1993 (4) TMI 294 - HC - VAT and Sales Tax

Summary

Issues:
The constitutional validity of section 13AA of the Orissa Sales Tax Act, 1947 challenged in writ application.

Details of the Judgment:

Issue 1: Constitutional Validity of Section 13AA
The provision of section 13AA requires a person paying a sum to a contractor for works contract to deduct two per cent towards sales tax. The challenge raised concerns the lack of discretion or mechanism to exclude non-taxable transactions, potentially infringing article 14. The court examined the provision in light of tax laws and constitutional principles. It was held that the lack of mechanism for exclusion renders the provision discriminatory and confiscatory, violating constitutional principles.

Issue 2: Comparison with Income-tax Act
Comparing section 13AA with section 194C of the Income-tax Act, the court noted that the latter provides safeguards for contractors to apply for lower deduction rates or no deduction at all. In contrast, section 13AA lacks such provisions, leading to arbitrary deductions without consideration of tax liability. The court emphasized the need for mechanisms to prevent confiscatory deductions, which were absent in the Orissa Sales Tax Act.

Conclusion:
The court declared section 13AA of the Orissa Sales Tax Act unconstitutional due to its discriminatory and confiscatory nature. The lack of provisions for excluding non-taxable transactions and absence of safeguards rendered the provision invalid. The writ application was allowed with no costs.

Separate Judgment by B.N. Dash, J.:
Justice B.N. Dash concurred with the decision to strike down section 13AA, agreeing with the findings of unconstitutionality.