1997 (3) TMI 594 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to sub-section (7B) of section 7 of the Kerala General Sales Tax Act, 1963.

Analysis:
The judgment addresses the challenge to sub-section (7B) of section 7 of the Kerala General Sales Tax Act, 1963. The amendment substituted the previous provision, requiring awarders to deduct specific percentages of tax from payments made to contractors. The amendment aimed to modify the deduction process, shifting from deducting the entire tax due to deducting two percent for civil contracts and five percent for other contracts. The provision allowed for exceptions, such as no deduction if there was no transfer of goods in the works contract. Contractors could obtain certificates from the assessing authority to avoid tax deductions if they proved regular tax payments or the absence of works contracts. The judgment emphasized the importance of following the prescribed rules for tax deductions and highlighted the provision for adjustments under rule 22A(6) of the Kerala General Sales Tax Rules, 1963.

The judgment references a previous case, Symon v. State of Kerala, which upheld sub-section (7B) when read in conjunction with other relevant provisions. It clarified that any tax deductions made from contractors who did not opt for the compounded rate were subject to adjustment during final assessments. The court emphasized that the rules provided contractors with options to avoid deductions by paying taxes regularly. The judgment concluded that the fears expressed by the petitioners regarding sub-section (7B) were unfounded, leading to the dismissal of the petitions challenging the provision.

Another case, Builders Association of India v. State of Kerala, reversed the earlier decision regarding tax payment at a compounded rate, citing constitutional provisions. The Supreme Court, in an appeal, upheld the obligation of awarders to deduct taxes due from contractors and remit them to the assessing authority. The court highlighted provisions allowing contractors to receive full payment without deductions if they produced certificates confirming no tax liability. The Supreme Court endorsed the provisions as ensuring the proper realization of taxes due and rejected challenges against sub-section (7B) based on previous decisions.

The judgment also referred to a similar provision in the U.P. Sales Tax Act, 1948, upheld in V.K. Singhal v. State of U.P., which justified a fixed percentage deduction of tax at source to simplify the process for contractors and contractees. The court found no grounds to challenge the validity of section 7B, emphasizing that contractors could seek payment without deductions by providing certificates from assessing authorities confirming no tax liability. Ultimately, the court dismissed the original petitions, finding no merit in the arguments presented by the petitioners.