1994 (8) TMI 269 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative Competency
2. Constitutional Validity of the 1989 Act
3. Double Taxation
4. Measure of Tax

Issue-wise Detailed Analysis:

1. Legislative Competency
The petitioners challenged the legislative competency of the Maharashtra Legislature to enact the 1989 Act. The Supreme Court's decision in Builders Association of India v. Union of India upheld the 46th amendment, which allowed states to levy sales tax on the price of goods and materials used in works contracts. The court held that the state legislature had ample power to enact the 1989 Act following the 46th amendment. The petitioners argued that the legislation ignored constitutional restraints under Article 286(3), but the court found no merit in this argument as Section 10 of the 1989 Act explicitly provided that no tax would be imposed on sales outside the state, in the course of import/export, or inter-state trade.

2. Constitutional Validity of the 1989 Act
The petitioners contended that the 1989 Act was unconstitutional due to legislative incompetency and violation of fundamental rights under Articles 14 and 19 of the Constitution. The court referred to the Supreme Court's decision in Gannon Dunkerley & Co. v. State of Rajasthan, which reiterated that the tax levied under Article 366(29-A) must adhere to the discipline of Entry 54 of the State List. The court found that the 1989 Act complied with these requirements and did not violate any constitutional provisions.

3. Double Taxation
The petitioners argued that the 1989 Act led to double taxation, which was only rectified by the 1991 amendment effective from January 1, 1992. The court acknowledged the issue of double taxation but held that its mere existence does not invalidate the legislation. The court noted that the legislature's decision to avoid double taxation from January 1, 1992, was based on practical considerations, such as the filing of tax returns, completion of assessments, and tax recovery for the earlier period. The court cited the doctrine of prospective invalidation and found the legislature's approach reasonable.

4. Measure of Tax
The petitioners argued that the measure of tax should be the value of goods at the time of incorporation into the works, not the cost of acquisition by the contractor. The court referred to the Supreme Court's judgment in Gannon Dunkerley's case, which stated that the taxable event is the transfer of property in goods at the time of incorporation into the works. The court held that the 1989 Act provided for levying tax on the value of goods, and the authorities would determine the turnover of sales based on the value at the time of incorporation. The court found no conflict between the legislation and the Supreme Court's guidelines on the measure of tax.

Conclusion
The court dismissed the petition, upholding the constitutional validity and legislative competency of the 1989 Act. The court found that the issues of double taxation and the measure of tax were adequately addressed by the legislature and did not warrant invalidation of the Act. The petition was dismissed with costs.