1997 (4) TMI 481 - HC - VAT and Sales Tax

Issues Involved:
1. Scope and ambit of section 13-AA(5) of the Orissa Sales Tax Act, 1947.
2. Whether the work awarded involved transfer of material and constituted sale price.
3. Validity of the Sales Tax Officer's refusal to issue a certificate of non-deduction of tax at source.
4. Determination of tax liability and the process of assessment under section 13-AA(5)(a).

Issue-wise Detailed Analysis:

1. Scope and Ambit of Section 13-AA(5) of the Orissa Sales Tax Act, 1947:
The primary issue in this writ application is the interpretation of section 13-AA(5) of the Orissa Sales Tax Act, 1947. The petitioner, a subsidiary of an international dredging company, was awarded a contract by the Paradip Port Trust. The petitioner argued that the work awarded did not involve any transfer of material and the payments received did not constitute a sale price. The Sales Tax Officer had deducted amounts under section 13-AA of the Act, which the petitioner contested, seeking a refund and a certificate of non-deduction of tax at source.

2. Whether the Work Awarded Involved Transfer of Material and Constituted Sale Price:
The Sales Tax Officer found that the work executed involved both labour and transfer of materials, contrary to the petitioner's claim that it was 100% labour-oriented. The officer highlighted specific activities and materials involved in the work, such as construction of concrete bases and installation of durable items like olezometers and settlement profile gauges, which indicated the involvement of materials. Thus, the officer rejected the petitioner's claim that the work was purely labour-oriented.

3. Validity of the Sales Tax Officer's Refusal to Issue a Certificate of Non-Deduction of Tax at Source:
The Sales Tax Officer refused to issue the certificate of non-deduction of tax at source, stating that the work involved both labour and material components, thus attracting tax liability under section 4(2) of the Orissa Sales Tax Act. The officer concluded that deduction of tax at source by the contractee was mandatory under section 13-AA(1) of the Act. The petitioner challenged this decision, arguing that the officer did not apply his mind and that tax should only be deducted on the portion of the amount related to the transfer of property.

4. Determination of Tax Liability and the Process of Assessment under Section 13-AA(5)(a):
The court examined the provisions of section 13-AA(5)(a) and rule 37-D along with form XI-C. It was noted that the concerned officer must determine whether the works contract involves both transfer of property in goods and labour or service, or only labour or service. If satisfied, the officer should grant a certificate indicating the portion of the sum on which tax deduction is justified. The court found that the Sales Tax Officer did not properly consider whether the contract involved both transfer of property and labour or service. The officer must determine the quantum on which tax deduction is necessary, ensuring the process is not arbitrary or irrational.

Conclusion:
The court set aside the impugned order and remitted the matter back to the Sales Tax Officer to reconsider the application for a certificate of non-deduction of tax at source, keeping in view the principles indicated. The petitioner was directed to appear before the Sales Tax Officer on April 22, 1997, and a decision was to be taken by the end of April 1997. The writ application was allowed to the extent indicated, with no cost awarded.

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