1999 (2) TMI 654 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the validity of sub-section (7B) of section 7 as amended under the Kerala General Sales Tax Act, 1963 on grounds of discrimination and legality.

Analysis:
The judgment revolves around the challenge to the validity of sub-section (7B) of section 7 as amended under the Kerala General Sales Tax Act, 1963. The petitioner's counsel argued that the distinction made between registered and unregistered contractors is discriminatory and illegal. The amended provision, post the Kerala Finance Act, 1998, introduced a requirement for awarders to deduct tax at varying rates based on the contractor's registration status. The amended provision mandated that awarders deduct two percent for civil contracts and five percent for other contracts from registered contractors, while deducting seventy percent from unregistered contractors.

The learned Government Pleader supported the amended provision, highlighting that the amendment aimed at facilitating tax collection from unregistered contractors. The department faced challenges in collecting tax from unregistered contractors if they were found liable to pay more tax than initially deducted. The judgment emphasized the procedural requirements for opting to pay tax at compounded rates under section 7. Contractors, including the petitioners, had to apply for permission to compound under sub-section (8) of section 7, with specific timelines and application procedures outlined in the Kerala General Sales Tax Rules, 1963.

The judgment clarified that the provision for payment of tax at compounded rates could only be requested through a formal application or an express provision in the contract, subject to approval by the assessing authority. The distinction between registered and unregistered contractors under sub-section (7B) was deemed valid, as unregistered contractors formed a separate class and were obligated to pay tax as per the Act's provisions. The judgment emphasized that unregistered contractors could not avoid registration while seeking compounding benefits, as the provision aimed to prevent tax evasion and ensure compliance.

Furthermore, the judgment cited precedents to support the legislative flexibility in tax matters and the need for a liberal interpretation of tax collection provisions to prevent evasion. The distinction between registered and unregistered contractors was deemed reasonable, with registered dealers forming a separate class eligible for options under the Act. Ultimately, the court upheld the validity of the amended provision, dismissing the original petitions challenging its legality and discrimination.

In conclusion, the judgment provides a detailed analysis of the challenges to the amended provision under the Kerala General Sales Tax Act, emphasizing the procedural requirements for tax compounding and the rationale behind the distinction between registered and unregistered contractors in tax deduction rates.