2002 (3) TMI 900 - HC - VAT and Sales Tax

Issues Involved:
1. Legislative competence of Section 27 of the Assam General Sales Tax Act, 1993.
2. Violation of Articles 265, 286, and 300A of the Constitution of India.
3. Confiscatory nature of Section 27.
4. Ultra vires nature of Sections 8(1)(c) and 8(3)(iv) of the Act.
5. Applicability of judicial precedents concerning works contract and tax deduction at source.

Detailed Analysis:

1. Legislative Competence of Section 27 of the Assam General Sales Tax Act, 1993:
The petitioners challenged Section 27 on grounds that it includes turnovers outside the purview of entry 54 of List II, thereby exceeding the legislative competence of the State Legislature. The court referenced the apex court's decisions in State of Madras v. Gannon Dunkerley & Co. and Builders Association of India v. Union of India, which clarified that the State can levy sales tax on the value of goods involved in a works contract, but it must adhere to the restrictions and conditions of Article 286 of the Constitution. The court concluded that Section 27, being a machinery provision for tax collection, does not exceed the State's legislative competence.

2. Violation of Articles 265, 286, and 300A of the Constitution of India:
The petitioners argued that tax deduction at source under Section 27 violates Articles 265 (taxation only by authority of law), 286 (restrictions on imposition of tax on the sale or purchase of goods), and 300A (right to property). The court held that the provisions of Section 27, read together with Sections 7 and 8, conform to constitutional requirements. The court emphasized that the deductions at source are a form of advance tax collection, which is permissible under the law, provided the final assessment allows for all permissible deductions.

3. Confiscatory Nature of Section 27:
The petitioners contended that Section 27 is confiscatory as it purports to realize tax on turnovers not taxable under the Act. The court noted that Section 27 must be read in conjunction with Sections 7 and 8, which provide for deductions and exemptions, ensuring that only taxable turnover is subject to tax deduction at source. The court found no merit in the argument that Section 27 is confiscatory, as it is primarily a machinery provision for tax collection.

4. Ultra Vires Nature of Sections 8(1)(c) and 8(3)(iv) of the Act:
Some petitioners challenged Sections 8(1)(c) and 8(3)(iv) as ultra vires and violative of Article 286, arguing that these sections do not provide for deduction of the value of goods used in inter-State trade or commerce. The court referenced the decision in Gannon Dunkerley & Co. v. State of Rajasthan, which held that the State Legislature could not impose tax on inter-State sales or sales outside the State. The court concluded that Sections 8(1)(c) and 8(3)(iv) must be read in light of the Central Sales Tax Act, ensuring that inter-State transactions are exempt from tax under the Assam Act.

5. Applicability of Judicial Precedents Concerning Works Contract and Tax Deduction at Source:
The court discussed the precedents set by the apex court in Builders Association of India and Gannon Dunkerley & Co., which established the legal framework for taxing works contracts. The court also referenced the decisions in Steel Authority of India Ltd. v. State of Orissa and Nathpa Jhakri Jt. Venture v. State of Himachal Pradesh, which quashed provisions for tax deduction at source due to lack of exemptions for inter-State sales. The court distinguished these cases from the present case, noting that the Assam Act includes provisions for permissible deductions and exemptions, aligning with constitutional and legal requirements.

Conclusion:
The court upheld the validity of Section 27 and the related provisions of the Assam General Sales Tax Act, 1993, by reading them down to ensure compliance with constitutional mandates and judicial precedents. The court emphasized that tax deduction at source is a machinery provision for advance tax collection, subject to final assessment and permissible deductions. The writ petitions were disposed of accordingly, with no costs.

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