TMI Blog2001 (7) TMI 1259X X X X Extracts X X X X X X X X Extracts X X X X ..... ct No. 15 of 1997 with effect from April 1, 1997 to Gujarat Sales Tax Act, 1969. 3.. By this petition, the petitioner-company ("contractor", for short) challenges the constitutional validity of the provisions contained in Chapter VA and particularly section 57B thereof on the sole ground of lack of legislative competence of the State Legislature in enacting such a law authorising deduction of sales tax at source on the total value of works contract payable to the contractor under the bills. 4.. The legal position not in dispute is that originally, there was no power of taxation available either to the State or Union Legislature under Lists I and II of the Seventh Schedule to the Constitution of India to levy sales tax on sale and supply of material under the composite works contract involving sales and supplies of goods and labour. Such power on the State and Union Legislatures was conferred only by Constitution (Forty-sixth Amendment) Act, 1982, whereby definition clause (29A) was inserted in article 366 of the Constitution to expand the meaning of entry 92A in List I to the Seventh Schedule and entry 54 in List II to the Seventh Schedule. The relevant constitutional provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f installation of the dairy plant, most of the goods and machinery are imported from foreign country and large number of articles and goods are brought from other States. A very small percentage of goods were required to be purchased from registered dealers in Gujarat which are all tax-paid in the State of Gujarat in the hands of the suppliers of goods. Despite the protest of the petitioner from its employer that no tax is payable on the value of work done, a total sum of Rs. 41,68,380 has been deducted at the rate of 2 per cent on payments under the bills by the employer for the period of work done between September 7, 1999 and December 20, 2000. 7.. Learned counsel Mr. K.H. Kaji, appearing for the petitionercontractor contends that the State Legislature by inserting section 57B under Chapter VA of the Gujarat Sales Tax Act to authorise employer to deduct 2 per cent of the value of bill of the contractor, is attempting to collect advance tax at source even on inter-State sales and transactions, which is beyond the legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution. Provisions of section 57B is clearly an encroa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the petitioner and in support of them by the learned Advocate-General on behalf of the State, it would be necessary to reproduce relevant provisions contained in the impugned provisions of section 57B, section 87, section 2(28)(c) and section 2(29)(a): "57B. (1) Notwithstanding that the assessment in respect of the specified sales is to be made for a year or part of a year, the tax on such sales shall be payable at source in accordance with the provisions of this section. (2) Nothing in sub-section (1) shall prejudice the levy of tax on the specified sales under sections 7 and 8. (3)(a) Any person responsible for paying specified sale price to a contractor for carrying out any work in pursuance of a specified works contract, shall at the time of payment of the whole or part of the specified sale price, deduct from such price an amount equal to two paise in a rupee of such payment as a tax on specified sales. ..................... (4)(a) Where the Commissioner is satisfied that the contractor or the sub-contractor is not liable to pay tax under this Act on specified sales involved in any specified works contract, he shall, on an application made by the contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any other manner whatsoever, of goods, for food or any other article for human consumption or any drink (whether or not intoxicating), the amount of cash, deferred payment or other valuable consideration paid or payable therefor: (b) in relation to the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, such amount as is arrived at by deducting from the amount of valuable consideration paid or payable to a person for the execution of such works contract, the amount representing labour charges for such execution, (c) in relation to the delivery of goods on hire-purchase or any system of payment by instalments, the amount of valuable consideration payable to a person for such delivery." (underlying* for emphasis) It will also be necessary to reproduce section 57A in Chapter VA which contains definitions of various terms used in section 57B, such as contractor, sub-contractor, specified sale, specified sale price and specified works contract: "57A.-For the purposes of this chapter, unless the context otherwise requires,- (a) 'contractor' or 'sub-contractor' means the dealer referred to in sub-clause (f) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be, justifies no deduction of tax, he shall, after giving the contractor a reasonable opportunity of being heard, grant him such certificate as may be appropriate, in the manner prescribed: Provided that nothing in the said certificate shall affect the assessment of the sales tax liability of the contractor under this Act." 12.. In comparing and contrasting these provisions in the Orissa Act with the provisions contained in sub-section (4)(a) and (b) of section 57B of the Gujarat Act, submission made is that Gujarat Act is an improvement. The vice which existed in the Orissa Act is not to be found in the Gujarat Act. It is pointed out that the Supreme Court struck down section 13-AA of the Orissa Act on the ground that section 5A of the said Act does not precisely make it clear that no tax is leviable on the transactions which relate to the inter-State sales, outside sales and sales in the course of import. It is submitted that sub-section (4)(a) of section 57B read with section 87 and the definition of "sale" in section 2(28)(c) and "sale price" in section 2(29)(b) of Gujarat Act, there is a clear indication that inter-State sales in the course of inter-State trade, outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be saved on the contentions advanced by the learned Advocate-General of the State. Section 87 of the Act makes it clear that State Act would not be applicable to sales in inter-State trade and commerce, outside sales and sales in the course of import. This is nothing but surplusage as this is a legal position in view of Central Sales Tax Act and entry 92-A of Union List I of the Seventh Schedule. Existence of such provisions in section 87 does not at all advance the case of the State to assume power to impose and collect tax even on inter-State sales and transactions by treating them to be sales within the State. 15.. It is true that Gujarat Act by its definition in sub-clause (i) of clause (28) of "sale" and sub-clause (c) of clause (29) of "sale price" clearly intends to exclude from the definition of "sale price" interState sales or outside sales and price representing labour charges in Here italicised. the course of works contract. Such definition clauses and the provisions of section 87, however, cannot be held as conferring legislative competence on the State Legislature to levy and collect sales tax in advance on inter-State sales or outside sales or sales in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State. Mere non-production of certificate for non-TDS under sub-section (4)(a) of the said section authorises the tax authorities of State to collect tax on sales which in fact are not sales within the State. By the impugned machinery provision, thus, tax is permitted to be collected at source on works contracts assuming them to have involved intra-State sales, when in reality, they are found to be inter-State sales or sales in the course of import or outside sales. The machinery provision cannot go to the extent of collecting tax on sale transactions which are not taxable within the State. Clearly, thus by enacting the provisions under section 57B, an indirect or surreptitious attempt has been made by the State Legislature to encroach on exclusive Central legislative field in entry 92-A of List I to the Seventh Schedule to the Constitution of India. The impugned provisions thus can be described as an unauthorised piece of colourable legislation. It is projected to be legislation on the legislative field in entry 54 of List II of the State List, but in fact, by making it obligatory on the employer to collect 2 per cent advance tax at source on bills in all works contracts on ..... 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