1991 (8) TMI 303 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether section 25A of the Bihar Finance Act is ultra vires due to unguided, uncanalised, and arbitrary power delegated to the executive.
2. Whether the State Government was required to issue a fresh notification under the amended section 25A or if the notification dated 7th November 1984 remains in force.
3. Whether the rate of deduction specified in the notification is arbitrary.
4. Whether tax is payable during the execution of the work or only after the transfer of property in goods upon completion of the contract.

Issue-wise Detailed Analysis:

1. Ultra Vires Nature of Section 25A:
The petitioners challenged the vires of section 25A on the grounds that it delegates unguided and uncanalised power to the executive to fix the rate of sales tax deduction from bills or invoices without providing any guidelines. They argued that this contravenes section 15 of the Central Sales Tax Act (CST Act) as it does not exclude tax-paid "declared" goods, leading to double taxation. The court held that section 12 of the Bihar Finance Act provides the necessary guidelines for fixing the rate of tax, thus rejecting the argument of excessive delegation. However, the court found that section 25A conflicts with section 15 of the CST Act as it mandates tax deduction on declared goods already taxed at the first point, thus leading to double taxation. Consequently, section 25A was struck down.

2. Requirement of Fresh Notification:
The petitioners argued that no fresh notification was issued under the amended section 25A, and thus, the notification dated 7th November 1984 could not be relied upon. The court examined section 27 of the Bihar and Orissa General Clauses Act, 1917, which deals with the continuation of notifications issued under repealed or amended provisions. The court concluded that the notification dated 7th November 1984 continues to be in force despite the amendment, as the amendment did not constitute a complete repeal but a modification, thus disposing of the second issue.

3. Arbitrariness of the Rate of Deduction:
The petitioners contended that the 4% deduction rate specified in the notification dated 7th November 1984 is arbitrary, as the actual tax liability on the transfer of property in goods during the execution of works contracts is much lower. The court held that the deduction rate of 4% is not arbitrary, considering that the general tax liability on goods other than declared goods ranges between 8% and 11%, and on declared goods, it does not exceed 4%. Thus, the deduction rate was deemed reasonable and not arbitrary.

4. Tax Payability During Execution of Work:
The petitioners argued that the transfer of property in goods occurs only upon the completion and handover of the work, and thus, no tax should be deducted during the execution of the work. The court referred to Article 366(29-A) of the Constitution, which includes tax on the transfer of property in goods involved in the execution of a works contract. The court also cited the Supreme Court's decision in Builders Association of India v. Union of India, which stated that the property in goods used in construction passes to the owner when incorporated into the building. Therefore, the court concluded that tax is payable during the execution of the work as the transfer of property in goods occurs progressively.

Separate Judgments:
While the majority judgment struck down section 25A as ultra vires due to its conflict with section 15 of the CST Act, one judge, Satyabrata Sinha, J., provided a separate reasoning, agreeing with the operative portion but differing on some points. He emphasized the lack of guidelines and the arbitrary nature of the power conferred by section 25A, ultimately concurring with the majority to declare section 25A ultra vires. Another judge, Sachchidanand Jha, J., dissented, upholding the constitutionality of section 25A, arguing that section 12 provides sufficient guidelines and that section 25A is not in conflict with section 15 of the CST Act. He would have dismissed the writ petitions.