TMI Blog2004 (6) TMI 598X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner in this writ petition, M/s. Larsen and Toubro challenged the said provision, as it then stood, in the High Court of Patna in C.W.J.C. No. 878 of 1997. The argument on behalf of the petitioner was that the State was incompetent to impose any tax on a works contract and the State also did not have the power to impose tax on the sale of goods, if the sale is not an intra-State sale. The Patna High Court in the decision reported in [2000] 117 STC 41 (Larsen and Toubro Ltd. v. State of Bihar), upheld the challenge of the petitioner. Of course, the extent to which the challenge was upheld is one of the matters in controversy. For the moment, it needs only to be noticed that the challenge was upheld to the extent of the division Bench holding that section 25-A of the Bihar Finance Act, to the extent it related to transfer of properties in goods taking place in the course of interState trade or commerce or a sale outside the State, or in the course of import within the ambit of sections 3, 4 and 5 of the Central Sales Tax Act or in "declared goods" within the meaning of sections 14 and 15 of the Central Sales Tax Act must be held to be ultra vires entry 54 of the State List rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such payment or discharge of any such bill or invoice raised by a works contractor shall be made without deduction referred to in sub-section (1). Provided further that the rate or rates to be specified by the State Government under sub-section (1) shall not exceed four per centum. Provided that under the following circumstances there shall be no deduction of tax at source provided the Joint Commissioner of Commercial Taxes (Administration) issues a certificate to be produced before the concerned authority to the following effect: (i) Sales under sections 3, 4 and 5 of the Central Sales Tax Act, 1956, (ii) Sales/supplies under sections 14 and 15 of the Central Sales Tax Act, 1956, (iii) On the amount to be paid by the contractor to sub-contractor provided the sub-contractor is a registered dealer and it is established that the sub-contractor has included the payment receipt from the contractor in his returns, (iv) Labour and services, designs, programmes, establishments, consumable articles, water, electricity, etc., and also on the machines and equipments hired on rent. All those goods will pass on in the same form and/or are supplied in the same form. Explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, what we find is that the court rested its decision on the question of legislative competence of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution and as impinging upon entry 92A of List I. At the risk of repetition, we may quote the operative portion of the judgment here: "45. To conclude, the provisions of section 25-A of the Bihar Finance Act to the extent they relate to transfer of property in goods taking place in course of inter-State trade or commerce or a sale outside the State or in the course of import within the ambit of sections 3, 4 and 5 of the Central Sales Tax Act, or the 'declared goods', within the meaning of sections 14 and 15 of the said Act, must be held to be ultra vires entry 54 of the State List read with entry 92A of the Union List and article 286 of the Constitution. Further, to the extent they provide for deduction from payment made on account of labour charges and other services towards sales tax, the provisions must be held to be ultra vires entry 54 read with article 366(29A)(b) of the Constitution." 7.. From this, it is possible to say that the Patna High Court had only read down the section or declared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the judgment above referred to, that the section stands struck down as a whole. Though the reasoning may suggest that the court was inclined to think that the provision was arbitrary, ultimately, the court did not strike down the provision as a whole, as being arbitrary or unreasonable or as violative of any of the fundamental rights of the petitioner. The court satisfied itself by reading down the provision by declaring that the said provision cannot apply to transactions which fell outside the competence of the State Legislature to tax. As we stated, we are now only considering the question whether the section was available in the Act to be adopted in the State of Jharkhand after the pronouncement of the Patna High Court in [2000] 117 STC 41 (Larsen and Toubro Ltd. v. State of Bihar). 9.. Reading down a provision so as to ensure that it falls within the competence of the concerned Legislature or Parliament is generally resorted to while dealing with a challenge based on legislative competence. We are inclined to think, on a close reading of the decision in [2000] 117 STC 41 (Larsen and Toubro Ltd. v. State of Bihar), that this device was adopted by the Patna High Court wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitutional validity and legislative competence. The court while rendering decision in [2000] 117 STC 41 (Larsen and Toubro Ltd. v. State of Bihar), had no occasion to consider the scope of the third proviso introduced in the State of Jharkhand on January 2, 2002 and certainly, the challenge to that proviso could not be held to be barred by res judicata by the prior decision. Only a matter which is heard and finally decided can operate as a res judicata in a subsequent proceeding. 11.. We are inclined to agree with the learned counsel for the petitioner that, in any event, the challenge to the third proviso to section 25A(1) of the Act is not barred by res judicata, either actual or constructive. The section, as it existed, was found to be suffering from many defects by the division Bench in [2000] 117 STC 41 (Larsen and Toubro Ltd. v. State of Bihar). But ultimately, the division Bench, inspite of those defects, only declared that the section could not operate on the sale transactions under sections 4, 5, 14 and 15 of the Central Sales Tax Act and labour and other components involved in a works contract. By introducing the third proviso, what the State Legislature had attempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been rendered. Even though, it was after the decision in Gannon Dunkerley case [1993] 88 STC 204 (SC) rendered on November 17, 1992, the said notification actually directs the deduction of a particular percentage from the total amount involved in a contract and not only on the percentage of the amount of the taxable components. Why a revised notification conforming to the third proviso to section 25A(1) was not issued by the Government, was not clarified by learned counsel for the respondents. The position, therefore, is that the notification now purports to direct the principal contractor to deduct tax at 2 per cent on the gross value of the bills or the invoices raised by the contractor. Though tentative, this would mean that the deduction ought to be made also on the components covered by sales coming under the Central Sales Tax Act, and also on excluded components involved in a works contract. Obviously, the notification could not prevail over the section itself and based on the notification, it would be impossible to collect tax at 2 per cent on the gross value of the contract. 14.. Learned counsel for the respondent in this context submitted that the notification must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract. But as pointed out by learned counsel for the petitioner, even this may become impossible in the sense that the parties could not say with certainty that a particular sale of goods involved in a works contract would only be a local sale within the competence of the State Legislature to tax and would not be an outside sale or inter-State sale. Most of the works contracts are long-term contracts and procuring of the goods to be supplied by the contractors would depend upon their availability at the relevant time and the sources from which it could be purchased at competitive rates. Therefore, neither the principal contractor who is bound to make the deduction, nor the works contractor would really be in a position to declare which part of the transaction of sale would be amenable to taxation and which part of it would not be amenable to taxation under the Finance Act. Therefore, it will be placing an unrealistic obligation on a principal contractor to make a declaration of what part of the gross value of the contract would be amenable to taxation under the State Finance Act and what part of it will be outside the same. There will also be the imposition of a possible penalty, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a deduction, like the one contained under section 25A(1) of the Act. But, at the same time, the State has to ensure that the said provision for deduction is based on an intelligible criteria and is not based merely on speculation or by including within its purview, transactions which could not be taxed by the State. What has occurred here in view of section 25A(1) of the Act, the third proviso thereto, the adaptation, either express or implied, of the notification dated June 19, 1993 and the issuance of the notification dated January 2, 2002 is to make the deduction arbitrary, which is anathema to the Constitution. We are, therefore, inclined to hold that section 25A(1) of the Act read with the notification dated June 19, 1993 is not workable and, consequently, arbitrary and unreasonable. The addition of the third proviso to section 25A(1) of the Act has failed to remove the defects in section 25-A of the Bihar Finance Act. The vices noted by the division Bench in [2000] 117 STC 41 (Larsen and Toubro Ltd. v. State of Bihar) still remain. The provision as amended, remains unworkable and arbitrary. Section 25A(1) of the Jharkhand Finance Act, 2001 and the notification dated June ..... X X X X Extracts X X X X X X X X Extracts X X X X
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