1999 (4) TMI 598 - HC - VAT and Sales Tax

Summary

Issues:
Sales tax leviable on supply of manpower by a contractor under Punjab General Sales Tax (Amendment) Act, 1997.

Analysis:
1. The petitioner supplied labor under an agreement with the Divisional Engineer, Telephones. The petitioner contested the deduction of sales tax from his bills, arguing that no goods were supplied that could attract sales tax. The respondents justified the deduction under the Punjab General Sales Tax (Amendment) Act, 1997, specifically referring to section 10-C which mandates a 2% deduction for works contracts. The Court examined whether sales tax could be levied on the supply of labor.

2. The Court analyzed the definition of "sale" under the Punjab General Sales Tax Act, 1948, emphasizing that sales tax is applicable only on the transfer of property in goods. In the case of works contracts, a fictional sale is introduced, deeming materials involved in the contract as sold. However, the taxable event remains the transfer of property in goods. The Court clarified that sales tax can only be levied when there is a transfer of property in goods, highlighting the crucial aspect of property transfer for tax liability.

3. The respondents argued that the amendment introduced in 1997 altered the position regarding sales tax on labor supply. Section 10-C of the Act mandates a 2% deduction for works contracts involving the transfer of property in goods. The provision authorizes tax deduction at the time of payment to a contractor for works contracts. The Court examined the purpose of the amendment, emphasizing that the passing of property in goods triggers sales tax liability. However, the Court noted that in the present case, the petitioner was supplying labor without any transfer of goods, commodities, or articles, making sales tax inapplicable.

4. The Court concluded that the supply of labor does not involve the transfer of property in goods, and therefore, sales tax or purchase tax is not leviable. The Court held that the sales tax deduction from the petitioner's bills was unjustified. The Court directed the respondents to refund the sales tax already deducted from the petitioner and set aside the levy and deduction of sales tax. The Court allowed the writ petition, ruling in favor of the petitioner and awarding costs amounting to Rs. 2,000.

In summary, the judgment clarified that sales tax is not applicable to the supply of labor under the Punjab General Sales Tax Act, even with the provisions of section 10-C introduced by the Amendment Act of 1997. The Court emphasized the necessity of property transfer in goods for sales tax liability and ruled in favor of the petitioner, directing the refund of the deducted sales tax and quashing the impugned orders.