1995 (1) TMI 351 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of section 2(h) of the U.P. Trade Tax Act defining "sale."
2. Validity of sub-section (1) of section 8-D regarding advance payment or deduction of tax at source.
3. Validity of sub-section (2) of section 8-D concerning double deduction of tax at source.
4. Validity of section 3-F and rule 44-B for not providing for necessary deductions.

Summary:

1. Validity of section 2(h) of the U.P. Trade Tax Act defining "sale":
The court found no invalidity in section 2(h) of the U.P. Trade Tax Act, which defines "sale" to include the transfer of property in goods involved in the execution of a works contract. The definition merely reproduces clause (29A)(b) of article 366 and is not a charging section. The petitioners' challenge to this definition was eventually given up.

2. Validity of sub-section (1) of section 8-D regarding advance payment or deduction of tax at source:
The court upheld the validity of sub-section (1) of section 8-D, stating that the State Legislature has the power to impose taxes on the sale or purchase of goods, which includes the power of collection by means of advance payment or deduction of tax at source. This provision is just, proper, and reasonable, benefiting both the taxpayer and the Revenue. The rate of 4% for deduction of sales tax at source was considered appropriate, taking into account various legal deductions.

3. Validity of sub-section (2) of section 8-D concerning double deduction of tax at source:
The court declared sub-section (2) of section 8-D ultra vires, as it led to double deduction of tax at source from both the contractor and the sub-contractor. This provision was found to be unreasonable and arbitrary, resulting in double taxation, which is not permissible under law. Consequently, sub-sections (3) to (9) of section 8-D were also declared ultra vires in so far as they related to deductions by the contractor from payments made to the sub-contractor and the associated penal provisions.

4. Validity of section 3-F and rule 44-B for not providing for necessary deductions:
The court declared section 3-F and rule 44-B ultra vires as they did not provide for necessary deductions, such as those covered by sections 3, 4, and 5 of the Central Sales Tax Act, and allowances for sales covered by sections 14 and 15 of the Central Sales Tax Act. The court emphasized that all legal deductions must be accounted for to determine the value of the transfer of property in goods involved in the execution of a works contract. The absence of guidelines for these deductions rendered section 3-F and rule 44-B invalid.

Conclusion:
The writ petitions were allowed to the extent that section 3-F of the U.P. Trade Tax Act and rule 44-B framed thereunder, as well as sub-section (2) of section 8-D and related sub-sections (3) to (9), were declared ultra vires. The court refused the prayer for a certificate of fitness to file an appeal before the Supreme Court, as the issues were already concluded by the Supreme Court's judgments.