TMI Blog2016 (9) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... payments towards the works contract would always remain subject to the final assessment under the Act of 2003 by the Assessing Officer; and deduction at source by the principal, by itself, is not decisive of the actual amount of VAT payable. Petition disposed off - decided against petitioner. - WP (C) No.126 of 2013, WP (C) No.16 of 2013 - - - Dated:- 2-8-2016 - Dinesh Maheshwari, CJ And Ved Prakash Vaish, JJ. Mr. HL Shangreiso Ms. P Agarwal, for the petitioners Dr. BP Todi, Advocate General, with KP Bhattarcharjee, GA Mr. R Deb Nath, for the respondents JUDGMENT AFR BY THE COURT: ( Per Hon ble the Chief Justice ) (Oral) These two writ petitions involving similar nature issues have been considered together and are taken up for disposal by this common order. We have heard Mr. HL Shangreiso, learned counsel for the petitioner in W.P. (C) No.126 of 2013, Ms. P Agarwal, learned counsel for the petitioner in W.P. (C) No.16 of 2013, learned Advocate General Dr. BP Todi, assisted by Mr. KP Bhattacharjee, GA for the contesting respondents related with the State of Meghalaya in both the petitions and Mr. R Deb Nath, learned counsel for the respondents No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pathar (Meghalaya) at the contractual amount of ₹ 26,17,94,929.35. The common features in both these petitions are that the petitioners-contractors have received running payments for the works in question but then, the question, of deduction of VAT payable to the State of Meghalaya in terms of Section 106 of the Act of 2003, arose at the time of final payments in the manner that, according to the petitioners, authorities concerned were poised to deduct the tax at source on the total value of the work contracts without providing for deductions as per Section 5 thereof. Aggrieved by such alleged propositions of the respective respondents, of deducting VAT on the total value of the contract amount, the petitioners preferred these petitions in this Court. It is noticed that in W.P. (C) No.16 of 2013, the Court also provided for interim relief on 11.02.2013 that the respondents will not deduct any tax under Section 106 of the Act at source from the bills of the petitioner for the works contract in question. It has been contended by the learned counsel for the petitioners that the question of value at which deduction at source could be made is no more res integra with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the manner indicated in sub-clause (i), sub-clause (ii) or sub-clause (iii); (c) in case of turnover of sales in relation to works contract, the charges towards labour, services and other like charges and subject to such conditions as may be prescribed: Provided that in the cases where the amount of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract, the amount of such charges shall be calculated on the basis of such percentages of the value of works contract as specified in Schedule IV A appended to this Act; (d) such other sales on such conditions and restrictions as may be prescribed. On the other hand, special provisions for deduction of tax at source and the mechanism therefor are contained in Section 106 of the Act of 2003 that reads as under:- 106. Special Provisions relating to deduction of tax at source- Notwithstanding anything contained in any 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) responsible for making any payment of discharging any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation (supra), the Shillong Bench of the Gauhati High Court proceeded to examine and analyze the aforesaid provisions contained in Section 5 and Section 106 of the Act of 2003; and found the shortcomings in Section 106 that even while the charging provision i.e., Section 5 provided for liability for tax on taxable turnover , the mechanism for deduction at source, as contained in Section 106 of the Act did not provide for confining the quantum of advance tax to the taxable turnover alone. The Court, inter-alia, observed as follows:- 12. 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% after allowing percentage of deduction from the work value as prescribed in Schedule IV-A to the Act. The percentage of deduction so allowed is confine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment to sub-contractors. .. 14. 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% after allowing percentage of deduction from the work value as prescribed in Schedule IV-A appended to the Act , provided the value of the work exceeds rupees one lakh. The permissible deduction prescribed in Schedule IV-A to the Act, as already explained earlier, is referable only to the proviso to Section 5(2)(c) of the Act, namely, where the amount of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract. Except for this, the deduction, therefore, is towards the sales tax that is payable to the State upon the total value of the works contract and it is of 12.5% of the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value after the numerals/figures 12.5% in Section 106 (2) of the Act of 2003. The Court proceeded to hold as under:- 17. 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 92-A of the Union List read with Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to tax under this Act to the Government or to a company, corporation, board, authority, undertaking or any other body by whatever name called, owned, financed or controlled wholly or substantially by the Government shall at the time of credit to the account of or payment to the payee of such amount in cash, by cheque, by adjustment or in any other manner whatsoever, deduct tax therefrom in the prescribed manner at the rate specified in the Schedule to the Act in respect of sale or supply of goods or transfer of the right to use any goods and in respect of work contract at the rate of 12.5% of the taxable turnover referred to in Section 5 (2) of the work value after allowing percentage of deduction from the work value as prescribed in Schedule IV-A appended to the Act. (the phrase read by the Court in the provision shown in bold-underlining) The spirit of the order of the Court in MES Builders Association s case has been clear that there should not be a deduction of tax at source on the value of the contract but, such a deduction at source should only be on such turnover that would be taxable, i.e., taxable turnover after providing for the deductions envisaged by Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bour, services and other like charges; or it would be at the percentage provided in Schedule-IV-A, in such cases where the charges towards labour, services etc. are not ascertainable from the terms and conditions of the contract. This clarification appears sufficient to dispose of these matters and no further adjudication is called for. So far the submissions of the learned Advocate General that ultimately the matters remain subject to the final assessment by the Assessing Officers are concerned, in our view, no comments are requisite thereupon. It goes without saying that any deduction made by the principal while making payments towards the works contract would always remain subject to the final assessment under the Act of 2003 by the Assessing Officer; and deduction at source by the principal, by itself, is not decisive of the actual amount of VAT payable. So far the question of final payment to the petitioners by their respective principals is concerned, we are clearly of the view that their final bills should now be settled with reference to the provisions of the Act of 2003 read with the decision in MES Builders Association (supra) as also the observations foregoing. Nee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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