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TMI Blog2007 (10) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... s that in order to execute the works contract, the petitioner has given a portion of the work relating to construction of road to various sub-contractors and according to the petitioner most of these sub-contractors are registered dealers under the Orissa Sales Tax Act. The sub-contractors are required to procure and effect transfer of property in goods, which obliges them to seek registration and to pay taxes under the Act, independent of the liability of the petitioner. The petitioner in its term has effected TDS against payment made to the above sub-contractors and deposited the tax deducted at a source with the Government Treasury and issued the necessary certificates to the sub-contractors. The further case of the petitioner is that in response to notices dated March 3, 2006 and April 29, 2006, purported to have been issued under section 12(4) of the OST Act, it furnished books of account, contract copy, transaction documents/bills/vouchers, various statement of turnovers, details of registered sub-contractors and details of tax deducted at source with the appropriate authority. For the purpose of clarity, relevant facts pertaining to the aforesaid cases are noted herein bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter is bound to be impacted by those circulars which are bad in law. In the said circular a blanket direction is given to the assessing officer to scrupulously follow the said guidelines. The other circular dated February 9, 2001 is also issued by the Commissioner of Commercial Taxes. The said circular was about grant of no deduction certificate to the contractor. The text of those two circulars are set out hereinbelow: First Circular: "OFFICE OF THE COMMISSIONER OF COMMERCIAL TAXES: ORISSA: CUTTACK. No. VIII(i) 6/99-16715/CT. Dated 30.7.1999 CUTTACK. Sub: Guidelines of the Works Department Circular No. FA-11-33/86-10273/W., dated 7-4-1986 while dealing with the works contractor cases. Vide Works Department Circular No. 10273/W dated April 7, 1986 for (a) structural works (b) earth works, canal works, embankment works, etc., (c) bridge works, (d) road works, (e) building works, the percentages of labour charges have been fixed at 30 per cent, 60 per cent, 30 per cent, 40 per cent and 30 per cent, respectively. It has come to the notice of the undersigned that most of the assessing officers and appellate officers are not following the guidelines issued by the Works Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... room for grievance or discrimination on duplication of work. 3.. It has to be borne in mind that it is the main contractor who is legally supposed to execute the work for the contractee. The subcontractors and the specialist executants are in fact agents of the main contractor to carry on the project work and they are not to be assessed. It is the principal contractor, who, being liable under the OST Act should always be assessed and from whose payments tax is to be deducted at source under section 13AA. Similarly TDS, if deducted from sub-contractors for the same work ultimately, has to be refunded as TDS deduction has to be made from the principal contractor under law. 4.. It should therefore be ensured that TDS is deducted from the main contractor's dues. Similarly TDS no deduction certificate as per law may be granted in favour of sub-contractor/executing agents, if applied for. While considering no deduction certificate as contemplated under section 13AA(5) of the OST Act, 1947 and rule 37D of the Orissa Sales Tax Rules, 1947 when applied by the principal contractors, the Sales Tax Officer should not allow any deduction of the amount paid or payable to sub-contractors f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would cover: (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the contractor to the extent it is relatable to supply of labour and services." In the said case of Gannon Dunkerley [1993] 88 STC 204 (SC), it has been further held as follows (at page 238): "To deal with cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the assessing authority, the Legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned judges are as follows: ". . . The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity." Under the said Act, the word "prescribed" has been defined under section 2(e) to mean as follows: "(e) 'prescribed' means prescribed by rules made under this Act." Under the Act, Rules have been made under section 29. Under the said rule-making power there are provisions in section 29(2)(e) to the following effect: "(e) the other sales or purchases, turnover in respect of which may be deducted from a dealer's gross turnover in computing his taxable turnover as defined in section 5;" It is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the same cannot be struck down. It was made clear that with the prescription of proper rules, section 3B can always be activated and enforced. As such the State was given liberty to levy, enforce and effect under section 3B relying on the principles laid down by the Supreme Court in the case of Gannon Dunkerley & Co. v. State of Rajasthan reported in [1993] 88 STC 204 and in the case of Builders' Association of India v. State of Karnataka reported in [1993] 88 STC 248 (SC). In the case of Voltas Limited v. State of Jharkhand reported in [2007] 5 VST 492; [2006] 3 JCR 518 (Jharkh), the Jharkhand High Court has also taken a similar view. It appears that the decision of the Jharkhand High Court was challenged before the honourable Supreme Court. The honourable Supreme Court refused to interfere with the judgment of the Jharkhand High Court. The decision of the Supreme Court is reported in State of Jharkhand v. Voltas Ltd. [2007] 7 VST 317. The Supreme Court in the said case has approved the observation of the Patna High Court in the case of Larsen & Toubro Ltd. v. State of Bihar [2004] 134 STC 354 where the Patna High Court has held that if the manner of deductions are not pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for taxation, the rate of deduction, specially a flat rate of deduction cannot be applied to calculate the taxable turnover in works contract. So those circulars cannot hold the field. As stated in the judgments referred to above, in the absence of any statutory basis for calculation of taxable turnover, the Act remains unworkable. Such gap in the statute cannot be filled up by the circulars which are purely ad hoc and administrative in nature and specially so when it relates to taxing law. It is a well-settled principle that in matters of taxation either the statute or the Rules framed under the statute must cover the entire field. Taxation by way of administrative instructions which are not backed by any authority of law is unreasonable and is contrary to article 265 of the Constitution of India. Therefore, the impugned circulars are set aside as also the impugned orders of assessment. The assessee's liability to pay tax remains but in order to assess that the State has to act in accordance with the statutory prescription by framing Rules under its rule-making power under section 29 of the Act and the assessing authority can pass fresh orders of assessment on the basis of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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