TMI Blog2002 (8) TMI 808X X X X Extracts X X X X X X X X Extracts X X X X ..... . The judgment of the Court was delivered by KOSHY, J.-This writ appeal is filed questioning the correctness of the judgment of the learned single Judge* upholding the validity Reported in [2002] 125 STC 544 (Ker) (Siemens India Ltd. v. State of Kerala) The judgment of the Court was delivered by KOSHY, J.-This writ appeal is filed questioning the correctness of the judgment of the learned single Judge upholding the validity Reported in [2002] 125 STC 544 (Ker) (Siemens India Ltd. v. State of Kerala) of sub-section (7B) of section 7 of the Kerala General Sales Tax Act, 1963 and rule 22A(2) of the Kerala General Sales Tax Rules, 1963. Before going into the merits of the legal contentions, we may look into the facts. 2.. The appellant is a company registered under the Indian Companies Act, 1956 having its registered office at Mumbai. It is a dealer registered under the Kerala General Sales Tax Act, 1963 (for short "the KGST Act") and under the Central Sales Tax Act, 1956 (for short "the CST Act"). Appellant is a manufacturer-cumdealer of electrical and electronic goods. A customer from Ernakulam placed an order with the appellant for supply of one Somotom AR. Whole Body ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Kerala General Sales Tax Act, 1963 (for short "the KGST Act") and under the Central Sales Tax Act, 1956 (for short "the CST Act"). Appellant is a manufacturer-cumdealer of electrical and electronic goods. A customer from Ernakulam placed an order with the appellant for supply of one Somotom AR. Whole Body CT Scanner at a total cost of Rs. 55 lakhs. As per the above order, appellant had to supply the CT scanner from its factory at ex-Goa and carry out the installation of the equipment at free of cost at Cochin. Installation work was incidental. According to the appellant, transaction was in a sense an inter-State sale assessable at Goa. Appellant has remitted Rs. 1,07,843.14 as tax at Goa. Details of the contract can be seen from exhibits P1 and P2 and exhibit P3 is the invoice. But, by exhibit P4 dated October 21, 1999 appellant's customer was issued with a notice directing them to deduct a tax at 8 per cent on the bill amount and remit the same with 10 per cent surcharge on it. By exhibit P5 dated December 6, 1999, appellant requested to issue a certificate for non-deduction of TDS as it is mainly a direct inter-State sale and appellant is a registered dealer. By exhibit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng advance payments, and remit it to the Government on or before the fifth day of the succeeding month from the date of such deduction in the prescribed manner." 5.. Rule 22A of the Kerala General Sales Tax Rules, 1963, as amended in 1994 reads as follows: "22A. Payment and recovery of tax in works contract.-(1) In the case of works contract on which tax is payable in accordance with the provisions of the Act whether an option under sub-section (8) of section 7 is made or not, the tax shall be paid either by the contractor in accordance with the rules. (2) Wherever payment is made by the awarder to the contractor either in lump sum for the whole contract or in instalments, the awarder shall withhold an amount equal to two per cent of such payment or payments in the case of civil contracts and five per cent in the case of other contracts where the contractor is registered under section 13 and at the rate of 70 per cent of the rates shown in the Fourth Schedule against such contract where the transfer of goods involved in the execution of works contract is not in the form of goods, or, at the rate applicable to the goods under the Act, where such transfer is in the form of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the goods under the Act, where such transfer is in the form of goods from such payment or payments and shall remit it to the assessing authority with whom the contractor is registered as a dealer and if he is not so registered, to the assessing authority having jurisdiction over the place of works contract, on or before the fifth day of the month succeeding the month in which the deduction is made along with a statement in form No. 21C: Provided that no amount under this sub-rule shall be deducted if there is no transfer of goods involved in the execution of the works contract. (3) Notwithstanding anything contained in sub-rule (2) above, any contractor who pays tax regularly in accordance with the rules, on production of a certificate issued to that behalf issued by the assessing authority shall be entitled to payment of the contract amount without deduction of sales tax due on the contract for the periods and to the extent or for the works contract specified in the certificate. (3A) Any contractor may apply to the assessing authority in form No. 21CA for the issue of such a certificate. The assessing authority, if it is satisfied that the applicant complies with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in sub-rule (2), if the total turnover in respect of a contractor for a year does not exceed the assessable limit prescribed under section 5, the amounts recovered and remitted by any awarder under sub-rule (2) for the period shall be refunded or adjusted as the case may be by the assessing authority. (5) Any awarder who effects any payment of any contract amount without deduction of the amount prescribed under sub-rule (2), shall be liable to pay the said amount and shall be recovered from him as if it were a tax due from him. All provisions relating to recovery of tax including provisions relating to penalty and interest shall apply to such awarder as if he were a dealer liable to pay tax under the Act, irrespective of the limit of turnover prescribed under section 5. (6) The amount deducted by the awarder from the payments due to the contractor and remitted under sub-rule (2) shall be adjusted against the amount finally assessed on the contractor under subrule (13) of rule 21 and shall be dealt with in accordance with subrule (14) thereof: Provided that this rule shall not apply to any contractor whose total turnover in a year does not exceed the assessable limit pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot apply to any contractor whose total turnover in a year does not exceed the assessable limit prescribed in section 5: Provided further that when the contract amount does not exceed rupees fifty thousand in the year, the awarder may effect payment of the contract amount after getting a declaration in duplicate (one copy to be forwarded to the assessing authority) from the contractor to the effect that his total turnover for the year does not exceed rupees fifty thousand." 6.. Sub-section (7B) of section 7 of the Act as it stood prior to April 1, 1994 only provided for deduction of the tax under section 5(1)(iv) or under sub-sections (7) and (7A) from the payments made to the contractors and option was also allowed. But, subsection (7B) as inserted by the Finance Act, 1994 provides for deduction of tax at the rate of two per cent in respect of civil contracts and five per cent in respect of other contracts by the awarder from payments made to the contractor liable to pay tax under section 5. Sub-section (7B) mandates the deduction of the amount specified therein which is a percentage of the contract amount. Sub-section (7B) clearly provides that the deduction must be made only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all in the execution of works contract, no tax is payable and in view of rule 22A(6), any payment made as advance tax is adjustable after final assessment is over. It is true that the amount of deduction under sub-section (7B) of section 7 of the Act read with rule 22A is only provisional and final assessment has to be done subsequently. Even under sub-rule (3) of rule 22A to get a certificate, assessment must be over to any tax; but, sub-section (7B) mandates payment of advance tax without any option except in cases where there is no transfer of goods at all. 10.. Now, we may consider the decision of the Supreme Court in Steel Authority of India Ltd. v. State of Orissa [2000] 118 STC 297. A three-member Bench of the Supreme Court was considering the provisions in the Orissa Sales Tax Act. Deduction of tax under section 5 (section 13AA of the Orissa Sales Tax Act) which deals with deduction of sales tax at source. Section 13AA of the Orissa Sales Tax Act, 1947, reads as follows: "13AA. Deduction of tax at source from the payment to works contractors.-(1) Notwithstanding anything contained in section 13 or any other law or contract to the contrary, any person responsible fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x at source from the payment to works contractors.-(1) Notwithstanding anything contained in section 13 or any other law or contract to the contrary, any person responsible for paying any sum to any contractor (hereinafter referred to in this section as the 'deducting authority') for carrying out any works contract, which involves transfer of property in goods, in pursuance of a contract between the contractor and (a) Central Government or any State Government, or (b) any local authority, or (c) any authority or corporation established by or under a statute, or (d) any company incorporated under the Companies Act, 1956 (1 of 1956) including any State or Central Government undertaking, or (e) any co-operative society or any other association registered under the Societies Registration Act, 1860 (21 of 1860), shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier, deduct an amount towards sales tax equal to four per cent of such sum in respect of the works contract, if the value of the works contract exceeds rupees one lakh. (2) While making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a copy thereof to the Sales Tax Officer within whose jurisdiction the works contract is executed. (3) The amount deducted from the bills or invoices shall be deposited into the Government treasury within one week from the date of deduction in such form or challan as may be prescribed. (4) Such deposit into the Government treasury shall be adjusted by the Sales Tax Officer towards the sales tax liability of the contractor and would also constitute a good and sufficient discharge of the liability of the deducting authority to the contractor to the extent of the amount deposited. (5)(a) Where, on an application being made by the contractor in this behalf, the Commissioner is satisfied that any works contract of the nature referred to in sub-section (1) involves both transfer of property in goods and labour or service, or involves only labour or service and, accordingly, justifies deduction of tax on a part of the sum in respect of the works contract or, as the case 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 noth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws: "Whereas it is expedient to consolidate and amend the law relating to the levy of a general tax on the sale or purchase of goods in the State of Kerala." (b) Where such a certificate is produced by a contractor before the deducting authority, until such certificate is cancelled by the Commissioner, the deducting authority shall either make no deduction of tax or make the deduction of tax as the case may be, in accordance with the said certificate. (6) If any person contravenes the provisions of sub-section (1) or (2) or (3) or of clause (b) of sub-section (5), the Sales Tax Officer shall, after giving him an opportunity of being heard, by an order in writing impose on such person penalty not exceeding twice the amount required to be deducted and deposited by him into Government treasury." 11.. Sub-section (5)(a) takes no account of the fact that even if a works contract involves both the transfer of property in goods and labour or service, State sales tax may not be payable upon the entire value ascribable to the transfer of property in goods for the reason that it is in the course of inter-State sale, an outside sale or a sale in the course of import or export; nor i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision that only a person liable to pay tax need pay advance tax, we see no difference between section 13AA of the Orissa Act as amended in 1993 and the present amendment in the KGST Act. While considering the above section of the Orissa Act, the Supreme Court in Steel Authority of India's case [2000] 118 STC 297, held as follows: "13. There can be no doubt, upon a plain interpretation of section 13AA, that it is enacted for the purposes of deduction at source of the State sales tax that is payable by a contractor on the value of a works contract. For the purposes of the deduction neither the owner nor the Commissioner who issues to the contractor a certificate under section 13AA(5) is entitled to take into account the fact that the works contract involves transfer of property in goods consequent upon of an inter-State sale, an outside sale or a sale in the course of import. The owner is required by section 13AA(1) to deposit towards the contractor's liability to State sales tax four per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract includes the value of inter-State sales, outside sales or sales in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit towards the contractor's liability to State sales tax four per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract includes the value of inter-State sales, outside sales or sales in the course of import. There is, in our view, therefore, no doubt that the provisions of section 13AA are beyond the powers of the State Legislature for the State Legislature may make no law levying sales tax on interState sales, outside sales or sales in the course of import." 15.. A contention was raised in Steel Authority of India's case [2000] 118 STC 297 (SC), that advance tax payable is only 4 per cent whereas for taxable turnover the rate of tax is 8 per cent. Here, the very same contention was raised that in respect of civil contracts, advance tax payable is only 2 per cent and 5 per cent in the case of other contracts and it is finally adjustable also. The same contention was advanced and repelled by the Supreme Court in the above case as follows: "It was then contended by learned counsel for the State that the preamble of the Orissa Sales Tax Act took account of the fact that that statute was limited to the sale or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court in the above case as follows: "It was then contended by learned counsel for the State that the preamble of the Orissa Sales Tax Act took account of the fact that that statute was limited to the sale or purchase of goods in Orissa. Unfortunately, it would appear that the State Legislature overlooked its limitations, even as contained in the preamble, when enacting section 13AA. It was also contended that the deduction that was required to be made under section 13AA(1) was of four per cent of the amount credited or paid by the owner to the contractor, whereas the sales tax liability of the contractor thereon was eight per cent. It was contended that this requirement proceeded on the assumption that half of the amount was not liable to tax being in respect of inter-State sales, outside sales and export sales. No such assumption based on the rate of tax at any given point of time can be made. Section 13AA should have been precisely drafted to make it clear that no tax was levied on that part of the amount credited or paid that related to inter-State sales, outside sales and sales in the course of import, particularly after the previous section 13AA had been struck do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (7A) of the KGST Act because payment of fixed percentage of the total contract amount before the amendment was optional. The Supreme Court held as follows: ".....The impugned sub-sections have evolved a convenient, hassle-free and simple method of assessment just as the system of levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contractor saves himself the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under sub-section (7), the contractor pays two per cent of the total value of the contract by way of tax and he is done with all the abovementioned botheration. The rate of two per cent prescribed by sub-section (7) is far lower than the rates in First, Second and Fifth Schedules referred to in section 5(1)(iv)(a). In short, sub-sections (7) and (7A) evolve a rough and ready method of assessment of tax and leave it to the contractor either to opt to it or be governed by the normal m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax and he is done with all the abovementioned botheration. The rate of two per cent prescribed by sub-section (7) is far lower than the rates in First, Second and Fifth Schedules referred to in section 5(1)(iv)(a). In short, sub-sections (7) and (7A) evolve a rough and ready method of assessment of tax and leave it to the contractor either to opt to it or be governed by the normal method. It is only an alternative method of ascertaining the tax payable, which may be availed of by a contractor if he thinks it advantageous to him." Therefore, the Supreme Court earlier upheld before the amendment of sub-section (7B) because liability to pay fixed percentage of contract amount was optional. It was for the assessee to opt for the method. Here, under sub-section (7B) of section 7, there is no such option. There is no method of certification for excluding the turnover covered by an inter-State sale, import, etc., on which State has no jurisdiction to assess sales tax. Therefore, we see that after the amendment, the present provisions are in pari materia the provisions of the Orissa Act and Himachal Pradesh Act which were struck down by the apex Court. In the above circumstances, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich State has no jurisdiction to assess sales tax. Therefore, we see that after the amendment, the present provisions are in pari materia the provisions of the Orissa Act and Himachal Pradesh Act which were struck down by the apex Court. In the above circumstances, we are of the view that in view of the compulsory nature of payments under sub-section (7B) of section 7 which an assessee to pay sales tax to the State of Kerala for turnover inclusive of inter-State sales, sales by import, etc., which are specifically outside the jurisdiction of the State is clearly illegal and, therefore, these sections are liable to be set aside. 18.. Sub-section (7B) of section 7 of the Act as amended is applicable only if the contractor is "liable to pay tax under section 5". But, if he is liable to pay tax and there is transfer of property in respect of even 1 per cent of the total contract amount, he is bound to pay advance tax on provisional basis for the entire turnover including the turnover in respect of inter-State sales, outside sales and import sales. The principles laid down by the Constitution Bench of the Supreme Court in the decisions in Bhawani Cotton Mills case [1967] 20 STC 290 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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