1994 (6) TMI 210 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of certain provisions of the Kerala General Sales Tax Act, 1963.
2. Validity of Rule 8(4) of the Kerala General Sales Tax Rules, 1963.
3. Impact of Supreme Court judgments on the impugned provisions.
4. Government's stance on the enforcement of the impugned provisions.
5. Necessity to decide the constitutionality of the impugned provisions.

Detailed Analysis:

1. Validity of Certain Provisions of the Kerala General Sales Tax Act, 1963
The judgment addresses the challenge to specific provisions of the Kerala General Sales Tax Act, 1963, including Section 2(viii), Section 2(xxi) read with Explanation 3(A), Section 2(xxvii) read with Explanation (1A), Section 2(xxvi), Section 2(xxv), and Section 5(1)(iii). The impugned provisions were introduced through amendments between April 1, 1984, and July 1, 1987. The challenge is confined to the provisions as they stood on July 1, 1987.

2. Validity of Rule 8(4) of the Kerala General Sales Tax Rules, 1963
Rule 8(4) of the Kerala General Sales Tax Rules, 1963, was also challenged. This rule pertains to the computation of the amount for which goods are sold by a dealer in relation to a works contract. The rule allows deductions representing the cost of labor from the amount payable for carrying out such contracts, subject to a maximum percentage set by the Board of Revenue.

3. Impact of Supreme Court Judgments on the Impugned Provisions
The judgment references two significant Supreme Court decisions: Gannon Dunkerley & Co. v. State of Rajasthan and Builders' Association of India v. State of Karnataka. These cases laid down several key propositions:
- State Legislatures cannot impose taxes on inter-State trade or commerce, sales outside the State, or sales in the course of import/export.
- The value of goods involved in the execution of a works contract constitutes the measure for tax imposition.
- The value of the works contract can be used as a basis for determining the value of goods by deducting expenses for labor and services.
- The Legislature may prescribe a formula for deduction of labor and services costs but must ensure it aligns with normal expenses for such contracts.

4. Government's Stance on the Enforcement of the Impugned Provisions
During the pendency of the petitions, the Government of Kerala, through a statement by the Secretary (Taxes), Board of Revenue, indicated that it would not make assessments or levy tax under Rule 8(4) as it stood prior to the amendment effected by S.R.O. No. 92/91 dated January 19, 1991. The Government's stand was in alignment with the Supreme Court's principles laid down in the Gannon Dunkerley case.

5. Necessity to Decide the Constitutionality of the Impugned Provisions
The court noted that without a rule prescribing deductions for arriving at the taxable turnover as provided in Section 2(xxv), no taxable turnover could be determined. Consequently, so long as the Government does not enforce Rule 8(4) as it stood prior to the 1991 amendment, the impugned provisions remain unenforced. The court emphasized that it would not engage in academic or advisory exercises regarding the constitutionality of provisions unless necessary to protect the rights and interests of the petitioners.

Conclusion
The court disposed of the petitions with directions that authorities under the Act are interdicted from resorting to Rule 8(4) of the Rules as it stood before the 1991 amendment or pursuing any actions based on it. The court refrained from making any observations or reservations about the State bringing forth new provisions in line with Supreme Court parameters, as it is not the court's function to prompt legislative amendments.