1957 (3) TMI 52 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability to assessment of turnover related to "works contracts."
2. Validity of the Travancore-Cochin General Sales Tax Act, 1125, under the Constitution.
3. Legislative intent regarding the taxation of works contracts.
4. Validity of the prescription of the percentage of admissible deduction for works contracts.
5. Validity of Rule 4(3) of the Travancore-Cochin General Sales Tax Rules, 1950.

Issue-wise Detailed Analysis:

1. Liability to Assessment of Turnover Related to "Works Contracts":
The petitioner, Gannon Dunkerley & Co. (Madras) (Private) Ltd., was assessed to sales tax on a total turnover of Rs. 2,23,197, of which Rs. 1,96,486 related to "works contracts." The petitioner challenged the liability to assessment of this portion of the turnover. The definition of "works contract" under Section 2(1) of the Travancore-Cochin General Sales Tax Act, 1125, includes agreements for construction, fitting out, improvement, or repair of immovable and movable property. The petitioner did not dispute that the contracts fell within this definition.

2. Validity of the Travancore-Cochin General Sales Tax Act, 1125, Under the Constitution:
The petitioner contended that the Act was ultra vires the Constitution. However, the court noted that the Act was a pre-Constitution enactment and its validity was not dependent on the entries in the Seventh Schedule to the Constitution. Article 372 of the Constitution provides for the continuance of existing laws, and the Act was brought into force on 30th May 1950, after the Constitution came into effect. The court also referenced Article 277, which allows for the continuation of taxes lawfully levied before the commencement of the Constitution.

3. Legislative Intent Regarding the Taxation of Works Contracts:
The petitioner argued that the legislative intent was to tax only the sale of goods strictly so called, as indicated by the preamble of the Act. However, the court pointed out that the definitions of "goods," "sale," and "turnover" in the Act clearly included materials used in works contracts. The court concluded that the legislative intent was not restricted to the sale of goods in the narrow sense but included the transfer of property in goods involved in works contracts.

4. Validity of the Prescription of the Percentage of Admissible Deduction for Works Contracts:
The petitioner contended that there had been no valid prescription of the percentage of admissible deduction for works contracts, making assessments impossible. The court noted that the expression "prescribed" means prescribed by rules made under the Act. Rule 4(3) of the Travancore-Cochin General Sales Tax Rules, 1950, allowed for deductions based on percentages fixed by the Board of Revenue. Although the Board had not fixed any percentage, the petitioner was allowed the maximum deduction of 30%. The court did not consider the non-fixation of percentages by the Board as fatal to the assessment.

5. Validity of Rule 4(3) of the Travancore-Cochin General Sales Tax Rules, 1950:
The petitioner argued that Rule 4(3) was ultra vires of the Act, as it delegated the duty to fix the actual percentages of admissible deduction to the Board of Revenue. The court noted that the Board of Revenue is part of the Government of the State and that the petitioner had been allowed a deduction at the maximum percentage fixed by the State itself, not based on any percentage fixed by the Board. Therefore, the court found no need to consider the question of delegation.

Conclusion:
The petition was dismissed, and the court held that the assessment of the turnover related to "works contracts" was valid. The Travancore-Cochin General Sales Tax Act, 1125, was not ultra vires of the Constitution, and the legislative intent included the taxation of materials used in works contracts. The non-fixation of percentages by the Board of Revenue did not invalidate the assessment, and Rule 4(3) was not ultra vires of the Act. The petition was dismissed without any order as to costs.