1995 (3) TMI 437 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Sections 5(1)(iv) and 7(7), 7(7A), 7(7B), 7(8), 7(10), and 7(11) of the Kerala General Sales Tax Act, 1963, as amended.
2. Legality of the provisions regarding tax deduction at source by the awarder.
3. Validity of the compounded levy system under the Kerala General Sales Tax Act.

Issue-wise Detailed Analysis:

1. Constitutionality of Sections 5(1)(iv) and 7(7), 7(7A), 7(7B), 7(8), 7(10), and 7(11) of the Kerala General Sales Tax Act, 1963, as amended:

The petitioners challenged the constitutionality of these sections, arguing that they were illegal, ultra vires, and unconstitutional. The main argument was that these provisions imposed an undue burden on the awarder, who is not a registered dealer, to deduct tax from payments made to contractors. The court noted that legislative entries should be liberally construed to include all necessary, incidental, or ancillary powers for effective implementation. The court found that the option to pay tax at compounded rates was voluntary and not compulsory. The court upheld the validity of Sections 5(1)(iv)(a) and (b) but found that sub-clauses (7), (7A), (7B), (11), and (12) of Section 7, which imposed a levy on the "whole amount," were not in accordance with Article 366(29A)(b) of the Constitution and were therefore invalid.

2. Legality of the provisions regarding tax deduction at source by the awarder:

The petitioners argued that the provisions requiring the awarder to deduct tax at source were unreasonable and lacked proper machinery for determining the contractor's tax liability. The court noted that the deduction of tax by the awarder from the whole bill amount, including advance payments, had no correlation with the taxable liability of the contractor. The court found that there was no machinery for the awarder to compute the tax liability of the contractor, making the deduction arbitrary and illegal. The court held that the provisions for tax deduction at source were ultra vires Article 286(1) in respect of outside state sales and import-export sales under Sections 4 and 5 of the Central Sales Tax Act, 1956.

3. Validity of the compounded levy system under the Kerala General Sales Tax Act:

The petitioners argued that the compounded levy system was arbitrary and unreasonable as it imposed tax on the "whole amount" of the contract without considering exempted goods. The court noted that the compounded levy system was voluntary and aimed at simplifying tax collection. However, the court found that the imposition of tax on the whole amount without considering exemptions for inter-state trade, declared goods, and labor charges was arbitrary and illegal. The court held that the compounded levy system under Sections 7(7) and 7(7A) was violative of Article 366(29A)(b) and Article 14 of the Constitution of India.

Conclusion:

The court upheld the validity of Sections 5(1)(iv)(a) and (b) but declared sub-clauses (7), (7A), (7B), (11), and (12) of Section 7, as well as the related rules, invalid. The writ appeals were partly allowed, and no order as to costs was made.