TMI Blog2003 (11) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners that in response to the notice issued by respondent No. 3, they produced their books of accounts and other details to finalise the assessment for the period April 1, 2000 to March 31, 2001 under the Bihar Finance Act, 1981 and the Central Sales Tax Act, 1956. It is also submitted that in compliance to the notice issued by the respondent No. 3 they submitted various details and documents under their registered letter and thereafter also personally appeared before the said Deputy Commissioner on various dates and produced the required documents, and as alleged by the petitioners extended full co-operation to finalise the assessment for the period under reference. According to them they were served with a notice of demand dated January 28, 2002 which was received by the petitioners on January 31, 2002. According to the petitioners, huge demands were made which were not only illegal but were contrary to law and were contrary to the judgments of the Supreme Court. It is also submitted by them that demand of additional tax and penalty is not only confiscatory in its nature but is also bad because no follow up legislation to section 21(1) of the Bihar Finance Act has been enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1981 prescribing the "manner and extent of deduction". The other questions raised in the writ applications were not pressed into service probably because this Court could direct that the petitioners may raise all the questions in a duly constituted appeal. 4.. The respondents have filed their counter, inter alia, submitting that the assessing officer has assessed the petitioners on best judgment on sound principles of law. The order was passed after affording fullest opportunity to the petitioners, the taxable turnover was determined strictly in accordance with rule 13-A of the Bihar Sales Tax Rules, 1983 ("the Rules", for short) read with section 13 of the Bihar Sales Tax Act, 1981. 5.. It is also submitted in the counter-affidavit that section 21(1)(a)(i) of the Act has been properly followed by enacting rule 13-A of the Rules, therefore, there was nothing wrong in assessing the petitioners. They have also submitted that the Supreme Court in the matter of Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204, has observed that "value of the goods involved in execution of works contract will have to be determined by taking into account the value of the entire works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that a works contract was an individual indivisible contract and the turnover of the goods used in execution of the works contract could not, therefore, become exigible to sales tax. To overcome this difficulty and meet the judgment of the Supreme Court, the Parliament amended article 366 of the Constitution of India by introducing sub-clause (b) of clause (29A). The said clause reads as under: "(29A) 'tax on the sale or purchase of goods' includes,- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (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; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under article 366(29A) of the Constitution should also be subject to the same restrictions and conditions. Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building. The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work. It was also observed by the Supreme Court that it would not be correct to say that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract, but a conglomerate, that is the entire building that is actually constructed. It was also observed that the Forty-sixth Amendment simply made it possible for the States to levy sales tax on the price of goods and materials used in works contract as if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of goods, aggregate of sale prices received and receivable by a dealer, including the gross amount received or receivable for execution of works contract or for the transfer of right to use any goods for any purpose (whether or not for a specified period) during any given period (and also including the sale of goods made outside the State and in the course of inter-State trade or commerce or export), but does not include sale prices of goods which have borne the incidence of purchase tax under section 4; (ii) for the purposes of levy of purchase tax, aggregate of purchase prices paid or payable by a dealer during any given period in respect of purchase of goods or class or description of goods which have borne the incidence of purchase tax under section 4; (iii) for the purposes of section 3, the aggregate of the amounts under sub-clauses (i) and (ii)." 12.. It would also be necessary to refer to the judgment of Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204 (SC), to appreciate that how the provisions are to be made workable and what particular items are taxable in a works contract and what particular deductions are to be given or extended in favour of the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. The Supreme Court, however, disagreed with the argument of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. According to the Supreme Court since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. The counsel for the State submitted that a more convenient mode that such determination is to take the value of the works contract as a whole and deduct therefrom the cost of labour and services rendered by the contractor during the course of execution of the works contract. It was submitted on behalf of the contractors that in that event the particular deduction should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned in items Nos. (vii) and (viii), the cost of establishment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and goods covered by sections 14 and 15 of the Central Sales Tax Act as well as goods which are exempt from tax under the sales tax legislation of the State. 14.. In the matter of Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204, the Supreme Court was considering the effect of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules as substituted by Notification dated 24th June, 1989. It reads as under: "(2) In case of 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 of the Act. (ii) all sums towards labour charges, which are directly correlated with the goods, property in which has passed in the execution of works contract, whether as goods or in some other form: Provided that where the labour charges are not determinable from the accounts of the contractors, or are considered unreasonably high considering the nature of the contract, the deduction towards labour charges shall be allowed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appellants before them were entitled to succeed. The Supreme Court quashed the assessment orders. 18.. Section 21 of the Bihar Finance Act reads as under: "21. Taxable turnover.-(1) For the purpose of this part the taxable turnover of a dealer shall be that part of his gross turnover which remains after deduction therefrom- (a)(i) in case of the works contract the amount of labour and any other charges in the manner and to the extent prescribed; (ii) sale price on account of sales exempted under section 7; (b) amount of sales tax actually collected as such, if any, along with the sale prices received or receivable in respect of sales of goods; (c) sale prices on account of sales to a registered dealer other than a dealer liable to pay tax under sub-section (4) of section 11 and specified in his registration certificate as being required for resale by him inside Bihar or in course of inter-State trade or commerce: Provided that in the case of such sale a declaration in the prescribed form duly filled up and signed by the registered dealer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid deductions are to be given in the manner and to the extent prescribed. 21.. The word "prescribed" according to the clause (r) of section 2 of the Act means prescribed by Rules made under the Act. When the State Legislature says that something is to be done in accordance with law then that is to be done in that manner and as prescribed and not otherwise. When the State Legislature says that the word "prescribed" means prescribed by the Rules then whatever is to be prescribed for making each and every section or any section of the Act workable must be prescribed under the Rules. According to sub-clause (i) of clause (a) of section 21(1), the deductions must be in relation to the amount of labour and any other charges (emphasis supplied). The labour is altogether a different thing and the labour charges are different to any other charges. One cannot confuse himself with the labour charges and other charges. When the Legislature itself has provided different categories-one as labour charges and the other general category as other charges then the State Legislature is obliged to go for a follow-up legislation by prescribing manner and the extent of deductions in relation to any ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner. This argument though appears to be impressive and lucrative but an identical argument was rejected by the Supreme Court in the matter of Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204. In the said matter it was submitted by the State of Rajasthan that the words "which have already suffered tax at the rates prescribed by section 5" are wide enough to permit deduction in respect of goods on which no tax is leviable under sub-section (1) of section 5 of the Act. The Supreme Court observed that the said words only referred to the goods which have already been subjected to tax under the Act at the rate specified under section 5 and their value is to be excluded from the turnover. The Supreme Court observed that the Legislature have made a distinction between a sale of goods on which no tax was leviable and sale of goods which has already been subjected to tax under the Act. The Supreme Court observed that it would not be possible to construe clause (i) of sub-rule (2) of rule 29 to mean that sales on which no tax is leviable under sub-section (1) of section 5 are to be excluded from the turnover for the purpose of computing tax on such turnover in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed/provided. The State Legislature cannot say that it would simply prescribe one and without providing or prescribing the other deductions and the extent and manner would go on giving the benefits. The law is not the handmaid of the State Government. The law governs the State and its individuals/citizens equally. No State has the authority to go contrary to law enacted by it. No State/no Government can say that after providing a particular law it would not observe it but would do the things after following certain judgments of the Supreme Court. When such arguments are raised it does not take into consideration that every State is governed by the Constitution of India and every State is obliged to observe the laws made under the Constitution of India. If the State does not observe the provisions of the Constitution then nobody would observe the laws made by the State. For framing a particular tax law, the State derives its authority from the Constitution and if the State itself does not observe the provisions of the Constitution as interpreted by the Supreme Court then it cannot be allowed in the matter to say that the citizens of the State would be subjected to tax even if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: 'The phrase "as may be prescribed", in constitutional amendment authorising certain cities to adopt or amend their charters, subject to such limitations as may be prescribed by Legislature, means that future legislation, as well as that existing when city first takes out or amends charter may limit its action' Vernon's Ann St Const Art. 11 $ 5. Dry v. Davidson, Tex Civ. App. 115 S.W. 2d659, 691. (Emphasis supplied). In 'Law Lexicon' by P. Ramanatha Aiyar, 2nd Edition, Reprint 2000 at page 147, it is indicated as under: 'used as an adverb, etc., means like, similar to, of the same kind, in the same manner, in the manner in which. It may also have the meaning of because, since, or it being the case that; in the character or under the name of with significance of in degree; to that extent; so far (Black's Law Dictionary)' (Emphasis supplied). In one of the cases decided by this Court, to be referred later in this judgment, 'as may be prescribed' has been held to mean that 'if any'. It is thus clear that such expression leave the scope for some play for the workability of the provision under the law. The meaning of the word 'as' takes colour in context with which it is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further in the matter. When the law requires a thing to be done in a particular manner then it must be so done. 30.. In the matter of Surinder Singh v. Central Government (1986) 4 SCC 667, the Supreme Court observed that where a statute confers powers on an authority to do certain act or exercise power in respect of certain matters, subject to Rules, the exercise of power conferred by the statute does not depend on the existence of rules unless the statute expressly provides for the same. The Supreme Court observed that the expression "subject to the Rules" only means, in accordance with the Rules, if any. In the present matter, it would clearly appear that the State Government did not leave any room to itself either to have a leverage in its favour or play the game. The State Government in clear term said that for the purpose of this part, the taxable turnover of a dealer shall be that part of his gross turnover which remains after deduction therefrom-in case of works contract, the amount of labour and any other charges in the manner and to the extent prescribed (emphasis supplied). The word "and" has not been used as a superfluous word. It is not even superficial. The word " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer, who have the complete records available to him. The petitioners are contractor of national level, they do not have the complete records available with them. In case like present where liability would be in crores; it is not expected of an assessee that he would simply file a document or two and leave himself at the mercy of the assessing officer. It is true that the assessing officer has to assess a dealer and recover tax from him and impose penalty also, if he finds a foul play but that does not mean that by passing such orders, he should coerce a citizen or a dealer to pay the tax. 35.. It would also be necessary to observe that during pendency of C.W.J.C. No. 3827 of 2002, second assessment proceedings started. The assessee-petitioner informed the officer that the question is pending consideration before this Court but the assessing officer for the reasons best known to him proceeded ex parte, assessed the petitioner and decided the artificial liability of the petitioner. We cannot approve the manner in which the two assessment orders were passed. When the petitioner/petitioners was/were saying before the assessing officer that particular items were tax-paid items, pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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