9911796707
TMI Blog2009 (10) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioner, a private limited company, undertakes and executes engineering and fabrication works contracts. It claims that M/s. Indo Gulf Fertilizers Ltd., respondent No. 4 herein, awarded to the petitioner a work order for replacement of combuston air pre-heater (APH) at its factory at Jagdishpur Industrial Area, Sultanpur (U.P.). The said contract is dated August 29, 2008. Total value of the above contract is Rs. 1,33,20,000 and it was to be completed by April 30, 2009. An application, requesting for issue of direction under section 34 of the Act to the contractee, namely, Indo Gulf Fertilizers Ltd. not to deduct the amount of tax towards payment in respect of labour contract was filed before the assessing authority. The said application has been rejected by the order dated February 12, 2009, impugned in the present petition, on the ground that in view of section 34(13) of the Act, four per cent of the total sum is liable to deducted. Further, no notification has been issued by the State Government in exercise of provisions of section 34(1) of the Act and as such, it is not possible to issue any such direction as prayed for. Sri S. D. Singh, learned counsel for the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in V. K. Singhal v. State of U.P. [1995] 97 STC 355; [1995] UPTC 337. Elaborating the arguments, he submits that no prejudice has been caused by the impugned order inasmuch as the petitioner would be entitled to get the amount refunded after finalisation of the assessment proceedings. Considered the respective submissions of the learned counsel for the parties and perused the record. The Act has replaced section 8D of the U.P. Trade Tax Act. Section 8D of the U.P. Trade Tax Act corresponds to section 34 of the Act. The legislative competence of section 8D of the U.P. Trade Tax Act was subject-matter of challenge and its validity has been upheld in V. K. Singhal v. State of U.P. [1995] 97 STC 355 (All); [1995] UPTC 337. In the present case, validity of section 34 of the Act has not been questioned. On the other hand, the notification dated March 4, 2008 in respect of deduction of tax at source on works contract by the contractee issued under section 34 of the Act is under challenge. For the sake of convenience, English translation of the said notification is reproduced below: "In exercise of the powers under sub-section (1) of section 34 of the Uttar Pradesh Value Added Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides for deduction of amount by the contractee from the payments made to contractor, the contractor responsible for making any payment or discharge of any liability to any sub-contractor, in pursuance of a contract with the sub-contractor, shall, while making payment to the sub-contractor, deduct amount of tax referred to above: Provided further that where in case of a works contract, the contractor has already made deduction from the payments made to his sub-contractor, the amount of such payments shall be deducted from the amount on which deduction is to be made by the contractee to the contractor. (2) Upon issue of a notification under sub-section (1), where-(a) a dealer, who makes sale of any taxable goods and in whose case notification referred to in sub-section (1) applies, for any reason claims that he either is not liable to pay tax on such sale or is liable to pay as tax an amount lesser than amount of deduction computed in the manner provided; or (b) the person responsible for making payments to the dealer selling the goods is unable to ascertain the turnover of any goods sold, the person responsible for making payment shall require the selling dealer to produce dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules framed under the Act which provides mechanism for determination of turnover of sale of goods involved in the execution of a works contract. The said rule provides that subject to other provisions of the Rules, all amounts representing the value of goods consumed in execution of the works contract; in which property in goods is not transferred in the execution of the works contract, shall be deducted if included in the gross amount received or receivable in respect of the works contract. The learned counsel submits that on a plain reading of the impugned notification, the tax has been sought to be deducted at source in respect of pure work/labour contract, therefore, the notification is beyond the scope of section 34(1) of the Act. Only such deductions at source are permissible which are "towards satisfaction of tax payable by the dealer on account of sale of any taxable goods". In other words, in the case of a pure labour/works contract, a dealer is not liable to pay any tax and no deduction is permissible. There being no such exemption in the said notification, the notification is bad being beyond the scope and purview of section 34(1) of the Act. Reference was also made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction 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 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 contractor's liability to State sales tax four per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract includes the value of inter-State sales, outside sales or sales in the course of import. There is, in our view, therefore, no doubt that the provisions of section 13AA are beyond the powers of the State Legislature for the State Legislature may make no law levying sales tax on inter-State sales, outside sales or sales in the course of import." (2) In Nathpa Jhakri Jt. Venture v. State of Himachal Pradesh [2000] 118 STC 306 (SC); [2003] SCC 319, the vires of section 12A of the Himachal Pradesh General Sales Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for payment to any sales tax at all. In that view of the matter, we have no hesitation in rejecting the contention on behalf of the State." Lastly, (3) State of Chhattisgarh v. VTP Constructions [2008] 12 VST 14 (SC); [2008] 2 SCC 578, a case under Chhattisgarh Commercial Tax Act, which contains similar provision. In this case, constitutional validity of section 35 of the Chhattisgarh Vanijik Kar Adhiniyam was up for consideration. The challenge was on the ground that section 35 involved therein does not make any provision for determination of value of goods supplied in the course of inter-State trade during execution of works contract. The apex court, after taking into consideration its earlier judgment in the case of Steel Authority of India Ltd. v. State of Orissa [2000] 118 STC 297 (SC); [2000] 3 SCC 200 and Nathpa Jhakri JT. Venture v. State of Himachal Pradesh [2000] 118 STC 306 (SC); [2003] SCC 319 held that the High Court was right in holding that section 35 of the Act was constitutionally invalid. A meaningful reading of three judgments, referred to above, would show that in all those cases, the challenge to the legislative competence was on the ground that the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le shall be applicable at the time of determination of turnover. Noticeably, ample safeguard has been provided by the Legislature by enacting sub-sections (2), (4), (5) and (14) of section 34 of the Act, to protect the validity of the notification, if the same is challenged on the ground that no deduction at source can be made when a dealer is not liable to pay tax under the Act. It says that upon issue of a notification under subsection (1) of section 34 of the Act if any person claims that he either is not liable to pay tax on such sale or is liable to pay as tax an amount lesser than amount of deduction sought to be computed at source or the person responsible for making payment to the dealer selling the goods is unable to ascertain the turnover of any goods sold, the person responsible for making the payment shall require the selling dealer to produce direction issued in this behalf by the assessing authority of the selling dealer and shall act according to such direction of the assessing authority. A mechanism by enacting sub-section (2) to section 34 of the Act has been provided for in such cases where a person claims that he either is not liable to pay tax on such sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct up to four per cent from the sum payable to the works contractors irrespective of whether ultimately the transaction is liable for payment to any sales tax at all. More or less a similar controversy came up for consideration before the apex court under the Income-tax Act, 1961 in respect of deduction of tax at source on "presumptive basis" of income in respect of assessee dealing in alcoholic liquor for human consumption, timber obtained under forest lease, timber obtained by any other mode than under a forest lease and any other forest produce not being timber. Section 44AC was inserted in the Income-tax Act with effect from June 1, 1989 and section 206C was inserted with effect from June 1, 1988 in the Income-tax Act. These sections enabled the Revenue to estimate the profits on "presumptive basis". The business of the abovementioned persons existed only for short period, i.e., a year or two. After the period of contract or agreement, it was impossible to trace them out in many cases. It was found that many of them were dealing in benami names. There was evasion of income-tax. To plug the loophole, the aforestated provisions were made and their vires were under challenge. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cussions, we are of the opinion that in view of sub-sections (2), (4), (5) and (14) of section 34, the notification in question is a valid piece of subordinate legislation. It does not transgress the limit of section 34(1) of the Act and safeguard has been provided by enacting subsections (2), (4), (5) and (14) of section 34. The assessing authority concerned shall when approached by the contractor issue necessary direction to the contractee with regard to his claim that he is either not liable to pay tax on such sale or is liable to pay tax on amount lesser than the amount of deduction. In the present case, the assessing authority when approached, dismissed the application of the petitioner on the erroneous assumption that no such notification has been issued under section 34 of the Act. Evidently, the assessing officer, was not justified in rejecting the application on the ground as has been set down in the order. The impugned order dated February 12, 2009 thus, cannot be allowed to stand. The assessing authority is required to reconsider the application of the petitioner afresh in the light of the observations made above in accordance with law. In the result, the writ petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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