TMI Blog2010 (2) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... xecution of works contract. Person making any payment for execution of works contract is hereinafter described as owner or contractee . The contractor executing works contract and receiving payment is hereinafter referred to as the works contractor. For better appreciation of the issues involved herein relevant portions of section 40 of the VAT Act and the connected rules of the West Bengal Value Added Tax Rules, 2005 (in short, the VAT Rules ) are reproduced below: 40. Deduction at source from payment to a dealer against execution of works contract. (1) Notwithstanding anything contained in section 32 or any rules made thereunder or any terms of a contract to the contrary, any person responsible for paying any sum to any dealer for execution of a works contract referred to in section 14, wholly or partly in pursuance of a contract between such dealer and (a) Government, (b) a local authority, (c) a corporation or a body established by or under any law for the time being in force, (d) a company incorporated under the Companies Act, 1956 (1 of 1956), including a Government undertaking, (e) a co-operative society registered or deemed to be registered und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner may, after giving him an opportunity of being heard, by order in writing and in such manner as may be prescribed, impose on such person a penalty, not exceeding twice the amount required to be deducted and deposited by him into the appropriate Government Treasury. (6) Where the dealer from whose account any amount has been deducted under sub-section (1) and deposited under sub-section (2) proves to the satisfaction of the Commissioner that he is not liable to pay tax under section 14 and such amount was not wholly or partly payable by him under this Act, the Commissioner shall refund or adjust the amount refundable to the dealer in such manner as may be prescribed. Rule 46. Deposit of the amount towards payment of tax for works contract deducted at source. (1) Where a deduction of an amount towards payment of tax in respect of any works contract is made at source by a Government, authority or person under sub-section (1) of section 40 from any dealer, the person making such deduction for such Government, authority or for himself shall, within ten days from the expiry of each english calendar month, deposit under the appropriate challan into the appropriate Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of goods transferred for the purpose of executing a works contract. Reference to section 14 in main part of section 40 is significant. Such reference to section 14 confines the legal obligation to deduct tax at source only from the sale price of the goods sold or deemed to have been sold for executing the works contract, paid by the owner to the contractor. It appears to us that any sum having been qualified with the words referred to section 14 does not and cannot mean all sum paid by owner to the contractor but it means only that part of the sum which is liable to be taxed under section 14. Language used in section 40 could have been made simpler and clearer. Initial reading may create confusion but reference to section 14 cannot be overlooked in ascertaining the real purpose and meaning of the main part of section 40. Provisos to section 40(1) have made the intention of the Legislature more explicit. First proviso provides that no deduction would have to be made from payments made if transfer of property in the goods was not involved in execution of a works contract. Second proviso also indicates that tax is to be deducted at source from payment of contractu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is included in his return referred to in section 32; and (c) tax under sub-section (1), in respect of such amount of deduction has been paid by him. The VAT Act, 2003 is a State Act. Obviously, tax under the VAT Act is levied on sales which take place in the State of West Bengal. Inter-State sales are outside the purview of the VAT Act and covered by the Central Sales Tax Act, 1956 (in short, the CST Act ). Provisions of the VAT Act as such cannot apply to anything which is dealt with and taxable under the CST Act. Constitution Bench of the Supreme Court in Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204 has clearly declared that: In exercise of its legislative power to impose tax on sale or purchase of goods under entry 54 of the State List read with article 366(29A)(b) the State Legislature, while imposing a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a work contract is not competent to impose a tax on such a 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. (pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind of trade circular permitting the owners or contractees to subtract the amounts taxable under the provisions of the CST Act. Mr. Bose, learned senior advocate appearing for the respondents, has drawn our attention to section 115 of the VAT Act which, in general, prohibits imposition of any tax under the VAT Act on the sale or purchase of goods in course of execution of any works contract or otherwise, when such sale or purchase takes place outside West Bengal or in the course of import into or export out of the territory of India or in the course of interState trade or commerce. Section 115 of the VAT Act is quoted below: 115. Saving in relation to sales outside West Bengal, inter-State sales, and sales in course of import or export. Nothing in this Act shall be construed to impose, or authorise the imposition of tax on the sale or purchase of goods or on the execution of works contract where such sale or purchase or execution of works contract takes place, (a) outside West Bengal; (b) in the course of import of the goods into, or export of the goods out of, the territory of India; (c) in the course of inter-State trade or commerce. Referring to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer price under the VAT Act against item Nos. 32, 33 and 34 in Part AA of the returns in form 14. Petitioner No. 2, Gammon India Ltd., had also disclosed taxable contractual transfer price under the VAT Act in its quarterly returns submitted under the VAT Act. It is not correct that the contractors do not have any kind of self-calculation or estimate of taxable contractual transfer price. At the time of raising bills for running payments before completion of contract contractors can very well specify at least provisionally the amount of taxable contractual transfer price on the basis of self-calculation or estimate. Unfortunately section 40 or the rules connected with section 40 have not laid down any kind of method or manner for even provisional estimate of taxable contractual transfer price at the time of making deduction under section 40. The respondents have drawn our attention to form No. 18 in which the deducting person issues certificate of deduction. It has been pointed out that in the said form No. 18 the deductor has to mention the bill no. raised by the contractor against which payment is made and the amount deducted under section 40(1) from the said payment. Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive intent, all the constituent parts of a statute are to be taken together and each word, phrase or sentence is to be considered in the light of the general purpose and object of the Act itself. The title of the Madras Sales Tax Act describes it to be an Act, the object of which is to provide for the levy of a general tax on the sale of goods in the Province of Madras and the very same words are repeated in the preamble which follows. The title and preamble, whatever their value might be as aids to the construction of a statute, undoubtedly throw light on the intent and design of the Legislature and indicate the scope and purpose of the legislation itself. . . Aforementioned principles are well-settled and well known and those are always kept in mind while considering any issue of constitutional validity of a statutory provision. We are also conscious of the principle that a provision of a statute should not be declared invalid unless such provision appears to be manifestly arbitrary, or beyond legislative competence or discriminatory. It is not necessary to refer to decisions for restating those principles. It is correct that under the provisions of the VAT Act, contractu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade from taxable contractual transfer price on the basis of provisional claim/statement of the contractors the owners (contractees) take the safest course of deducting specified amount from all payments made to the contractors. As a result part of non-taxable payments get deducted at source and deposited with the State. While striking down section 13AA of the Orissa Sales Tax Act providing for deduction at source from payments made to the works contractors the Supreme Court held in Steel Authority of India Ltd. v. State of Orissa [2000] 118 STC 297 (at page 304): 13. There can be no doubt, upon a plain interpretation of section 13AA, that it is enacted for the purpose of deduction at source of the State sales tax that is payable by a contractor on the value of a works contract. For the purposes of the deduction neither the owner nor the Commissioner who issues to the contractor a certificate under section 13AA(5) is entitled to take into account the fact that the works contract involves transfer of property in goods consequent upon of an inter-State sale, an outside sale or a sale in the course of import. The owner is required by section 13AA(1) to deposit towards the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the works contractor an amount not exceeding four per cent or two per cent, as the case may be. Though the object of the provision is to meet the tax in respect of the transactions on all works contract on the valuable consideration payable for the transfer of property in goods involved in the execution of the works contract, the effect of the provision is that, irrespective of whether the sales are inter-State sales or outside sales or export sales which are outside the purview of the State Act and those transactions in respect of which no tax can be levied even in terms of the enactment itself, such deductions have to be made in the bills or invoices of the contractors. To say that if a person is not liable for payment of tax inasmuch as on completion of the assessment refund can be obtained at a later stage is no solace, as noticed in Bhawani Cotton Mills Ltd. v. State of Punjab [1967] 20 STC 290 (SC); [1967] 3 SCR 577. Further, there is no provision for certification of the extent of the deduction that can be made by the authority. Therefore, we must hold that arbitrary and uncanalised powers have been conferred on the concerned person to deduct up to four per cent from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponsible for making any payment of sale price or any amount purporting to be the full or part payment of the sale price or any payment in discharge of any liability on account of valuable consideration, payable in respect of transfer of property in goods, whether as goods or in some other form, involved in the execution of a works contract shall be lawfully competent to deduct an amount, at the rate or rates specified by the State Government, in a notification published in the Official Gazette, purporting to be a part or full amount of tax payable on the sale of such goods from every bill or invoice raised by the works contractor as payable by the person: Provided further that 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompetitive 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, if the declaration is found to be untrue at a subsequent stage. 16 . . . . from that point of view, a provision for deduction at source, as it were, could not be said to be beyond the power of the State. But when the provision is so indefinite and might lead to considerable difficulties, the court has necessarily to consider its validity in the context of those facts. Even in this case, though we passed an interim direction to the Joint Commissioner to issue a certificate in terms of the third proviso to section 25A of the Act by our order dated June 20, 2003, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the speech of the then Law Minister who, while speaking on the amendment to article 31C, said that the amendment was being introduced because the Government did not want the 'let and hindrance' of the fundamental rights. If the Parliament has manifested a clear intention to exercise an unlimited power, it is impermissible to read down the amplitude of that power so as to make it limited. The principle of reading down cannot be invoked or applied in opposition to the clear intention of the Legislature. We suppose that in the history of the constitutional law, no constitutional amendment has ever been read down to mean the exact opposite of what it says and intends. In fact, to accept the argument that we should read down article 31C, so as to make it conform to the ratio of the majority decision in Kesavananda Bharati [1973] 4 SCC 225, is to destroy the avowed purpose of article 31C as indicated by the very heading 'Saving of Certain Laws' under which articles 31A, 31B and 31C are grouped. Since the amendment to article 31C was unquestionably made with a view to empowering the Legislatures to pass laws of a particular description even if those laws violate the di ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
