TMI Blog2001 (6) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Rules, 1963 are invalid and unsustainable being beyond the scope of the charging provision contained in section 5(1)(iv) of the Kerala General Sales Tax Act, 1963. They also sought for quashing exhibits P4, P6, P8 and P14 communications. They further sought for a direction restraining the respondents from deducting any amount towards tax invoking sub-section (7B ) of section 7 of the Kerala General Sales Tax Act, 1963. 3.. Sub-section (7B) of section 7 as amended by the Kerala Finance Act, 1994 was challenged before this Court in a batch of writ petitions O.P. No. 1590 of 1995 and connected cases. A learned Single Judge by judgment dated March 17, 1997 dismissed all the writ petitions. The court relied on the decision of a learned single Judge in Symon v. State of Kerala [1995] 97 STC 283 as affirmed by the Supreme Court in State of Kerala v. Builders Association of India [1997] 104 STC 134 and held that the present sub-section (7B) confers only a benefit to the assessees. It must be noted that the said decision has not been challenged in appeal and the same has become final. 4.. Smt. Chitra Venkataraman, learned counsel for the petitioner, however, submitted that the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax already collected is contemplated under the Rules, which is well within the competence of the State Legislature. The Government Pleader accordingly submitted that the provisions are valid. 6.. The validity of the provisions of sub-sections (7), (7A) and (7B) of section 7 and rule 22A as it stood prior to April 1, 1994 came up for consideration before a learned single Judge in Symon v. State of Kerala [1995] 97 STC 283 (Ker) and the same was upheld. The division Bench however did not agree with the said judgment and struck down the provisions of sub-sections (7), (7A), (7B), (11) and (12) of section 7 read with rules 22A and 30 as not in accordance with article 366(29A)(b) of the Constitution of India and therefore invalid. The Supreme Court reversed the judgment of the division Bench and upheld its validity in State of Kerala v. Builders Association of India [1997] 104 STC 134. 7.. As already stated, the provisions of sub-section (7B) as amended with effect from April 1, 1994 itself came up for consideration before a learned single Judge in O.P. No. 1590 of 1995 and connected cases and the same was upheld by dismissing the writ petitions. Adverting to the amended provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 deduction as referred to in sub-section (1), the deducting authority shall grant a certificate to the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract in that case between the appellant and the works contractor was for the design, engineering, manufacture, supply, transportation, erection, installation, testing and commissioning of basic oxygen furnace plant and the value of the same comprised of the cost of the following items: "(a) Supply of equipments from States outside Orissa by way of C.S.T. sales. Central sales tax paid in non-Orissa States. Both under sections 3(a) and 6(2) of the C.S.T. Act. Rs. 317 crores (b) Supply of equipments from other countries outside India on high seas sales basis under section 5 of the C.S.T. Act. Rs. 16 crores (c) Supply of steel by SAIL Rs. 18 crores (d) Design engineering and other services Rs. 103 crores (e) Fabrication, erection, structural, construction, civil construction, etc. Rs. 78 crores." The court further noted that the appellant deducted sales tax at source as provided under section 13AA at the rate of 4 per cent in respect of payments to the contractor pertaining to (d) and (e). It did not deduct tax at source in respect of payments under items (a), (b) and (c) for the reason that they were in respect of inter-State sales, outside sales and import sales and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 interState 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 inter-State sales, outside sales or sales in the course of import." 12.. In dealing with a contention by the learned counsel for the State of Orissa that the preamble to the Orissa Sales Tax Act took account of the fact that the statute was limited to the sale or purchase of goods in Orissa the Supreme Court observed that 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 inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be paid either by the contractor in accordance with the rules or by the person who awards the contract. No one can have any objection to sub-rule (1) since it only says that where tax is payable, it shall be paid either by the contractor or by the awarder according to law. Now, coming to subrule (2), it is equally applicable to all the contractors whether they are governed by section 5(1)(iv) or by sub-section (7) or (7A) of section 7. What the sub-rule says is that wherever payment is made by the awarder to the contractor, 'the awarder shall withhold an amount equal to the tax due' and remit the same to the assessing authority. It is evident that sub-rule (2) does not provide for deduction of tax at source like the one provided by section 194-C of the Income-tax Act, 1961. Sub-rule (2) merely says that where tax is due from a contractor, the awarder shall withhold an amount equal to the tax due while making payment to the contractor. In the case of a contractor who has not opted for the alternate method of taxation and is governed by section 5(1)(iv), this sub-rule means that where tax is due from him according to law and the awarder is apprised of the said fact, the award ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered in the above case read thus: The tax under clause (iv) of sub-section (1) of section 5, sub-sections (7) and (7A) of this section shall be deducted from the payment made by the awarder at every time including advance payment and remit it to Government within seven days in the prescribed manner. 18.. Referring to the decisions of the Supreme Court in Sardar Baldev Singh v. Commissioner of Income-tax [1960] 40 ITR 605 (SC); AIR 1961 SC 736, Commissioner of Commercial Taxes v. Ramkishan Shrikishan Jhaver [1967] 20 STC 453 (SC); AIR 1968 SC 59 and in Chaturbhai M. Patel v. Union of India AIR 1960 SC 424, it was observed that in the case of a taxing statute, it is open to the Legislature to enact provisions which would check evasion of tax and that the power to tax includes the power to provide the means to make the realisation of the tax effective. It was further observed that what sub-section (7B) seeks to achieve is to facilitate the collection of revenue as also prevent loss to the State by recoveries becoming impossible, and that such a provision is incidental and necessary for the effective enforcement of the levy of tax on a deemed sale under sub-clause (b) of clause (29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to that contract. The two provisos provide for some exemptions. The charge being on taxable turnover, we have naturally to turn to the definition of that term in section 2(xxv) to see what is the measure for the levy. It will be seen therefrom that in determining the taxable turnover, deduction has to be made of the turnover of purchases and sales in the course of inter-State trade and in the course of export or import besides other items which are prescribed by the rules, which so far as is relevant, are rules 8(4) and 9. Sub-section (7B) has to be read with these provisions, section 5(1)(iv) and section 2(xxv), and so read, it cannot be branded as arbitrary or bereft of provisions for making admissible deductions. The sub-section is not therefore liable to challenge as such on this ground. If there is any defect, or if all the permissible deductions are not provided for in arriving at the taxable turnover for purposes of section 5(1)(iv)(b), that will be a matter concerning the vires of that provision, and not a ground for striking down sub-section (7B)." 20.. The learned single Judge accordingly held that subsection (7B) does not suffer from the vice of unconstitutiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct amount without deduction of sales tax due on the contract for the period and to the extent or for the works contract specified in the certificate. (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." 23.. The contention of the petitioner is that there is no specific provision in sub-section (7B) of section 7 or in rule 22A for exclusion of the turnover of outside sales, inter-State sales or export sales which are outside the purview of the Kerala General Sales Tax Act and therefore sub-section (7B) and rule 22A(2) and (5) are beyond the legislative competence of the State Legislature. The petitioner has also contended that sub-section (7B) of section 7 and rule 22A(2) are confiscatory in nature in view of article 265 of the Constitution of India. 24.. I have extracted the provisions of sub-section (7B) of section 7 of the Kerala General Sales Tax Act as it (7B) as amended with effect from April 1, 1994 as also the provisions of rule 22A(2), (3), (4), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of rule 21 and shall be dealt with in accordance with sub-rule (14) of rule 21. Sub-rules (13) and (14) of rule 21 read as follows: "(13) After the close of the year in which the provisional assessments as laid down in sub-rule (8) or sub-rule (9) or sub-rule (10) has been made or in the course of the year to which a return submitted under sub-rule (12) relates, the assessing authority, if after such scrutiny of the accounts and after such enquiry as it considers necessary, is satisfied that the returns filed are correct and complete, shall finally assess under a single order on the basis of the returns, the tax or taxes payable under section 5, or notified under section 10 for the year to which the returns relate: Provided that if the returns filed appear to the assessing authority to be incorrect or incomplete the assessing authority shall, after following the procedure prescribed in rule 18 determine the turnover to the best of its judgment and finally assess under a single order the tax or taxes payable under section 5 or notified under section 10. (14) After making the final assessment under sub-rule (13) the assessing authority shall examine, whether any and, if so, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fically provides for deduction of the turnover of inter-State sales, export sales and outside sales. Thus from a cumulative reading of the provisions of sub-section (7B) of section 7 of the Act read with the provisions of rule 22A(1), (2), (3), (4) and (6) of the Rules it would be clear that the provisions of subsection (7B) and rule 22A(2) only provides for collection of an amount equal to two per cent in respect of civil contracts and five per cent in respect of other contracts as a provisional or advance tax which has to be adjusted after completion of the final assessment in accordance with the normal provisions of the Act. It is also clear from the expression "liable to pay tax under section 5" in sub-section (7B) that deduction need be made only from persons who are liable to pay tax under the Act. In other words, if there is no liability to pay tax under section 5 of the Act then deduction under sub-section (7B) is not contemplated. 27.. Even in the case of persons who are liable to pay tax under section 5 of the Act if the petitioner obtains a certificate from the assessing authority concerned to the effect that the contractor pays tax regularly in accordance with the rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a [1997] 104 STC 134 will squarely apply. According to me, the provisions of sub-section (7B) of section 7 of the Act and rule 22A(2) and (5) of the Kerala General Sales Tax Rules, 1963 do not suffer from the vices pointed out by the Supreme Court in Steel Authority of India Ltd. case [2000] 118 STC 297 rendered in the context of section 13AA of the Orissa Sales Tax Act, 1947. 30.. The reasons for amending the provisions of sub-section (7B) of section 7 of the Act and rule 22A of the Rules as it obtained from April 1, 1994 though not it is stated are also understandable. Subsection (7B) as it stood prior to April 1, 1994 provided for deduction of tax due on works contract from the payment made by the awarder to contractor. This casts an obligation on the awarder to determine the tax due from the contractor every time payments are made to the contractor. A division Bench of the Allahabad High Court in V.K. Singhal v. State of U.P. [1995] 97 STC 355 had made the following observation in regard to the deduction of tax by the awarder: "Neither the contractor nor the contractee are the assessing authorities. It would be very difficult for a contractee to examine and for the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Kerala General Sales Tax Act, and rule 22A(2) and 22A(5) of the Kerala General Sales Tax Rules are intra vires and within the legislative competence of the State. 34.. In view of the aforesaid findings I do not find any merit in the contention of the petitioner that sub-section (7B) of section 7 of the Act and rule 22A are confiscatory or that it is against the mandate of article 265 of the Constitution of India. 35.. What remains to be considered is as to whether exhibits P4, P6, P8, P14 proceedings of the respondents are liable to be quashed. Exhibit P4 is a communication issued by the fourth respondent to one of the awarder directing it to deduct tax at eight per cent from the contract amount due to the petitioner and remit the same along with 10 per cent surcharge on it. Petitioner submitted exhibit P5 letter to the third respondent seeking for issuance of a non-liability certificate which was rejected by the third respondent as per exhibit P6 proceedings wherein it is stated that the said turnover is liable to tax under section 5(1)(iv)(a) of the Act. The claim of the petitioner that the transaction mentioned in exhibit P4 is inter-State sales is rejected. Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
