TMI Blog2006 (8) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... s 269(1)(g) and 286, and sections 3, 4 and 5 of the Central Sales Tax Act, 1956 besides being ultra vires article 366(29A) and the said provisions being inconsistent with articles 14, 19(1)(g) are inoperative, and the recoveries under the said provisions are violative of articles 265 and 300A of the Constitution of India or pass such further or other orders or directions as may deem fit and proper in the circumstances of this case, and render justice." The first petitioner is a limited company and the second petitioner is a shareholder of the first petitioner-company. The first petitioner-company is involved in different business activities like manufacturing, trading, execution of works contract, etc. They are executing the various projects on turnkey basis in the State of Andhra Pradesh either for the State or various departments of the Government of India. According to the petitioner, in the process of execution of such contracts, one or some of the following factors: (i) Specific contract even without involving transfer of property in goods and thus not liable to levy of tax under the Act, yet will be subjected to tax deduction at source, (ii) supply of specific goods as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable to the dealer by the contractee and remitted to the State in the prescribed manner. Under sub-section (4), a similar obligation is imposed on the contractee who happens to be either a company or a statutory body, etc(2). Under section 2(28), Explanation VI, it is stipulated that whenever goods are supplied or used in the execution of a works contract, there shall be deemed to be transfer of property in such goods(3). (1)(4) Every VAT dealer, who in the course of his business purchases any taxable goods from a person or a dealer not registered as a VAT dealer or from a VAT dealer in circumstances in which no tax is payable by the selling VAT dealer, shall be liable to pay tax at the rate of four per cent (4%) on the purchase price of such goods, if after such purchase, the goods are, (i) used as inputs for goods which are exempt from tax under the Act; or (ii) used as inputs for goods, which are disposed of otherwise than by way of sale in the State or dispatched outside the State otherwise than by way of sale in the course of interState trade and commerce or export out of the territory of India; or (iii) disposed of otherwise than by way of consumption or by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court in Steel Authority of India Ltd. v. State of Orissa [2000] 118 STC 297 and Nathpa Jhakri Jt. Venture v. State of Himachal Pradesh [2000] 118 STC 306. In the first of the abovementioned cases, the Supreme Court was dealing with section 13-AA of the Orissa Sales Tax Act, 1947, which provided for deduction at source by the contractee an amount of 4 per cent of the sum payable under a works contract. Section 13-AA of the Orissa Act was held unconstitutional by the Orissa High Court in its decision reported in Brajendra Mishra v. State of Orissa [1994] 92 STC 17. The gist of the Orissa High Court's decision was summarised by the Supreme Court as follows: ". . . The High Court held that section 13-AA did not provide any mechanism to exclude a transaction from its purview even if, ultimately, the transaction was not at all liable to the levy of sales tax. In other words, even in the case of a pure and simple labour contract or service contract where the question of sale would not arise, the person responsible for making any payment to a contractor had no option but to deduct two per cent of such sum towards sales tax. Though a transaction which might not be a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contractor in the form prescribed and shall send a copy thereof to the Sales Tax Officer within whose jurisdiction the works contract is executed. (3) The amount deducted from the bills or invoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or could approach and obtain a certificate whether on the facts and circumstances of a given contract, deduction at source by the contractee is justified or not. Even on the face of the existence of such a provision, under sub-section (5)(a) the Supreme Court held the provision unconstitutional. At para 9, the Supreme Court held as follows: "9. . . Sub-section (5)(a) permits the contractor to make an application to the Commissioner of Sales Tax and if the Commissioner is satisfied thereon that any works contract '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, . . . grant him such certificate as may be appropriate in the manner prescribed'. To the extent of the amount mentioned in the certificate the owner must, by reason of sub-section (5)(b), make no deduction of tax. The Commissioner is required only to see whether the works contract involves transfer of property in goods and labour or service or only labour or service. If it involves only labour or service, he mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in these writ petitions squarely falls within the teeth of the principle laid down in Steel Authority of India Ltd.'s case [2000] 118 STC 297. We do not really need to examine the correctness of various factual assertions of the petitioners for adjudicating these writ petitions that in the process of execution of works contracts either there is no transfer of property in goods or in some cases though there is transfer of property in goods such goods were procured by the petitioners in the course of inter-State sale liable for Central Sales Tax Act, 1956. These are all facts required to be examined as and when the petitioner's assessments are taken up by the respective assessing authorities, whether there is any taxable turnover in a given assessment period. The Supreme Court in Steel Authority of India Ltd.'s case [2000] 118 STC 297 dealing with the legislative competence of a State in making a similar provision as the one impugned herein, the court took note of the fact that such a provision does not take note of the fact that the gross amount payable by the contractee in a given case includes not only the value of the goods supplied if transfer of property in goods i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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