1989 (9) TMI 371 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of the Constitution (Forty-sixth Amendment) Act and Bihar Finance Act, 1981.
2. Validity of Section 21(1)(a)(i) of the Bihar Finance Act, 1985, and Rule 13-A of the Bihar Sales Tax Rules, 1983.
3. Imposition of penalty for the assessment years 1985-86 and 1987-88.
4. Demand notices and assessment notices for the years 1986-87 and 1987-88.

Detailed Analysis:

1. Constitutionality of the Constitution (Forty-sixth Amendment) Act and Bihar Finance Act, 1981:
The petitioner initially challenged the vires of the Constitution (Forty-sixth Amendment) Act. However, this challenge was not pressed due to a recent Supreme Court decision in Builders Association of India v. Union of India, which upheld the constitutionality of the amendment. The petitioner's counsel argued that the Supreme Court did not address the vires of the state legislation, specifically Section 21(1)(a)(i) of the Bihar Finance Act and Rule 13-A of the Bihar Sales Tax Rules.

2. Validity of Section 21(1)(a)(i) of the Bihar Finance Act, 1985, and Rule 13-A of the Bihar Sales Tax Rules, 1983:
The petitioner contended that the inclusion of labor charges in the taxable turnover under Section 21(1)(a)(i) and Rule 13-A is ultra vires the Constitution. The Supreme Court in Builders Association of India held that only the portion of the works contract involving the transfer of goods is taxable. The High Court observed that Section 21(1)(a)(i) and Rule 13-A, which include labor charges within taxable turnover, are illegal and unenforceable. This was supported by a Division Bench decision in Jamshedpur Contractors' Association v. State of Bihar, which declared Rule 13-A ultra vires.

3. Imposition of Penalty for the Assessment Years 1985-86 and 1987-88:
The petitioner was penalized under Section 25(3) for the assessment year 1985-86 and under Section 16(8) for the assessment year 1987-88. The court noted that the assessing authority did not consider the 4% deduction made by the principal under Section 25A. The court cited Hindustan Steel Ltd. v. State of Orissa, emphasizing that penalties should not be imposed merely because it is lawful to do so, especially in cases of technical or venial breaches. The court found that the imposition of penalties was unjustified and directed the assessing authority to re-examine the matter.

4. Demand Notices and Assessment Notices for the Years 1986-87 and 1987-88:
The court noted that the petitioner had been issued notices of assessment for the years 1986-87 and 1987-88. The assessment proceedings were to continue, but no demand notices were to be issued until the disposal of the writ application. The court directed the assessing authority to pass orders in light of the Supreme Court decisions in Builders Association of India and N.M. Goel & Co., and the High Court decision in Jamshedpur Contractors' Association.

Conclusion:
The writ application was partly allowed. The court quashed the order dated 16th December 1988, and the demand notices as contained in annexure-4/1. The assessing authority was directed to re-examine the matter of penalties after providing an opportunity for a hearing to the petitioner. The court found no reason to interfere with the penalty imposed for the late filing of returns for the assessment year 1987-88. There was no order as to costs.