TMI Blog2009 (9) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... manner permissible by law. The writ petitions are disposed in the above terms, but without costs. - W.P. (C) Nos. 194(SH) of 2006 - - - Dated:- 10-9-2009 - VAIPHEI T. AND AGARWAL B.D. , JJ. The judgment of the court was delivered by T. VAIPHEI J. The legislative competence of the State of Meghalaya to enact section 106 of the Meghalaya Value Added Tax Act, 2003 ( the Act , for short) is called into question by thirteen petitioners in this bunch of writ petitions. As they involve identical questions of law and facts, they were heard together, and are now being disposed of by this common judgment. To comprehend and decide the controversy in these writ petitions, we will first refer to the facts in W.P. (C) No. 48(SH) of 2007 and then apply our decision to the remaining cases. The petitioner is a society under the name and style of MES Builders' Association registered under the Societies Registration Act, 1860 with one of its branches located at Shillong, and has a membership of 40 builders/contractors. The members of this society are undertaking construction works on behalf of Garrison Engineer under the Ministry of Defence, Government of India, and are regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng rates such as sales tax, VAT, etc. Taxes which have to be deducted at source are required to be recovered by the Garrison Engineer at applicable rate. The petitioner contends that sub-section (1) of section 5 of the Act provides that a tax is to be charged on the turnover of sale of goods at the rate or rates specified in Schedules II, III and IV to the Act at every point of sale of such goods within the State of Meghalaya. Sub-section (2) of section 5 provides a mechanism for determining the gross turnover of sale during any period which is taxable. According to the petitioner, on a plain reading of subsection (1) and sub-section (2) of section 5 together, it is clear that a tax is to be levied on taxable turnover and that the term taxable turnover means gross turnover during the year as reduced by the turnover relating to exempted goods and sale of goods which takes place in the course of inter-State trade and commerce or outside the State or in the course of import of goods into and export of goods out of the territory of India and so much of the labour and other charges in the execution of the works contracts. It is also further clear from the proviso to clause (c) of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the work after allowing percentage of deduction as prescribed in Schedule IV-A to the Act, which, however, includes certain items only while leaving out a number of items, both materials and labour charges, which are nevertheless involved in the works contract. In other words, according to the petitioner, section 106 has not taken into consideration the deductions which are required to be made from the total value of the work for determining the taxable turnover as provided under section 5(2). Since the charging section, namely, section 5 provides for levy of tax on the taxable turnover in respect of sale of goods, section 106, which is an incidental and ancillary power to the main section, must also be within the legislative competence of the State inasmuch as the ancillary power can be provided or/and exercised only in aid of the main topic of legislation and not in derogation thereof. In other words, contends the petitioner, the provisions of section 106 cannot go beyond the legislative power of the State, and has to confine itself to the powers conferred on the State within the entry in one or the other of the Lists enumerated in the Seventh Schedule to the Constitution. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o show taxable goods supplied while executing works contracts as distinct and different from non-taxable goods. For example, if the total bill submitted by the contractor for the works of fabrication and installation of plants and machinery under serial No. 1 of Schedule IV-A is Rs. 1,00,000, then the percentage of deduction allowed for labour charges is 15 per cent. Therefore, the lumpsum tax to be deducted at source by the buying Department is worked out as follows: Gross amount of the bills . . . Rs. 1,00,000 Less 15 per cent deduction allowed for labour charges, etc. . . . Rs. 15,000 Net taxable amount . . . Rs. 85,000 Therefore, the lumpsum VAT to be deducted at 12.5 It is the further case of the State-respondents that if the contractors maintain proper accounts and submit their returns to the Superintendent of Taxes as provided under section 36 of the Act, the contractor/assessee can claim refund as provided under section 49 of the Act, and the assessing officer is bound to grant refunds if it is found eligible upon scrutiny of return and assessment. This is a mechanism to enable the dealer to claim refund of the tax deducted at source in respect of non-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a proper mechanism for implementation of the Act which, inter alia, includes the method for: 1.. Determination of the taxable turnover as provided under section 5, 2.. Submission of return as provided under section 35, 3.. Completion of self-assessment as provided under section 53, 4.. Assessment by the tax authority as provided under section 45, 5.. Claiming of input-tax credit as provided under section 11, and 6.. Refund as provided under section 49. The answering respondents thus submit that there is no constitutional infirmity in the impugned section 106 or the Rules made thereunder. The writ petition is premature inasmuch as the internal mechanism provided for in the Act has not been exhausted by it, and the same is, therefore, liable to be dismissed. Before proceeding further, it may be apposite to refer to the provisions of section 106 of the Act, which are reproduced hereinbelow: 106. Special provisions relating to deduction of tax at source. Notwithstanding anything contained in other provisions of this Act (1) Every person (excluding an individual, Hindu undivided family, a firm or a company not under the control of the Government) respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 3 and section 5 of the Act, which are as follows: 3. Incidence of tax. (1) Liability Subject to other provisions of this Act, every dealer (a) whose turnover during the year immediately preceding the commencement of this Act (i) exceeded the taxable quantum; or (ii) liable to pay tax under any of the laws repealed by this Act or the Central Sales Tax Act, 1956. (b) to whom clause (a) does not apply and (i) whose turnover calculated from the commencement of any year first exceeds within such year the taxable quantum; or (ii) who has become liable to pay tax under the Central Sales Tax Act, 1956; or (iii) who is registered as a dealer under the Central Sales Tax Act, 1956 or under this Act at any time after the commencement of this Act; shall be liable to pay tax in accordance with the provisions of this Act. (2) Date of liability. The dealer shall be liable to pay tax on all sales effected by him and (a) in case of clause (a) of sub-section (1) with effect from commencement of this Act; (b) in case of sub-clause (i) of clause (b) of sub-section (1) with effect from the date immediately following the day on which his turnover calculated from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made by a dealer on his own account and also on behalf of principals whether disclosed or not. . . . 5.. Levy of value added tax on goods specified in the Schedules appended to this Act. (1) Subject to the provisions of this Act, and Rules, there shall be levied a tax on the turnover of sales of goods specified in Schedules II, III and IV appended to this Act at every point of sale of such goods within the State at the rate specified therein. (2) Taxable turnover of sales in relation to a dealer liable to pay tax on sale of goods under sub-section (1) of section 3 shall be part of the gross turnover of sales during any period which remains after deducting therefrom; (a) sales of goods declared as exempted under section 8(1)(a); (b) sales of goods which are shown to the satisfaction of the Commissioner to have taken place (i) in the course of inter-State trade or commerce; or (ii) outside Meghalaya; or (iii) in the course of the import of the goods into or export of the goods out of the Territory of India; Explanation. Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 shall apply for determining whether or not a particular sale or purchase has taken p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (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 tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; Entry 92A of the Union List reads thus: 92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of interState trade or commerce. Entry 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the execution of a works contract is not competent to impose a tax on such transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. (2) The provisions of sections 3, 4 and 5 and sections 14 and 15 of the Central Sales Tax Act, 1956 are applicable to a transfer of property in goods involved in the execution of a works contract covered by article 366(29A)(b). (3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of article 366(29A)(b) but it is not permissible for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29A)(b) is leviable on the goods involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of goods as a separate article. It is against the backdrop of the aforesaid propositions of law laid down by the apex court that we propose to examine the validity of section 106 of the Act. As already noticed, this provision is not the charging section, but is the mechanism section, and is ancillary to section 5 of the Act. What this provision plainly says is that every person or body responsible for paying the bills in respect of works contract shall deduct in advance, tax from the bill of the contractor at the rate of 12.5 per cent after allowing percentage of deduction from the work value as prescribed in Schedule IVA to the Act. The percentage of deduction so allowed is confined to those prescribed in Schedule IVA to the Act and no other. No deduction/exemption of sales tax is also permissible for transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract which will constitute a sale in the course of inter-State trade or commerce or sale outside the State of Meghalaya or a sale in the course of import into or export out of the territory of India. Section 8 of the Act exempts the sale of goods listed in Sched ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside Meghalaya and (iv) sales of goods in the course of the import and export, but in the case of works contract, only the charges towards labour, services and other like charges are to be deducted. It is evidently clear that in respect of works contract also, deduction or exemption should be admissible in respect of sales of goods exempted under section 8(1)(a), sale of goods in the course of inter-State trade or commerce, sales of goods outside the State of Meghalaya and sales of goods in the course of import and export. In our opinion, section 106 cannot override the charging section, and what is forbidden in the charging section is also forbidden in the mechanism section. It is, however, contended by Mr. B.P. Todi, the learned Additional Advocate-General, that the proviso to section 106(2) of the Act meets the apprehension of the petitioner that there is no internal mechanism for avoidance of advance tax and is thus contended by him that if the dealer produces a certificate as prescribed from the Commissioner of Taxes that he has no liability to pay tax or that he has paid tax payable by him or due from him, he will be exempted from the advance tax in so far as sales of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the State or in the course of import into or export out of India or in the course of inter-State trade or commerce. The law is now well-settled that the limitation of the taxing power of the States by way of sales tax is absolutely different from the power of the Centre to levy income-tax traceable to entry 82 of List I of the Seventh Schedule to the Constitution, which is virtually unfettered. To summarize the foregoing discussion, a combined reading of section 106(2) and the charging section, namely, section 5(2) of the Act leaves no room for doubt that the person responsible for paying any sum to a contractor for carrying out any works contract which involves the transfer of property in goods ( the contractee for convenience) is obliged to deduct, at the time of credit of that sum to the account of the contractor or payment thereof to him, an amount 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 the value of the work exceeds rupees one lakh. The permissible deduction prescribed in Schedule IVA to the Act, as already explained earlier, is referable only to the proviso to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utside sales or sales in the course of import. In the view that we have taken, we have no hesitation to hold that the provisions of section 106 are beyond the legislative competence of the State Legislature since the State Legislature is prohibited by entry 92A of the Union List read with article 286 of the Constitution from making any law for levying sales tax on inter-State sales, outside sales or sales in the course of import. Even though adjustment is possible at the time of assessment, it is not permissible for the State Legislature to impose advance tax which is not exigible to tax. The ultimate test is whether the State Legislature is having the legislative competence to impose tax deduction at source on the total value of the works contract without making provision for deduction of the value of sales of declared goods exempted under section 8(1)(a) of the Act, of sales taking place outside the State or sales taking place in the course of inter-State trade or commerce or sales taking place in the course of import or the charges towards labour, services and other like charges if they are ascertainable from the terms and conditions of the contract. The answer is obviously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is not in conformity with, or is at variance with the charging section, namely, section 5 of the Act. There is no apparent reason why the Legislature makes a distinction between the components of sales tax in respect of normal sales and deemed sales even for the purpose of advance tax. In the words of Denning, L. J., which has been cited with approval by the apex court, . . . when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and then he must supplement the written words so as to give 'force and life' to the intention of the Legislature. . . A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out?. He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases . His Lordship, Krishna Iyer, J., in Maharao Sahib Shri Bhim Singhji v. Union of India [1981] 1 SCC 166, in his inimitable words has said: . . . reading down meanings of words with loose lexical amplitude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violative of article 19(1)(a) of the Constitution which provides for freedom of speech and expression. The underlying principle which can be culled out from the foregoing discussion is that where the language of the statute leads to manifest contradiction of the apparent purpose of the enactment, the court can, of course, adopt a construction which will carry out the obvious intention of the Legislature. But we must hasten to add that in the course of construction of the relevant provisions, there must be manifest contradiction or ambiguity or defect or omission. Judging the provisions of the mechanism section, i.e., section 106 and the charging section, namely, section 5 of the Act on the touchstone of the aforesaid legal principles, we are of the considered opinion that there is apparent contradiction between these two provisions. The width and amplitude of the machinery or ancillary provision has become larger than the charging section, which is clearly unwarranted. The easy way out is, no doubt, to simply quash the impugned provision as it is found to have transgressed the constitutional limitations imposed by entry 92A of the Union List read with article 286 of the Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, 2003 and deduct tax at source. The impugned provision herein is undoubtedly similar to the one already adjudicated upon in W.P. (C) No. 48(SH) of 2007. No separate discussion is, therefore, called for. W.P. (C) No. 194(SH) of 2006. In this writ petition, both the petitioners are registered contractors under the Directorate General of Assam Rifles, Shillong with their registration number as DGAR 337(A) of 1996 and DGAR 486(C) of 2005, respectively. They are regularly executing various works contracts in Meghalaya on behalf of the Directorate General of Assam Rifles. It is claimed by the petitioners that they have been verbally informed by the Directorate General of Assam Rifles that a lumpsum equivalent to 12 per cent from their bills pertaining to their works contract issued by them would be deducted at source in accordance with section 106 of the Meghalaya Value Added Tax Act, 2003. This is how they filed this writ petition. As the validity of the impugned provision has been decided in W.P. (C) No. 48(SH) of 2007, the need for adjudication of this writ petition stands obviated. W.P. (C) No. 81 (SH) of 2007. In this case, the petitioner is a proprietary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As the question raised in this writ petition has been squarely dealt with by us in W.P. (C) No. 48(SH) of 2007, the need for separate discussion stands obviated. W.P. (C) No. 146(SH) of 2007. The petitioner in this case is an association of contractors and suppliers registered under the Meghalaya Societies Registration Act, 1983, and are carrying on construction on behalf of respondent Nos. 1 to 3 in the NorthEastern Hills University. Aggrieved by the deduction of tax at source from the bills in respect of the works contract undertaken by them with respondent Nos. 1 to 3 in accordance with section 106 of the Meghalaya Value Added Tax Act, 2003, they are filing this writ petition. As already noted, the validity of the impugned provision has been decided in W.P. (C) No. 48(SH) of 2007, we do not think it necessary to deal with the same question of law. W.P. (C) No. 258(SH) 2007. In this writ petition also, the petitioner is questioning the validity of section 106 of the Meghalaya Value Added Tax Act, 2003. The petitioner is an association of contractors registered under the Meghalaya Societies Registration Act, 1983, enlisted as contractors with respondent Nos. 3 to 13 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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