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TMI Blog2009 (9) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction works on behalf of Garrison Engineer under the Ministry of Defence, Government of India, and are registered dealers with the sales tax authority of the State of Meghalaya. In the year 2003, the State of Meghalaya had enacted the Meghalaya Value Added Tax Act, 2003 ("the Act", for short) for levying of value added tax on sales and purchases of goods in the State, which came into force with effect from March 4, 2005, when it was published in the Gazette Extraordinary No. 25 of the Government of Meghalaya. This Act was subsequently amended by the Meghalaya Value Added Tax (Amendment) Act, 2005. On the coming into force of this Act, the Garrison Engineer (I)(AF), Shillong (respondent No. 2) by his communication dated May 27, 2006 informed one of the members of the petitioner-society that henceforth sales tax at the rate of four per cent would be deducted against a running contract on submission of VAT registration while in other cases, the same would be deducted at the rate of 12.5 per cent from the running bill. Since then, VAT was deducted at four per cent from the bill/cash memos of the members of the petitioner-association. After sometime, the State-respondents informed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er charges in the execution of the works contracts. It is also further clear from the proviso to clause (c) of sub-section (2) of section 5 that the charges towards labour, services and other like charges are to be ascertained from the terms and conditions of the contract and in case the same cannot be ascertained, the amount of such charges is required to be calculated on the basis of such percentage of the value of works contract as specified in Schedule IV-A to the Act. Thus, so submits the petitioner, a conjoint reading of sub-section (1) and sub-section (2) of section 5 amply makes it clear that in the case of works contract also, a tax is to be charged on the "taxable turnover" after making the permissible deduction and not on gross turnover of the contractor after taking the deduction at the prescribed rate specified in Schedule IVA towards labour charges alone. The petitioner further submits that the taxing power of the State can be exercised only within the parameters of entry 54, List II of the Seventh Schedule to the Constitution subject to the restrictions and provisions contained in article 286 of the Constitution. Though the extended definition of the term "sale" in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the entry in one or the other of the Lists enumerated in the Seventh Schedule to the Constitution. It is, therefore, submitted that section 106 of the Act is violative of articles 14, 19(1)(g), 265, 286 and 300-A of the Constitution as the same is confiscatory and does not provide for any machinery to determine even approximately the taxable turnover by a dealer for the purpose of collection of advance tax similar to what has been provided for in section 194(C)(4) of the Incometax Act, 1961. It is further submitted that the letter dated May 27, 2006 issued by respondent No. 2 and the letter dated February 20, 2007, issued by respondent No. 6 in accordance with the impugned section 106 of the Act are equally liable to be quashed. The writ petition is contested by the State-respondents by filing their affidavit-in-opposition. The stands taken by the State-respondents in their affidavit-in-opposition are that this court in Allied Traders v. State of Meghalaya [2002] 1 GLT 482 has upheld the constitutional validity of section 27 of the Assam General Sales Tax Act, 1993 and rule 8(3)(iv) of the Assam General Sales Tax Rules, 1993, which are in pari materia with the impugned sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a mechanism to enable the dealer to claim refund of the tax deducted at source in respect of non-taxable/exempted goods, the excess amount of taxes deducted from declared goods, i.e., more than four per cent and the labour components, if such a situation arises. It is pointed out that the concept of value added tax is to levy taxes at different stages of sales, i.e., at the stage of the producer, at the stage of the wholesaler, at the stage of retailer and at the stage of sub-retailer; that section 11 of the Act allows a set-off against the tax already suffered at the previous point of sale in the form of input-tax credit and this facility is available to all dealers registered under VAT at the time of submission of return/assessment, and the petitioner could have very well taken recourse to the provision under section 11 of the Act irrespective of the contract agreement that could have been entered upon between the contractor and the authority who allotted the contract, and make a claim for refund/ . . . Rs. 10,625 adjustment before the assessing authority at the time of VAT assessment, and taxes which might have been wrongly deducted by the respondents at source could have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivided family, a firm or a company not under the control of the Government) responsible for making any payment or discharging any liability on account of any amount payable for the transfer of property in goods (whether as goods or some other form) involved in a works contract for the transfer of the right to use any goods for any purpose; or (2) Every person responsible for paying sale price or consideration in respect of any sale or supply of goods liable to tax under this Act to the Government or to a company, corporation, Board or authority, undertaking or any other body by whatever name called, owned, financed or controlled wholly or substantially by the Government shall at the time of credit to the account of or payment to the payee of such amount in cash, by cheque, by adjustment or in any other manner whatsoever, deduct tax therefrom in the prescribed manner at the rate specified in the Schedule to the Act in respect of sale or supply of goods or transfer of the right to use any goods and in respect of works contract at the rate of 12.5 per cent after allowing percentage of deduction from the work value as prescribed in Schedule IVA appended to the Act: Provided that no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the day on which his turnover calculated from the commencement of the year first exceed the taxable income; (c) in case of sub-clause (ii) or (iii) of clause (b) of sub-section (1) with effect from the date on which he becomes so liable or date of registration under this Act, whichever is earlier. (3) Continuation of liability.-Every dealer who has become liable to pay tax under this Act, shall continue to be so liable until the expiry of three consecutive years during which his turnover has remained below the taxable quantum and on the expiry of such period his liability to pay tax shall cease: Provided that any dealer whose liability to pay tax under this Act, ceases, may apply for the cancellation of his certificate of registration, and on such cancellation, his liability shall cease. (4) Re-commencement of liability.-Every dealer whose liability to pay tax under this Act, has ceased under sub-section (3) or whose certificate of registration has been cancelled, shall, if his turnover calculated from the commencement of any year, including the year in which the registration has been cancelled, again exceeds the taxable quantum on any day within such year, be liable to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has taken place in the manner indicated in sub-clause (i), sub-clause (ii) or sub-clause (iii); (c) in case of turnover of sales in relation to works contract, the charges towards labour, services and other like charges and subject to such conditions as may be prescribed: Provided that in the cases where the amount of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract, the amount of such charges shall be calculated on the basis of such percentages of the value of works contract as specified in Schedule IVA appended to this Act; (d) such other sales on such conditions and restrictions as may be prescribed." We may also reproduce hereinbelow the provisions of articles 286, 366(29A) of the Constitution and entry 92A of List I and entry 54 of List II of the Seventh Schedule to the Constitution: "286. Restrictions as to imposition of tax on the sale or purchase of goods.-(1) No law of a State shall impose, or authorize the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place- (a) outside the State; or (b) in the course of the import of the goods int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following terms: "54. Taxes on sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I." By the Forty-sixth Amendment of the Constitution of India, clause (29A) was inserted in article 366 and clause (3) of article 286 was substituted. The validity of this provision was called into question before the apex court in Builders Association of India v. Union of India [1989] 73 STC 370; [1989] 2 SCC 645. While upholding the constitutional validity of this provision, the apex court, inter alia, held at para 32 thus: (page 396 of STC) ". . . The object of the new definition introduced in clause (29A) of article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. So construed the expression 'tax on the sale or purchase of goods' in entry 54 of the State List, therefore, includes a ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the value of the goods which are involved, in the execution of the works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in the execution of a works contract for the purpose of levying the tax referred to in article 366(29A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract. (6) The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works, (ii) amount paid to a subcontractor for labour and services, (iii) charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract, (iv) charges for planning, designing and architect's fees, (v) cost of consumables used in the execution of the works contract, (vi) cost of the establishment of the contractor to the extent it is relatable to supply of labour and services, (vii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and exceptions set out therein, etc., from payment of sales tax. On the other hand, the charging section, namely, section 5(2) clearly provides that the taxable turnover must be arrived at after deducting from the gross turnover (a) sales of goods declared as exempted under section 8(1)(a), (b) sales of goods in the course of inter-State trade or commerce, (c) sales outside Meghalaya, (d) sales in the course of import and export and (e) charges towards labour services and other like charges if they are ascertainable from the terms and conditions of the contract. As indicated earlier, section 106 is the mechanism section and is ancillary to the charging section, namely, section 5. When the liability to tax under section 5 is on taxable turnover, the deduction of tax at source should also be in terms of the taxable turnover. In other words, section 106 does not provide any mechanism for confining the quantum of advance tax to the tax attributable to the taxable turnover: it should conform to the charging section. Sub-section (1) of section 5 provides that subject to the provision of the Act and Rules, a tax shall be levied on the turnover of sales of goods specified in Schedules II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(a), sales of goods taking place in the course of inter-State trade or commerce or in the course of import and export or sales taking place outside Meghalaya. In our opinion, such contention cannot be accepted. It is incomprehensible as to how a contractor can procure a certificate from the Commissioner of Taxes that he has no liability to pay tax or that he has paid tax payable by or due from him when, as already noticed, the mechanism section, namely, section 106(2) does not make any provision for deduction of the exempted goods such as inter-State sales, import sales, export sales, outside State sales and other exempted goods. It must be a remarkable Commissioner of Taxes who would go out of the way to apply the charging section for deduction of the exempted goods, ignore the clear mandate of section 106(2) and then proceed to issue such a certificate on the basis of the proviso to section 106(2). Therefore, the internal mechanism for avoidance of advance tax in respect of exempted goods harped upon by the learned Advocate-General is practically nonexistent or is otherwise illusory. What is forbidden by the Constitution is that the State Legislature shall not pass legislation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract. Except for this, the deduction, therefore, is towards the sales tax that is payable to the State upon the total value of the works contract and it is of 12.5 per cent of the total value of the works contract. Sub-section (3) of section 106 provides that any tax deducted under sub-section (2) shall be paid to the account of the State Government in such manner and within such time as may be prescribed. Sub-section (4) of section 106 requires the contractee to grant to the contractor a certificate in respect of such deduction to the payee in such manner and in such form and within such time as may be prescribed. Under sub-section (5) of section 106, it is declared that any tax deducted under sub-section (2) and paid to the account of the State Government shall, on production of the certificate of tax deduction under sub-section (4) by the contractor, be deemed to be tax paid by the contractor for the relevant period and shall be given credit in his assessment accordingly. Then, rule 42 of the Rules provides for, among others, refund of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 204 (SC); [1993] 1 SCC 364. Tax deduction at source being only a machinery provision, it needs to strictly conform to the charging section and cannot permit tax deduction or collection in respect of exempted goods. This is the mandate of Gannon Dunkerley [1993] 88 STC 204 (SC); [1993] 1 SCC 364. Such deduction or collection cannot even be for a short time with the assurance that the excess will be refunded in course of time after assessment. In Bhawani Cotton Mills Ltd. v. State of Punjab [1967] 20 STC 290 (SC); AIR 1967 SC 1616, the top court held: (page 330 of STC) ". . . If a person is not liable for payment of tax at all, at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid; because, if particular sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax." Prima facie, section 106 of the Act is ultra vires entry 92A read with article 286 of the Constitution, and is liable to be struck down as unconstitutional. However, looking at the legislative history o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a law by interpretation is the rule. To be trigger-happy in shooting at sight every suspect law is judicial legicide. Courts can and must interpret words and read their meanings so that public good is promoted and power misuse is interdicted." The true legal position is reiterated by the apex court in a recent decision of M. Rathinaswami v. State of Tamil Nadu [2009] 5 SCC 625, in the following terms: (SCC paras 28, 29 and 30) "28. It is well-settled that to save a statutory provision from the vice of unconstitutionality sometimes a restricted or extended interpretation of the statute has to be given. This is because it is a wellsettled principle of interpretation that the courts should make every effort to save a statute from becoming unconstitutional. If on giving one interpretation the statute becomes unconstitutional and on another interpretation it will be constitutional, then the court should prefer the latter on the ground that the Legislature is presumed not to have intended to have exceeded its jurisdiction. 29.. Sometimes to uphold the constitutional validity the statutory provision has to be read down. Thus, in Umayal Achi v. Lakshmi Achi AIR 1945 FC 25, the Federal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st be to save the impugned provision from the vice of unconstitutionality and not "to be trigger-happy shooting at sight every suspect law" as that would amount to "judicial legicide". If, on giving one interpretation, the statute becomes unconstitutional and, on another interpretation, it will be constitutional, then this court should prefer the latter on the ground that the Legislature is presumed not to have intended to have exceeded its legislative powers. Sometimes to uphold the constitutional validity, the statutory provision has to be read down. Thus, the apparent contradiction between section 106(2) and section 5(2) of the Act can be harmonized by reading the words "of the taxable turnover referred to in section 5(2) of the work value" after the numerals/figures "12.5 per cent" in section 106(2) of the Act. This restrictive interpretation has become imperative so as to save the impugned provision from becoming violative of entry 92A of the Union List read with article 286 of the Constitution, which prohibits imposition of sales tax by the State Legislature upon declared goods of special importance, sales in the course of inter-State trade or commerce, sales outside State an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istered as class E contractor with respondent Nos. 2, 3 and 4, and is also a registered dealer with the sales tax authority of the State of Meghalaya as well as the Central Sales Tax Authority. The firm is executing several works contracts on behalf of respondent Nos. 2, 3 and 4 within the Territory of Meghalaya. The petitioner is also challenging the vires of section 106 of the Meghalaya Value Added Tax Act, 2003. In our considered opinion, the law declared by us in the foregoing W.P. (C) No. 48(SH) of 2007 will govern this writ petition, and no further adjudication is considered necessary. W.P. (C) No. 44(SH) of 2007. The petitioner is an association of contractors registered under the Meghalaya Societies Registration Act, 1983 under Certificate of Registration bearing No. E. 16(Rs)8 of 2005/292 having its registered office at Cleave Colony, CPWD Complex, Shillong. Members of the petitioner-society are engaged in execution of various works contracts in the State of Meghalaya on behalf of the Central Public Works Department. In this writ petition, the petitioner is also questioning the constitutionality of section 106 of the Meghalaya Value Added Tax Act, 2003. In our judgment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng cases, will be governed by the law laid down by us in W.P. (C) No. 48(SH) of 2007, and the need for separate adjudication is thus obviated. W.P. (C) No.7(SH) 2007. The vires of section 106 of the Meghalaya Value Added Tax Act, 2003 is again under challenge in this writ petition filed by the petitioners. The petitioners are also contractors as in the preceding cases. Needless to say, this writ petition will be governed by our decision in W.P. (C) No. 48(SH) 2007. W.P. (C) No. 305(SH) 2007. The petitioners numbering six in this writ petition also challenge the vires of section 106 of the Meghalaya Value Added Tax Act, 2003. They are contractors enlisted with respondent Nos. 2, 3, 4 and 5 and are engaged in executing works contracts on behalf of those respondents. Since the impugned provision is one and the same as in W.P. (C) No. 48(SH) 2007, it is not necessary for us to deal with this issue separately as the principles laid down therein are squarely applicable to this case. W. P. (C) No. 4(SH) 2009. The petitioner in this writ petition is also questioning the constitutionality of section 106 of the Meghalaya Value Added Tax Act, 2003. W.P. (C) No. 59(SH) of 2007. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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