TMI Blog2011 (3) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of law, necessary or imperative and cannot be said to be invalid, because it does not specifically allow deductions in respect of labour and other charges, which have been held allowable in Gannon Dunkerley’s case [1992 (11) TMI 254 - SUPREME COURT OF INDIA]. No tax can be assessed and recovered in respect of sale arising out of a works contract, by taking recourse to section 3A inasmuch as tax is leviable on turnover, but the manner of computation of turnover has not been provided for in the TST Act, 1976, in respect of works contract making thereby assessment and computation of tax inapplicable in respect of works contract. The State does not have power to impose tax on deemed sales in respect of sales, which take place in the course of inter-State trade or commerce or if the transactions constitutes a sale outside the State or if it is a sale in the course of import of goods into, or export of the goods out of, the Territory of India. The State Legislature is, however, not prevented from imposing tax on the goods, which are declared to be of special importance in terms of section 14 of the Central Sales Tax Act, 1956, and the State’s limitation, in this regard, is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... background of the case, which has given rise to the above challenges posed to the constitutional validity of the various provisions of the TST Act, 1976, and the Rules framed thereunder, may, first, be noted. Factual background Respondent No. 2, namely, Executive Engineer, Rig Division, Department of Public Works, Government of Tripura at Agartala, issued a Notice Inviting Tender (in short, the NIT ) for drilling and development of 15 deep tube-wells in different places of West Tripura district, the estimated cost of the work being Rs. 24,36,390. In response to the NIT, the petitioner, amongst others, participated in the tender process and was, eventually, awarded the contract. The petitioner accordingly started execution of the contract work and raised, in course of time, 15 Running Accounts Bill (in short, the RA Bills ). However, respondent No. 2 made a deduction, at source, at the rate of four per cent from the RA Bills in respect of sales tax, deductible at source, treating the said contract as a contract for works, i.e., works contract from the total amount of Rs. 27,40,128, which had been raised by the said 15 RA Bills, a sum of Rs. 1,09,604 having been so deducted f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature makes a law which only Parliament can make under List I to the Seventh Schedule, in which case it will violate article 246(1) of the Constitution, or the law violates some specific provision of the Constitution (other than the directive principles). But before declaring the statute to be unconstitutional, the court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope. . . (emphasis1 added) The court certainly has the power to decide the constitutional validity of a statute; but since this power prevents the foreplay of democratic process, it is vital that it be exercised with rigorous self-restraint. Legislature must be given freedom to do experimentation in exercising its power provided, of course, it does not clearly and flagrantly violate the constitutional limits. In His Holiness Kesavanand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d strike down the enactment only when it is not possible to sustain it. The Supreme Court has also pointed out, in Bihar Distillery Ltd. [1997] 2 SCC 453, that the court should not approach an enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed; rather, the defects of drafting, if any, should be ironed out as part of the attempt to sustain the validity/constitutionality of the enactment, for, an Act, made by the Legislature, represents the will of the people and that cannot be lightly interfered with. The relevant observations, made, in this regard, in Bihar Distillery Ltd. [1997] 2 SCC 453, read as under: . . . The approach of the court, while examining the challenge to the constitutionality of an enactment, is to start with the presumption of constitutionality. The court should try to sustain its validity to the extent possible. It should strike down the enactment only when it is not possible to sustain it. The court should not approach the enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed. Indeed, any such defects of drafting should be ironed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumption as to a tax. In A.V. Fernandez v. State of Kerala [1957] 8 STC 561 (SC); AIR 1957 SC 657 (661), Bhagwati, J. observed as follows (page 570 in 8 STC): It is no doubt true that in construing physical statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statutes or the substance of the law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter. We must bear in mind that while construing fiscal statute, the function of court is not to give a strained and unnatural meaning to the provision. We cannot strain the scope of the provision by analogy or place upon it what is called a beneficial or equitable construction in order to prevent anomaly or a supposed anomaly. There is no scope for repair or reconstruction of a provision. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the strict interpretation of the fiscal enactments were reiterated by the Supreme Court in Ajmera Housing Corpn. v. Commissioner of Income-tax [2010] 326 ITR 642 (SC); [2010] 8 SCC 739. In the said decision, the Supreme Court held that in interpreting a taxing statute, the court must look squarely at words of the statute and interpret them. Consideration of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. Tax and equity are strangers and an equitable construction has no room in a taxing statute. If interpretation of fiscal enactment is open to doubt, the construction, most beneficial to the subject, should be adopted even if it results in granting a double advantage. In Mahadeolal v. Administrator General of West Bengal AIR 1960 SC 936, Commissioner of Sales Tax v. Parson Tools and Plants [1975] 35 STC 413 (SC); [1975] 4 SCC 22, it has been held that it is the duty of the court to give effect to the words used without scanning the wisdom or policy of the Legislature and without engrafting, adding or implying anything, which is not congenial to, or consistent with, such expressed intent of the law giver. If the statute is a taxing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the works done. The court, therefore, concluded that the definition of sale , as contained in the Madras General Sales Tax Act, 1939, which included, within the definition of the term sale , a transfer of property in goods, involved in the execution of a works contract, was beyond the legislative competence of the Provincial Legislature. This view was followed by the Hyderabad High Court in Jubilee Engineering Co. Ltd. v. Sales Tax Officer [1956] 7 STC 423 (Hyd). Contrary to the above view taken by the Madras High Court, Mysore High Court, in Mohamed Khasim v. State of Mysore reported in [1955] 6 STC 211 (Mys), upheld the power of the State to impose sales tax on the entire turnover relating to construction work by treating the goods, used in execution of the works contract, as transfer of property in goods involved in the execution of the works contract. The same view was followed by the Kerala High Court in Gannon Dunkerley and Co. Madras (Private) Ltd. v. Sales Tax Officer [1957] 8 STC 347 (Ker). In Pandit Banarsi Das v. State of Madhya Pradesh [1955] 6 STC 93 (Nagpur), the Nagpur High Court, while declining to follow the decision of the Madras High Court, in Gannon Du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State to separate the agreement to sell from the agreement to do the work and render service is possible and, consequently, the State may, in the latter case, impose tax, so far as the agreement relating to transfer of materials for money consideration, is concerned. In short, in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560, what was held by the Supreme Court was that if, in the case of building construction, the works contract is entire and indivisible, the property in goods does not pass to the other party to the contract, but if a works contract consists of two separate parts, one relating to the supply of materials for money consideration and the other for payment of remuneration for services rendered and for the works done, the Legislature is competent to impose tax so far as the supply of materials is concerned and, hence, the State cannot, if the contract is one, which is indivisible, impose sales tax on the goods, used in the execution of the works contract , by treating the use of such goods as a transfer of property in the goods used in the execution of the works contract . The decision, in Gannon Dunkerle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply, 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. While considering the scope of 46th Amendment, one has to also clearly keep in view the fact that the Constitution (46th Amendment) Act, 1982, also added sub-clause (b) to clause (3) of article 286. To be clearer, it may be noted that clause (3) of article 286 provides as under: (3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of, (a) . . . (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be deemed, by a legal fiction, as sales . It may, however, be borne in mind that sales , which have been created by a legal fiction by introduction of clause (29A), are commonly called deemed sales as against the traditional concept of sales , which are popularly called actual sales . In the present set of writ petitions, we are concerned only with one kind of transactions, namely, transactions, which involve execution of works contract . We are, therefore, consciously not taking note of, and entering into, the matter of those other transactions, which have been, by creating a legal fiction with the help of insertion of clause (29A), are, now, treated as sales , though they could not have been under the traditional concept of sale, been regarded as sales . Consequent upon the 46th amendment of the Constitution, almost all the States amended their respective definitions of the word sale in their sales tax legislations in order to enable them to impose tax on those transactions, which were, under the traditional concept of sale , not sales, but have, now, become, with the help of the legal fiction, as indicated hereinbefore, deemed sale so as to enable them impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, not only of the definition of the term, sale , as contained in section 2(g) and the definition of the term, dealer , as contained in section 2(b), but also of the provisions contained in the charging section, namely, section 3, is imperative. With the above object in view, section 2(g), section 2(b) and section 3 of the TST Act, 1976, is reproduced hereinbelow: 2(g). sale means any transfer of property in goods for cash or deferred payment or other valuable consideration, and includes (i) any delivery of goods on hire-purchase or any system of payment in instalments, (ii) any 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, and such delivery or transfer of any goods shall be deemed to be a sale of those goods by the person making the delivery or transfer and a purchase of those goods by the person to whom such delivery or transfer is made, but does not include a mortgage, hypothecation, charge or pledge. Section 2(b) of the TST Act, 1976, defines dealer as under: dealer means any person who sells taxable goods manufactured, made or process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pay tax is on the dealer , who deals with taxable goods, and he becomes liable to pay tax on the turnover at the rate specified in the third column of the Schedule to the TST Act, 1976. Since the liability of the dealer to pay tax, as indicated above, is based on his turnover , the definition of the term, turnover , needs to be looked into. Section 2(m) defines turnover to mean as under: 2(m) turnover means the aggregate of the amount of sale price receivable or if a dealer so elects actually received by the dealer in respect of any sale of goods made during any prescribed period in any year after deducting (i) the amount of sale price, if any, refunded by the dealer to a purchaser in respect of any goods purchased and returned by the purchaser within the said period; (ii) the amount arrived at by applying the following formula: Rate of tax x aggregate of sale price -------------------------------------------- 100 plus rate of tax Provided that an election as aforesaid once made shall not be altered except with the permission of the Commissioner and on such terms and conditions as he may think fit to impose: Provided further that in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in section 2(g) of the TST Act, 1976, does not include thereunder a deemed sale within the meaning of section 3A of the TST Act, 1976, which provides for levy of tax on the transfer of properly in goods involved in execution of works contract , the definition of dealer , as appearing in section 2(b) of the TST Act, 1976, which includes thereunder persons executing works contract , is unconstitutional. To examine Mr. Deb s contention, it is necessary to examine section 3A of the TST Act, 1976, which reads as under: 3A. Tax on the transfer of property in goods involved in the execution of works contract. Notwithstanding anything contained elsewhere in this Act, any transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be deemed to be a sale of those goods by the person making the transfer and shall liable to be taxed at the rate specified in column 3 of the Schedule: Provided that in respect of any such transfer only so much value of the goods involved in the works contract which has actually been paid to the dealer during the period, shall be taken into account for determining the turnover for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract , shall be deemed to be a sale , the inclusion of a person (who executes a works contract ) within the definition of dealer , is unconstitutional. Even otherwise also, the inclusion of a person, who executes a works contract within the definition of a dealer , cannot be said to be per se unconstitutional. Even if the argument of the learned counsel for the petitioner that the definition of sale , as given under the TST Act, 1976, does not include the transfer of property in goods, involved in the execution of works contract , is accepted , the definition of a dealer , which includes a person, who executes a works contract , cannot be said to be unconstitutional. The constitutional validity of the statutory provisions, defining a dealer , cannot be examined on the basis of the answer to the question as to whether tax can be levied on a given person in a particular transaction or not. A person may not be liable to pay tax on a particular transaction; but that, by itself, will not make unconstitutional the definition of a dealer , which includes or embraces within its ambit a class of persons as dealer . The definition of dealer as given in section 2(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the only determinative factor without stipulating any deduction therefrom, the same is in clear violation of the law laid down by the Supreme Court, in Gannon Dunkerley s case [1958] 9 STC 353 (SC); AIR 1958 SC 560, inasmuch as the Supreme Court has clearly held therein that while assessing the taxable liability of a dealer , the value, in respect of certain charges/services, shall be kept outside the purview of the levy. The charges/services, which are to be excluded, are: (i) The charges, which pertain to the contract for supply of labour and services; (ii) The amount paid to a sub-contractor for labour and services; (iii) The charges for planning, designing and architect s fees; (iv) The charges for obtaining, on hire or otherwise, machinery and tools used in execution of works contract ; (v) The cost of consumables, such as, water, electricity, fuel, etc., which are consumed, during the execution of works contract , and other similar expenses for labour and services; (vi) Transportation charges for transport of the goods to the place of works; (vii) Proportionate deduction of the charges for maintenance of the establishment of the contractor as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obliged to pay tax, the third is the rate at which the tax is imposed and the fourth is the measure or value to which rate will be applied for computing the tax liabilities. The Supreme Court, in Govind Saran Ganga Saran v. Commissioner of Sales Tax [1985] 60 STC 1 (SC); [1985] 155 ITR 144 (SC), reiterated that if the said components are not clearly or definitely ascertainable, it is difficult to say that levy exists in point of law. Any uncertainty or vagueness in the legislative scheme, which defines any of the components of levy, will be fatal to its validity. The Supreme Court, again, in R B Falcon (A) Pty. Ltd. v. Commissioner of Income-tax [2008] 301 ITR 309 (SC), held that if the provisions for computation fail, the charging section cannot be effectuated. The Supreme Court, in R B Falcon [2008] 301 ITR 309 (SC), while examining the validity of levy of fringe benefit tax, held that if there was no provision for computing the value of any fringe benefit, the same was not liable to fringe benefit tax even if might fall under clause (a) or clause (b) of section 115 WB (1). Under section 3A of the TST Act, 1976, the procedure for computation of taxable liability ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f property in goods, involved in the execution of works contract , under section 3A of the TST Act, 1976, the said transaction cannot be brought to tax. The vagueness and uncertainty of the legislative scheme under section 3A of the TST Act, 1976, as regards the computation and assessment of tax under section 3A, is fatal to the imposition of the tax under section 3A. In so far as the contentions of the petitioner that no tax can be levied under section 3A of the TST Act, 1976, inasmuch as there is no specific entry, in the Schedule of the TST Act, 1976, fixing rates of taxes imposable on the transfer of property, in goods, involved in the execution of works contract (with regard to the goods, which may be used in execution of works contract ) is concerned, it is to be noted that from a plain reading of section 3A, it is clear that the transfer of property in goods, involved in execution of works contract , has been treated to be sale by the person making the transfer and the same has to be taxed at the rate specified in column 3 of the Schedule. The proviso to section 3A provides that only so much of the value of the goods in the transfer of property in goods, involved i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus, becomes subject to the same discipline to which any levy under entry 54 of the State List is made. It is, therefore, not correct to say that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract ; but a conglomerate. The Forty-sixth Amendment does no more than make it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. Sub-clause (b) of article 366(29A) should not be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of entry 54 thereof. In view of the above, it is not necessary that there must be a separate entry in the Schedule fixing rates of tax in respect of various goods involved in the execution of works contract . The goods, used in the execution of works contract , shall have to be taxed at the different rates specified in column 3 of the Schedule in respect of different goods. Situated thus, it is clear that the submission of Mr. Deb, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential requirement, without which the dealer cannot be held liable to pay tax under the Act. . . The facts of the case, in Indian Sugar [2002] 127 STC 339 (Mad), are altogether different from the ones at hand and, therefore, the decision, in Indian Sugar [2002] 127 STC 339 (Mad), can be of no assistance to the learned counsel for the petitioners. Next contention of Mr. Deb, learned counsel for the petitioner, is, as already indicated above, to the effect that since various deductions on account of labour charges and other charges, as held to be allowable by the Supreme Court in Gannon Dunkerley s case [1958] 9 STC 353 (SC); AIR 1958 SC 560, have not been provided for in section 3A, section 3A is ultra vires and unconstitutional. In this regard, it is necessary to, again, examine section 3A. Explanation to section 3A clearly lays down that property in goods shall mean aggregate of the goods for which amount has been received or receivable by the dealer as value for consideration. Section 3A provides that the transfer of property in goods, involved in execution of works contract , shall be treated to be sale . The Explanation makes it very clear that it is only the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r take place in the course of import of goods into, or export of goods out of, the Indian territory in relation to which the State Legislature lacks the competence to impose a tax under entry 54 of the State List. Rule 3 of the TST Rules also does not provide for exclusion of the inter-State sale , or a sale , which takes place outside the State, or a sale , which takes place in the course of import of goods into, or export of goods out of, the Indian Territory, which are governed by the Central Sales Tax Act, 1956. In short, thus, section 3A of the TST Act, 1976, with its Explanations transgresses the limits of the legislative power conferred on the State Legislature under entry 54 of the State List inasmuch as it enables tax being imposed on deemed sales resulting from transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract , which take place in the course of inter-State trade or commerce, or which take place outside the State or which take place in the course of import of goods into, or export of goods out of, the Indian territory within the meaning of sections 3, 4 and 5, respectively, of the Central Sales Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly, clause (1) of article 286 prohibits the States from making a law imposing or authorising the imposition of tax on sale or purchase of goods, where such sale or purchase takes place outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India. As a result of the said provisions, the legislative power, conferred under entry 54 of the State List, does not extend to imposing tax on sale or purchase of goods, which takes place outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India. In the light of the above, when section 2(b), section 2(g) and section 3 of the TST Act, 1976, are carefully examined, it is, nowhere, found that the Act seeks to levy tax on sale or purchase of goods on the sales taking place outside the State or in the course of inter-State trade and commerce or in the course of import of the goods into, or export of the goods out of, the territory of India. Section 3, in fact, provides for levy of tax on the turnover of a dealer . Section 2(m) defines the term turnover to be the aggregate of the sale price received or receivable in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted. Whether section 3AA of the Tripura Sales Tax Act, 1976, and rule 3A(1) of the Tripura Sales Tax Rules, 1976, providing for deduction of tax, at source, in respect of payments made towards transfer of property in goods, involved in the execution of works contract, are constitutionally valid? Section 3A of the TST Act, 1976, provides for deduction of tax, at source, on the payments made for the transfer of property in goods involved in execution of works contract . Section 3AA provides that such amount, as may be prescribed, has to be deducted at source. Rule 3A(1) provides that while discharging a liability on account of valuable consideration payable for the transfer of property in goods in execution of works contract , 1.5 per cent gross amount of the bill in the case of RCC bridge and four per cent of the gross amount of the bills in the case of other works shall be deducted towards tax payable under section 3AA of the Act on account of works contract . Since section 3AA read with rule 3A(1) provides for deduction of tax at the flat rate of 1.5 per cent in the case of RCC bridge and four per cent in the case of other works from the gross amount of the bill in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed. Rule 3A: 3A. (1) Every person responsible for making payment to any person (hereinafter in this rule referred to as the contractor) for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether in goods or in any other form) in pursuance of the works contract shall at the time of making such payment to the contractor either in cash or in any manner, deduct an amount equal to the tax payable under section 3A of the Act on account of such works contract: Provided that no such deduction shall be made from the bill(s) or invoice(s) of the contractor for execution of works contract on account of the contracts for which work order was issued prior to first January, 1989: Provided also that any person responsible to make deduction of any amount equal to the amount of tax as mentioned in this rule may refer the matter to the Superintendent of Taxes, having jurisdiction over the area, for provisional computation of the net turnover and the amount of tax payable thereof by such contractor for the valuable consideration of the goods involved in the works contract. (2) Every person responsible for makin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 9 of the Act. (9) Any deduction made in accordance with the provision of this rule and credited into the Government Treasury shall be treated as a payment of tax on behalf of the person from whose bill(s) or invoice(s) the deduction has been made and credit shall be given to him for the amount so deducted as per deposit challan submitted to the Superintendent of Taxes along with the returns in the assessment made for the assessment year. (10) If any person as is referred to in sub-rules (1) and (2) of this rule fails to make deduction or after deducting, fails to deposit the amount so deducted as required by sub-rule (3), the Superintendent of Taxes may after giving to such person opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty a sum not exceeding one and a half times the amount not so deducted and/or deposited into the Government Treasury. (11) Without prejudice to the provisions of sub-rule (10), if any such person fails to make the deduction or, after deducting fails to deposit the amount so deducted, he shall be liable to pay simple interest at the rates contained in section 25 of the Act, on the amount no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r may not be liable to pay tax on the whole value of the works contract . The provisions, contained in section 3AA of the TST Act, 1976, and rule 3A(1) of the Rules, do not take into consideration the fact that there may be some components in a transaction of sale , which may not be taxable at all under the TST Act, 1976, and Rules made thereunder. No provision has been made in section 3AA of the TST Act, 1976, and rule 3A(1) of the Rules or in any other part of the Act or Rules to enable the authority, who has to make deduction, at source, to ensure or even take into account the fact that while making deduction at a flat rate of 1.5 per cent or four per cent, what is not taxable is not deducted. For having, thus, made no provision for exclusion, while deducting tax, at source, in a works contract , of those components of the bills of a works contractor, which are not exigible to sales tax and also for having not made any provisions for exclusion of sales from the gross turnover , which may be inter-State sales, or which may be sales taking place out of the State, or sales , which may be taking place in the course of import of goods into, or export of goods out of, the ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not liable to pay tax at a rate, which is not permissible, no such tax, even at source, can be deducted from him. To levy a tax means to impose or assess or to impose, assess or collect under authority of law . It is a unilateral act of superior legislative power to declare the subjects and rates of taxation and to authorize the Collector to proceed to collect the tax. Assessment is the official determination of liability of a person to pay a particular tax. Collection is the power to gather money by enforcing payment if necessary. The levy of taxes is, largely, a legislative function; assessment is a quasi-judicial function and collection an executive function. These three expressions levy , assessment and collection , are expressions of widest significance and embrace, in their broad sweep, all the proceedings, which can possibly be imagined for raising money by the exercise of the power of taxation from the inception to the conclusion of the proceedings. The provisions, as regards deduction of tax, at source, are nothing but one of the modes of collection of tax by the State. Hence, a transaction in respect whereof, no tax can be levied, there cannot be any provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of import of the goods into, or export of the goods out of, the territory of India or sales outside the State or inter-State sales. The Supreme Court further held, in Steel Authority of India Ltd. [2000] 118 STC 297 (SC), that section 13AA should have been precisely drafted to make it clear that no tax was levied on that part of the amount credited or that related to the inter-State sales, outside sales and sales in course of import. Pointing out these deficiencies in the legislation, in question, the Supreme Court further observed, in Steel Authority of India Ltd. [2000] 118 STC 297 (SC), as under (page 305 in 118 STC): . . . Unfortunately, it would appear that the State Legislature overlooked its limitations, even as contained in the preamble, when enacting section 13AA. It was also contended that the deduction that was required to be made under section 13AA(1) was of four per cent of the amount credited or paid by the owner to the contractor, whereas the sales tax liability of the contractor thereon was eight per cent. It was contended that this requirement proceeded on the assumption that half of the amount was not liable to tax being in respect of inter-Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. . . In view of the position of law, as discussed above, it becomes clear that section 3AA of the TST Act, 1976, and rule 3A(1) of the Rules, in the present case, are beyond the legislative competence of the State Legislature inasmuch as they mandate deduction not only on those components of the turnover , which are not exigible to tax by the State Legislature, but also mandates deduction on those amounts, which are outside the purview of entry 54 of List II and/or the amounts, which are not exigible to sales tax at all even under the State laws. Under similar circumstances, this court in Patel Engineering Ltd. v. State of Arunachal Pradesh [2009] 24 VST 481 (Gauhati), wherein one of us (Ansari, J.) was a party, declared section 47A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract, under the amended law, can be made only if works contract involves a dominant intention to transfer the property in goods and not in contracts, where transfer of the property in goods takes place as an incidence of contract of service. The Supreme Court, in Rainbow Colour Lab [2000] 118 STC 9 (SC); [2000] 2 SCC 385, held that what is pertinent to ascertain, in each case, is what the dominant intention of the contract was. The Supreme Court, in Rainbow Colour Lab [2000] 118 STC 9 (SC); [2000] 2 SCC 385, accordingly, held as under: Prior to the amendment of article 366, in view of the judgment of this court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC) the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the Forty-sixth Amendment and the judgment of this court in Builders case [1989] 73 STC 370 (SC) is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction: (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt nature test would still be applicable to those composite contracts, which are other than the ones mentioned in clause (29A) of article 366 of the Constitution of India. The relevant observations, made in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1, read as under (page 119 in 3 VST): The reason why these services do not involve a sale for the purposes of entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley case [1958] 9 STC 353 (SC); AIR 1958 SC 560, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in article 366(29A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in article 366(29A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said works, which is certainly taxable under section 3A of the TST Act, 1976. It cannot, therefore, be said that the work, in question, was, as a whole, a service contract. The question, however, remains as to whether that part of the contract, which amounts to transfer of property in goods, involved in the execution of the works contract, is taxable under the relevant statute? We, therefore, now, take up the question as to whether the contract, in question, is, to the extent that it involves execution of works contract, exigible to sales tax under the TST Act, 1976, and the rules framed thereunder. What is, now, pertinent to note is that in the present case, there is, though very little, transfer of property in goods involved in the execution of works contract, the fact remains, as we have already noted above, in the preceding part of this judgment, that there is no provision, in the TST Act, 1976, for determination of the turnover, in respect of works contract, and no sales tax can be assessed and recovered in respect of sales arising out of a works contract and no tax can, therefore, be levied and/or recovered in respect of the transfer of property in goods taking plac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
