TMI Blog2011 (9) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... o section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970 (hereinafter referred to as, the Act ), introduced by amendment Act 23 of 2002, to be ultra vires the Constitution of India, and beyond the legislative competence of the State. The petitioner is manufacturer and in business of laying, joining, testing and commissioning of PSC pipes, for water supply scheme on contract basis. The petitioner is a registered dealer under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as, the TNGST Act ), and, assessee with the Commercial Tax Officer II, Thanjavur. The business of the petitioner falls under the category works contract , and the petitioner opted, to pay at compounded rate of tax, as per section 7C of the TNGST Act. Section 7C of the TNGST Act, reads as under:- 7C. Payment of tax at compounded rates by works contractor:- (1) Notwithstanding anything contained in section 3B, every dealer referred to in item (vi) of clause (g) of section 2, may, at his option, instead of paying tax in accordance with section 3B, pay, either on the total value of each works contract or on the total value of all works contract, executed by him in a year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under:- 'taxable turnover' means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover and in such manner as may be prescribed. The total turnover is defined under section 2(q) of the TNGST Act, to mean the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax. The turnover is defined under section 2(r) of the TNGST Act, which reads as under:- 'turnover' means the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n), by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable considetation, provided that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea and rubber (natural rubber, latex and all varieties and grades of raw rubber), grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgagee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods of such principal within the State:- Provided that in respect of declared goods as defined in clause (h) of section 2 of the said Act, the tax payable by such dealer under the said Act, together with the additional tax payable under this subsection, exceeds four per cent of the sale or purchase price thereof, the rate of additional tax in respect of such goods shall be reduced to such an extent that the tax and the additional tax together shall not exceed four per cent of the sale or purchase price of such goods. Explanation II:- Notwithstanding anything contained in the said Act, for the purpose of this clause, 'turnover' in respect of sugercane excluding sugarcane setts shall be arrived at by multiplying the total metric tonnes of sugarcane excluding sugarcane setts purchased during the year, by the minimum price fixed under clause 3 and the additional price determined under clause 5A, of the Sugarcane (Control) Order, 1966 and such turnover shall be included in the total turnover of the dealer and the taxable turnover shall be arrived at accordingly for the purpose of this clause. Explanation III:- 'Taxable turnover' for the purpose of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in accordance with section 3B'. The Legislature was obviously conscious of the fact that the adoption of the contract value as the basis for calculating the tax was not a permissible mode of levy and that it was only with the consent of the dealer that such a mode can be adopted. 8. It is evident that the contract value includes many things besides the value of the goods agreed to be transferred in the course of the execution of the works contract. All such amounts are not exigible to tax. Collecting a percentage of the total contract value is obviously a convenient mode which it is open to a dealer to either accept or reject. So far as the State is concerned while giving that option the State has expressed its readiness to accept the prescribed percentage of the contract value as an equivalent to or at any rate a payment made in full discharge of the liability of the dealer liable to pay tax on the transfer of goods involved in the works contract in respect of which option has been exercised by the dealer. ...... 12. The Act does not anywhere provide that the total value of the works contract in respect of which a dealer has exercised the option to pay the prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such exercise wholly impermissible. In the absence of any determination of taxable turnover, no tax under the Additional Sales Tax Act can be levied. The claim for additional sales tax by treating the contract value as the taxable turnover is not permissible under the provisions of either the TNGST Act or the Additional Sales Tax Act. To overcome the decision of the Division Bench of this court, the State Legislature added the impugned Explanation V, vide amendment 23 of 2002, which reads as under:- 'Taxable turnover' for the purpose of this clause in respect of a dealer liable to pay tax under section 7C of the said Act for the financial years commencing on the 1st day of April, 1993, shall be the total value referred to in the said section. The learned counsel for the petitioner contended, that the Explanation V to section 2(1)(aa) of the Act, is ultra vires, the power of the State Legislature, and also contrary to section 2(1)(aa) of the Act, which prescribes additional sales tax to be payable on the taxable turnover, which is defined under section 2(p) of the TNGST Act, 1959. The contention of the learned counsel for the petitioner is that the contract va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 92A of List I, Parliament has the power to make a law in respect of taxes on sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter-State trade or commerce. The levy and collection of such tax is governed by article 269. This shows that the legislative power under entry 54 of the State List is not available in respect of transactions of sale or purchase which take place in the course of inter-State trade or commerce. Similarly clause (1) of article 286 prohibits the State from making a law imposing or authorising 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 goods into or export of the goods out of the territory of India. As a result of the said provision, the legislative power conferred under entry 54 of the State List does not extend to imposing tax on a sale or purchase of goods which takes place outside the State or which takes place in the course of import or export of goods. In view of the aforesaid limitations imposed by the Constitution on the legislative power of the States under entry 54 of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers under entry 54 of the State List will have to be exercised keeping in view the provisions contained in sections 3, 4 and 5 of the Central Sales Tax Act. For the same reasons sections 14 and 15 of the Central Sales Tax Act would also be applicable to the deemed sales resulting from transfer of property in goods involved in the execution of a works contract and the legislative power under entry 54 in State List will have to be exercised subject to the restrictions and conditions prescribed those sections in respect of goods that have been declared to be of special importance in inter-State trade or commerce. The absence of any amendment in the definition of 'sale' contained in section 2(g) of the Central Sales Tax Act, 1956, so as to include transfer of property in goods involved in the execution of a works contract does not in any way affect the applicability of sections 3, 4 and 5 and sections 14 and 15 of the Central Sales Tax Act to such transfers. In view of sub-clause (b) of clause (29A) of article 366, the State Legislatures are competent to impose tax on transfer of property in goods involved in the execution of a works contract and under sub-clause (b) of clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sale inside the State. The question whether a sale is an outside sale or a sale inside the State or whether it is a sale in the course of import or export will have to be determined in accordance with the principles contained in sections 4 and 5 of the Central Sales Tax Act and the State Legislature while enacting the sales tax legislation for the State cannot make a departure from those principles. The measure for the levy of the tax contemplated by article 366(29A)(b) is the value of the goods involved in the execution of a works contract. It is wrong to say that the value of such goods for levying tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... labour and services does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. Since the expenses for labour and services would depend on the nature of the works contract and would not be the same for all types of works contracts, it would be permissible, indeed necessary, to prescribe varying scales for deduction on account of cost of labour and services for various types of works contracts. In the field of taxation the decisions of the Supreme Court have permitted the Legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from dear and hostile discrimination against particular persons or classes. It would be permissible for the State Legislature to tax all the goods involved in the execution of a works contract at a uniform rate which may be different from the rates applicable to individual goods, because the goods which are involved in the execution of the works contract when incorporated in the works can be classified into a separate category for the purpose of imposing the tax. The Supreme Court sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable to the proceedings under the Act. Before considering what provisions of the principal Act should be read as part of the Act, we have to understand the meaning of the expression 'mutatis mutandis'. Earl Jowitt's The Dictionary of English Law (1959) defines 'mutatis mutandis' as 'with the necessary changes in points of detail'. Black's Law Dictionary (revised fourth edition, 1968) defines 'mutatis mutandis' as 'with the necessary changes in points of detail, meaning that matters or things are generally the same, but to be altered when necessary, as to names, offices, and the like. Housman v. Waterhouse 191 App Div 850 ; 182 NYS 249, 251. In Bouvier's Law Dictionary (3rd revision, volume II), the expression 'mutatis mutandis' is defined as 'The necessary changes. This is a phrase of frequent practical occurrence, meaning that matters or things are generally the same, but to be altered when necessary, as to names, offices, and the like'. Extension of an earlier Act 'mutatis mutandis' to a later Act brings in the idea of adaptation, but so far only as it is necessary for the purpose, making a change without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose gross turnover exceeded rupees one lakh but did not exceed rupees five lakhs at three per cent of the tax payable under the principal Act and on dealers whose gross turnover exceeded rupees five lakhs at five per cent of the tax payable under the principal Act. Such additional tax levied under the Act could not be passed on to consumers. The object of the amendment made in 1979 was, as can be seen from the Statement of Objects and Reasons, to rationalise the scheme of additional sales tax and to facilitate 'wider application of first point levy' and to introduce flexibility in the implementation of the Act. What the words 'wider application of first point levy' mean is not very dear. The words 'first point levy' are no doubt a single point levy. Even a last point levy in the same series of sales is a single point levy which is distinguishable from a multi-point levy. If the State Legislature wanted that the new levy, i.e., the additional tax, should be a multi-point tax which had to be paid by every dealer irrespective of the fact that the entire annual gross turnover in his hands may not be liable to bear the tax under the principal Act, it would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the judgment of the Division Bench of this court, holding that the Act did not anywhere provide that the total value of the work contract in respect of which a dealer has exercised the option to pay the prescribed percentage towards tax, instead of paying in accordance with section 3B of the TNGST Act, shall be deemed to be the turnover of such dealer for the taxable turnover of the dealer, in so far as the works contract in which he is engaged is concerned. In support of the Explanation, the learned Additional Advocate-General also placed reliance on the judgment of the honourable Supreme Court, in the case of D. Cawasji and Co. v. State of Mysore [1985] 58 STC 1 (SC) ; [1984] 150 ITR 648 (SC), wherein the honourable Supreme Court held as under:- That in its earlier judgment the High Court had held that sales tax could not be collected on excise duty and cesses imposed on arrack and the High Court had issued writs directing the State Government to forbear from collecting such sales tax and to refund to the appellant the amounts which might have been collected from it by way of sales tax on items of excise, health cess and education cess. That judgment became fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he invalidity of any act done may be upheld, if considered reasonable and legitimate. There can be no dispute, with the proposition of law, but the State Legislature, was required to remove the lacuna by amending the Act, but it could not add Explanation, to expand the scope of the charging section. In order to appreciate the respective contentions of the parties, it would be necessary, to note down that the honourable Division Bench of this court, in the case of South India Corporation Ltd. v. Commercial Tax Officer [2001] 124 STC 654 (Mad), clearly recorded, that it was not within the legislative competence, to calculate the tax, by taking contract value as the basis, in view of the judgment of the honourable Supreme Court, in the case of Gannon Dunkerley and Co. v. State of Rajasthan [1993] 88 STC 204 (SC). It was, therefore, with the consent of the dealer that such a method could be adopted. The honourable Division Bench further held that the contract value includes many things, besides the value of goods agreed to be transferred in the course of execution of works contract. All such amounts are not exigible to tax and therefore, collecting the percentage of total contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion) at page 67 states thus:- 'An Explanation does not enlarge the scope of the original section that it is supposed to explain. It is axiomatic that an Explanation only explains and does not expand or add to the scope pf the original section... The purpose of an Explanation is, however, not to limit the scope of the main provision... The construction of the Explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. An Explanation must be interpreted according to its own tenor.' 48. The principles laid down by the aforesaid authors are fully supported by various authorities of this court. To quote only a few, in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer [1960] 11 STC 764 (SC) ; [1961] 1 SCR 902 ; AIR 1961 SC 315 a Constitution Bench decision, Hidayatullah, J., speaking for the court, observed thus:- 'Now, the Explanation must be interpreted according to its own tenor, and it is meant to explain clause (1)(a) of the article and not vice versa. It is an error to explain the Explanation with the aid of the article, because this reverses th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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