1986 (2) TMI 297 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Ambit/vires of notifications dated 7th November, 1984.
2. Legality of deductions from contractors' bills for sales tax.
3. Reimbursement of contractors for taxes realized.

Summary:

1. Ambit/vires of notifications dated 7th November, 1984:
The petitioners challenged the notifications (annexures 1, I/A, and I/B) and notice (annexure 2) issued by the Bihar Government, which directed the deduction of 4% from the bills of contractors engaged in works contracts. The High Court examined whether these notifications were within the legal framework and found that they were modes of recovery of tax rather than new tax impositions. The court held that section 25A of the Bihar Finance Act, 1981, and rule 26A of the Bihar Sales Tax Rules, 1983, were intra vires the Constitution and did not infringe article 366(29A).

2. Legality of deductions from contractors' bills for sales tax:
The petitioners argued that only the value of materials supplied by them should be taxed, not the entire bill amount. The court clarified that the deductions were a mode of collecting sales tax on materials supplied by the contractors. The court noted that the deductions were not taxes on the entire bill but were meant to secure government revenue. The court also emphasized that the deductions were not confiscatory and were reasonable, given that the value of materials in most contracts exceeded the 4% deduction.

3. Reimbursement of contractors for taxes realized:
The petitioners contended that the government should reimburse them for the taxes deducted. The court stated that the issue of reimbursement was separate from the legality of the deductions and should be resolved between the contractors and the government. The court dismissed this contention, noting that it did not affect the vires or validity of the power to deduct.

Conclusion:
The High Court dismissed the writ petitions, upholding the legality of section 25A of the Bihar Finance Act, 1981, rule 26A of the Bihar Sales Tax Rules, 1983, and the related notifications. The court found that the deductions were a lawful mode of tax recovery and not a new tax imposition. The applications were dismissed with costs.