1993 (6) TMI 229 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutional validity of Section 6C of the Bengal Finance (Sales Tax) Act, 1941.
2. Violation of Articles 14 and 19(1)(g) of the Constitution.
3. Violation of Article 301 and Article 304(b) of the Constitution.
4. Legislative competence of the State Legislature to impose purchase tax on indivisible works contracts.

Detailed Analysis:

1. Constitutional Validity of Section 6C:
The primary issue in this case was whether the provisions of Section 6C, relating to the levy of purchase tax introduced by the West Bengal Taxation Laws (Second Amendment) Act, 1979, were ultra vires the Constitution of India. The applicants argued that the State Legislature lacked the legislative competence to impose any tax on indivisible works contracts, and thus, Section 6C was a colorable legislation. The respondents maintained that Section 6C was a valid piece of legislation. The Tribunal ultimately held that the State Legislature was competent to enact Section 6C as it imposed a tax on the purchase of goods, not on the execution of works contracts.

2. Violation of Articles 14 and 19(1)(g):
The applicants contended that Section 6C was discriminatory and violated Articles 14 and 19(1)(g) of the Constitution by treating works contractors differently from other dealers and denying them a concessional rate of sales tax. The Tribunal noted that the Legislature has the freedom to classify dealers and goods for tax purposes, provided the classification is rational and has a nexus with the object of the enactment. The Tribunal found that the classification of works contractors as a separate class of dealers had a direct nexus with the objective of raising more revenue through purchase tax. Therefore, the challenge under Articles 14 and 19(1)(g) was not sustained, and Section 6C was held not to contravene these articles.

3. Violation of Article 301 and Article 304(b):
The applicants argued that the imposition of purchase tax under Section 6C contravened Article 301, which ensures the free flow of trade, commerce, and intercourse throughout India, and Article 304(b), which requires the President's consent for such restrictions. The Tribunal held that the object of Section 6C was to impose a purchase tax on goods for use in works contracts and that no economic barrier or impediment to the free flow of trade was created. Therefore, the contention that Section 6C violated Articles 301 and 304(b) was without substance.

4. Legislative Competence:
The applicants argued that the State Legislature was not competent to impose a tax on indivisible works contracts until the 46th Amendment of the Constitution came into force on February 3, 1983. They claimed that Section 6C was a colorable legislation aimed at doing indirectly what could not be done directly. The Tribunal held that the taxable event under Section 6C was the purchase of goods, not their use in works contracts. The State Legislature had the competence to impose a purchase tax on goods purchased for use in works contracts, even before the 46th Amendment. Therefore, Section 6C was within the legislative competence of the State Legislature.

Conclusion:
The writ petition was dismissed, and the Tribunal upheld the constitutional validity of Section 6C. The interim orders were vacated, and the sum of Rs. 1,00,000 deposited by the applicant was to be adjusted against the tax dues under Section 6C. The judgment was agreed upon by all members of the Tribunal, and no costs were ordered.