2001 (9) TMI 1080 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality and scope of tax on works contracts.
2. Interpretation of Section 3-B and Section 7-C of the Tamil Nadu General Sales Tax Act, 1959.
3. Applicability of Tamil Nadu Additional Sales Tax Act, 1970 on amounts paid u/s 7-C of the TNGST Act.

Summary:

1. Constitutionality and Scope of Tax on Works Contracts:
The court discussed the constitutional amendment to Article 366, introducing clause (29A), which expanded the scope of "tax on the sale or purchase of goods" to include "the tax on the transfer of property in goods involved in the execution of works contract." This amendment was made to overcome the Supreme Court's decision in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353, which held that a works contract was indivisible and not exigible to sales tax.

2. Interpretation of Section 3-B and Section 7-C of the Tamil Nadu General Sales Tax Act, 1959:
Section 3-B was introduced to levy tax on the transfer of goods involved in works contracts. The court noted that Section 3-B conforms to the law laid down by the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204, which held that the measure of tax is the value of goods involved in the execution of the works contract. Section 7-C, on the other hand, provides an option for dealers to pay tax at compounded rates on the total contract value instead of the taxable turnover. The court emphasized that the contract value includes many non-taxable elements, and the option under Section 7-C is a convenient mode for dealers, which the State accepts as full discharge of tax liability.

3. Applicability of Tamil Nadu Additional Sales Tax Act, 1970 on amounts paid u/s 7-C of the TNGST Act:
The court examined whether the additional tax under the Tamil Nadu Additional Sales Tax Act, 1970, which is levied on the taxable turnover, applies to amounts paid u/s 7-C. The court concluded that the determination of taxable turnover is crucial for levying additional tax. Since the amount paid u/s 7-C is based on the total contract value and not the taxable turnover, and there is no provision deeming the total contract value as taxable turnover, the additional tax cannot be levied. The court held that the demand for additional tax on the contract value was impermissible under both the TNGST Act and the Additional Sales Tax Act.

Conclusion:
The court set aside the Tribunal's order and allowed the writ petition, ruling that the demand for additional tax on the contract value was not justified.