1988 (5) TMI 355 - HC - VAT and Sales Tax

Issues Involved
1. Constitutionality of the 46th Amendment.
2. Scope of amending the Orissa Sales Tax Act without amending the definition of "goods" in the Constitution.
3. Arbitrary nature of "taxable turnover" in section 5(2)(AA)(i).
4. Potential for double taxation and taxation of inter-State sales or declared goods.
5. Lack of machinery for taxation under the amended provision.

Issue-wise Detailed Analysis

1. Constitutionality of the 46th Amendment
The petitioners argued that the 46th Amendment to the Constitution transgressed the Parliament's powers and was ultra vires. They contended that the amendment aimed to nullify the Supreme Court's decision in [1958] 9 STC 353 (State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.). The court rejected this argument, stating that the Parliament has the power to amend the Constitution as long as it does not alter its basic structure. The 46th Amendment was intended to rectify the deficiency pointed out by the Supreme Court, thus enabling States to levy taxes on goods involved in works contracts.

2. Scope of Amending the Orissa Sales Tax Act
The petitioners contended that without amending the definition of "goods" in article 366(12) of the Constitution and entry 54 of List II of the Seventh Schedule, there was no scope for amending the Act to include transactions in works contracts. The court clarified that the addition of clause (29A) to article 366 defined "tax on the sale or purchase of goods," which included the transfer of property in goods involved in the execution of a works contract. Therefore, there was no need to amend entry 54 of List II.

3. Arbitrary Nature of "Taxable Turnover"
The petitioners argued that section 5(2)(AA)(i) was arbitrary as it did not have a relationship with the sale and purchase of goods and lacked guidelines for determination. The court held that the definition of "taxable turnover" should be read harmoniously with existing provisions and other laws. The legislature intended that the taxable turnover in a works contract is the value of the goods exigible to tax under the Orissa Sales Tax Act. The court clarified that the definition was an easy mode of determining taxable turnover but should exclude goods not exigible to tax.

4. Potential for Double Taxation and Taxation of Inter-State Sales or Declared Goods
The petitioners contended that the definition of "taxable turnover" could lead to double taxation and taxation of inter-State sales or declared goods. The court emphasized that the legislature could not have intended to infract the law. The definition should be read in conjunction with other provisions, ensuring that inter-State sales and goods already taxed are excluded. The court noted that the taxing authority must examine the correctness of the dealer's return and exclude non-exigible transactions.

5. Lack of Machinery for Taxation
The petitioners argued that there was no machinery for taxation under the amended provision. The court stated that assessing authorities must keep in mind that their power is not enlarged by the constitutional amendment. They can only assess the transfer of goods involved in works contracts that are exigible under the Orissa Sales Tax Act. The court also noted that service charges and labor charges, which are not defined, should be excluded from the taxable turnover.

Conclusion
The court concluded that the 46th Amendment was not ultra vires and section 5(2)(AA)(i) should be read as clarified in paragraph 10 of the judgment. The impugned orders of assessment were set aside, and the assessing officers were directed to reassess by giving specific findings supported by reasons. The court emphasized that objections relating to jurisdiction, such as inter-State sales and double taxation, must be entertained. The writ applications were allowed to the extent indicated, with no costs.

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