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2004 (6) TMI 598 - HC - VAT and Sales TaxLegislative Competence of Section 25-A of the Bihar Finance Act, 1981 - Adaptation of Section 25-A by the State of Jharkhand post-Bihar Reorganisation Act, 2000 - Validity of the Third Proviso to Section 25-A(1) of the Jharkhand Finance Act, 2001 - Challenge to the Notification dated June 19, 1993 - HELD THAT - We are inclined to agree with the learned counsel for the petitioner that, in any event, the challenge to the third proviso to section 25A(1) of the Act is not barred by res judicata, either actual or constructive. The section, as it existed, was found to be suffering from many defects by the division Bench in 1992 (11) TMI 254 - SUPREME COURT (Larsen and Toubro Ltd. v. State of Bihar). But ultimately, the division Bench, inspite of those defects, only declared that the section could not operate on the sale transactions under sections 4, 5, 14 and 15 of the Central Sales Tax Act and labour and other components involved in a works contract. By introducing the third proviso, what the State Legislature had attempted to do, is to meet those objections indicated in 1992 (11) TMI 254 - SUPREME COURT (Larsen and Toubro Ltd. v. State of Bihar), or, in other words, to remove the foundation of the decision in 1999 (7) TMI 646 - PATNA HIGH COURT (Larsen and Toubro Ltd. v. State of Bihar) so as to make this section legislatively competent and enforceable. The occasion to test its validity in the context of the third proviso newly introduced has arisen for the first time only now. Therefore, we are of the view that the challenge of the petitioner to section 25A(1) of the Act with a particular reference to the third proviso thereto, cannot be shut out on the ground that the said challenge is barred by res judicata. We, therefore, overrule the contention raised in that behalf, by learned counsel for the respondents. We may also notice that there is a challenge to the notification dated June 19, 1993 issued in the year 1993, which has been adapted or which is to be deemed to be valid, by virtue of section 85 of the Bihar Reorganisation Act, 2000 and that challenge has to be tested in the context of the third proviso to section 25A(1) of the Act as a whole. It appears to us that it will be really difficult for a Joint Commissioner to guesstimate taxable components in a works contract in the context of the third proviso to section 25A(1) of the Act. There also still remains the vices indicated by the division Bench in the decision in (Larsen and Toubro Ltd. v. State of Bihar) of the effect of a double taxation and the unreasonable retention of the amounts of the contractor announced by the State by a tardy provision for revision and the absence of a provision for interest for the entire period of retention and the absence of a machinery to make an assessment while issuing a certificate. This implies that the adaptation of the notification dated June 19, 1993 issued earlier, has clearly made the position totally confusing. We do not find much merit in the contention of learned counsel for the petitioner that the issuance of the certificate by the Joint Commissioner would preclude the assessing authority from applying his mind and completing the assessment, since he was only an officer subordinate to the Joint Commissioner. Issuance of a certificate under the third proviso to section 25A(1) of the Act is entirely different from the process of assessment to be completed by the assessing officer. It is not as if the assessing officer cannot go behind the certificate or beyond the certificate issued by the Joint Commissioner and complete the assessment based on the actual transactions disclosed before him at the time of assessment. It is not reasonable to expect that an assessing authority will complete the assessment not based on the materials available before him at the time of assessment, but would be guided by a certificate issued on estimate by the Joint Commissioner. It is, no doubt, true that the State is entitled to protect the collection of the revenue by providing a deduction, like the one contained under section 25A(1) of the Act. But, at the same time, the State has to ensure that the said provision for deduction is based on an intelligible criteria and is not based merely on speculation or by including within its purview, transactions which could not be taxed by the State. What has occurred here in view of section 25A(1) of the Act, the third proviso thereto, the adaptation, either express or implied, of the notification dated June 19, 1993 and the issuance of the notification dated January 2, 2002 is to make the deduction arbitrary, which is anathema to the Constitution. We are, therefore, inclined to hold that section 25A(1) of the Act read with the notification dated June 19, 1993 is not workable and, consequently, arbitrary and unreasonable. The addition of the third proviso to section 25A(1) of the Act has failed to remove the defects in section 25-A of the Bihar Finance Act. The vices noted by the division Bench in 1992 (11) TMI 254 - SUPREME COURT (Larsen and Toubro Ltd. v. State of Bihar) still remain. The provision as amended, remains unworkable and arbitrary. Section 25A(1) of the Jharkhand Finance Act, 2001 and the notification dated June 19, 1993 are hence struck down as unconstitutional. Conclusion The court held that Section 25A(1) of the Jharkhand Finance Act, 2001, read with the notification dated June 19, 1993, remained arbitrary and unworkable. The addition of the third proviso failed to rectify the defects. Consequently, Section 25A(1) and the notification were struck down as unconstitutional. The State and authorities were restrained from collecting tax u/s 25A from the assessment year commencing on April 1, 2004, with any amount collected to be adjusted or refunded. Writ petitions were allowed.
Issues Involved:
1. Legislative Competence and Validity of Section 25-A of the Bihar Finance Act, 1981. 2. Adaptation of Section 25-A by the State of Jharkhand. 3. Introduction of the Third Proviso to Section 25-A. 4. Res Judicata and the Challenge to the Third Proviso. 5. Workability and Constitutionality of Section 25-A(1) and Related Notifications. Summary: 1. Legislative Competence and Validity of Section 25-A of the Bihar Finance Act, 1981: The petitioner challenged Section 25-A of the Bihar Finance Act, 1981, which mandates the advance recovery of tax on works contracts. The Patna High Court in [2000] 117 STC 41 (Larsen and Toubro Ltd. v. State of Bihar) declared that Section 25-A was ultra vires entry 54 of the State List read with entry 92A of the Union List and Article 286 of the Constitution of India, to the extent it related to inter-State trade or commerce, sales outside the State, import transactions, and "declared goods" under the Central Sales Tax Act. The provision was also held ultra vires concerning deductions for labour charges and other services. 2. Adaptation of Section 25-A by the State of Jharkhand: Post the Bihar Reorganisation Act, 2000, the State of Jharkhand adopted the Bihar Finance Act, including Section 25-A. The petitioner contended that since Section 25-A was struck down by the Patna High Court, there was no valid section for Jharkhand to adopt. 3. Introduction of the Third Proviso to Section 25-A: Jharkhand introduced a third proviso to Section 25-A via the Jharkhand Finance Act, 2001, aiming to exclude transactions outside the State's taxing power. The proviso aimed to rectify the issues identified by the Patna High Court by excluding sales under the Central Sales Tax Act, payments to sub-contractors, and certain other components from tax deductions. 4. Res Judicata and the Challenge to the Third Proviso: The respondents argued that the challenge to Section 25-A was barred by res judicata due to the previous decision in [2000] 117 STC 41. However, the court held that the introduction of the third proviso presented a new context, and the challenge was not barred by res judicata. The court emphasized that only matters heard and finally decided could operate as res judicata. 5. Workability and Constitutionality of Section 25-A(1) and Related Notifications: The petitioner argued that the third proviso did not resolve the issues identified by the Patna High Court, such as the lack of a mechanism to assess excluded components at the pre-assessment stage. The court found that the notification dated June 19, 1993, which directed deductions on the gross value of contracts, was incompatible with the third proviso. The court concluded that Section 25-A(1) of the Act, read with the notification, remained arbitrary and unworkable. Judgment: The court struck down Section 25-A(1) of the Jharkhand Finance Act, 2001, and the notification dated June 19, 1993, as unconstitutional. The State and authorities were restrained from collecting tax under Section 25-A from the assessment year commencing April 1, 2004. Any amount collected would be adjusted during assessments, with excess amounts refunded without delay. Writ petitions were allowed.
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