taxation provided by sub-section (7) or (7A) of section 7 is optional. The sub-sections expressly provide that the method of taxation provided thereunder is applicable only to a contractor who elects to be governed by the said alternate method of taxation. There is no compulsion upon any contractor to opt for the method of taxat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable by him during the year by way of composition, an amount on total consideration for the works contract executed by him in that year. Therefore, it is clear that there is no compulsion upon any contractor to opt for the method of taxation provided under sub-section (6) of section 17 of the Act. It is entirely left to the choice and absolute discretion of the contractor. As observed by the Supreme Court in the case of State of Kerala [1997] 104 STC 134, if the contractor thinks that it is beneficial for him to so opt, he can opt for it; otherwise he will be governed by the normal method of taxation provided under section 5-B. Therefore, I am of the view that the petitioners cannot derive much assistance from the decision of the Supreme Court in the case of Builders Association v. Union of India [1989] 73 STC 370, in support of their plea that the provisions of sub-section (6) of section 17 of the Act to the extent it makes the tax payable on the total consideration of the works contract executed by the contractor, is unconstitutional. On the other hand, the decision of the Supreme Court, in the case of State of Kerala v. Builders Association of India [1997] 104 STC 134, as obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support this claim made by the State. Further, the circulars issued by the Commissioner, though they came to be quashed by this Court, also support the claim of the State that the State and its authorities throughout intended to levy tax on total consideration so long as it relates to composition. Under these circumstances, when this Court, in the case of Gounder and Company (Writ Petitions Nos. 15958 and 15959 of 1996 decided on October 10, 1996) has taken the view that on the plain reading of section 17(6) of the Act, as it stood prior to the impugned provision, it was not permissible for the State to impose tax on items which do not relate to transfer of goods in the execution of a works contract, the impugned provision came to be incorporated into the Act making the liability retrospective in operation. In other words, when this Court, on consideration of section 17(6) of the Act, as it stood prior to the amendment, has taken the view that the State could levy tax only on transfer of property in the goods involved in the execution of a works contract, the impugned provision was required to be passed by the State. Such a provision was necessitated to be incorporated into the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 5-B of the Act. In this background, the only question is whether the impugned provision would result in arbitrariness and violation of the rights guaranteed to the petitioners either under article 14 or under article 19(1)(g) of the Constitution of India. If the petitioners and several other assessees, like the petitioners, at all point of time, were informed or indicated by the authorities, once they opt for composition, they are liable to pay tax on total consideration for works contracts executed by them and at a later stage, the State, by virtue of the judgment of this Court Gounder and Company v. State of Karnataka (Writ Petitions Nos. 15958 and 15959 of 1996 decided on October 10, 1996), is prevented from levying tax on total consideration, on a proper understanding of the law then prevailing; and in that situation, if law is made retrospective in operation permitting the State to levy tax on total consideration, can it be said that the said provision is unreasonable? In my view, the answer should be in the negative because there is absolute no prejudice or hardship caused to the assessees who have opted for composition. In this connection, though a contention is advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edience of validation of laws is of particular significance and utility and is quite often applied in taxing statutes. It is necessary that the Legislature should be able to cure defects in statutes. No individual can acquire a vested right from a defect in a statute and seek a windfall from the Legislature s mistakes. Validity of legislations retroactively curing defects in taxing statutes is well-recognised and courts, except under extraordinary circumstances, would be reluctant to override the legislative judgment as to the need for, and the wisdom of, the retrospective legislation. In Empire Industries Ltd. v. Union of India [1987] 64 STC 42 at 67; [1986] 162 ITR 846 at 873; [1985] Supp 1 SCR 292 at 327, this Court observed: ..............not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of Government among those who benefit from it. In testing whether a retrospective imposition of a tax operates so harshly as to violate the fundamental rights under article 19(1)(g), the factors considered relevant include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since had the Legislature s or administrator s action had the effect it was intended to and could have had, no such right would have arisen. Thus, the interest in the retroactive curing of such a defect in the administration of Government outweighs the individual s interest in benefiting from the defect.........The court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of Government among those who benefit from it. If the justification sought to be made out by the State is considered in the light of the law enunciated by the Supreme Court in the cases, referred to above, I am of the opinion that there is no justification for the grievance made out by the petitioners. The decision of the Kerala High Court in the case of Mega Traders v. State of Kerala [1991] 83 STC 59 relied upon by the learned counsel appearing for the petitioners, in my view, is of no assistance to the petitioners. That is a case w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a concluded contract entered into between the parties. Therefore, there is no merit in the above submission of the learned counsel for the petitioners. 12.. In the light of the above discussion, these petitions are liable to be rejected. 13.. However, in view of the categorical statement made by the State in the statement of objections stating that this Court can permit the petitioners to opt for regular assessment under section 5-B; and I have taken that factor as one of the factors to come to the conclusion that the impugned provision in no way results in arbitrariness or violation of the right guaranteed to the petitioners either under article 14 or under article 19(1)(g) of the Constitution; it is necessary to reserve liberty to the petitioners to opt for regular assessment under section 5-B of the Act notwithstanding the fact that they had opted for composition under section 17(6) of the Act, if the petitioners, within 12 weeks from today, make an application to the concerned assessing authority that they may be assessed as provided under section 5-B of the Act, and further direct the assessing authorities to proceed to assess the petitioners and all others, who are not be ..... 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