1998 (12) TMI 604 - AT - VAT and Sales Tax

Issues Involved:
1. Validity of section 3-B of the Tamil Nadu General Sales Tax Act, 1959.
2. Validity of section 3-B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959.
3. Constitutionality of the phrase "in the same form" in section 3-B(2)(b).
4. Alleged contravention of article 366(29A) of the Constitution of India.
5. Arbitrariness of the percentage fixed towards labour charges under rule 6-B of the Tamil Nadu General Sales Tax Rules, 1959.

Detailed Analysis:

1. Validity of section 3-B of the Tamil Nadu General Sales Tax Act, 1959:
The petitioners challenged the validity of section 3-B, particularly focusing on section 3-B(2)(b). The Tribunal noted that this issue had been previously addressed in O.P. No. 1964 of 1998, where the validity of section 3-B was upheld. The Tribunal reiterated that the section was in line with the constitutional provisions, particularly the 46th amendment to article 366 of the Constitution, which introduced clause (29A). The Tribunal emphasized that the section was valid and consistent with the legal framework established by the Constitution and the Central Sales Tax Act.

2. Validity of section 3-B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959:
The petitioners argued that section 3-B(2)(b) was contrary to article 366(29A) of the Constitution. The Tribunal referred to the Madras High Court's decision in Tamil Nadu Mosaic Manufacturers Association v. State of Tamil Nadu [1995] 97 STC 503, which upheld the validity of section 3-B(2)(b). The Tribunal highlighted that the provision allowed deductions for goods used in the execution of works contracts if they were in the same form as purchased. The Tribunal found no infirmity in this requirement, stating that it was consistent with the legal principles governing the taxation of works contracts.

3. Constitutionality of the phrase "in the same form" in section 3-B(2)(b):
The petitioners contended that the phrase "in the same form" was discriminatory and placed an undue restriction on claiming deductions. The Tribunal, citing the Madras High Court's decision, explained that the requirement ensured that goods used in works contracts were not taxed multiple times. If goods were converted into a different commercial commodity, they became taxable as a new commodity. This approach was found to be logical and consistent with the scheme of the Act.

4. Alleged contravention of article 366(29A) of the Constitution of India:
The petitioners argued that section 2(n)(ii) of the Act, defining "sale," was not in line with article 366(29A) of the Constitution. The Tribunal referred to the Supreme Court's decision in Builders Association of India v. Union of India [1989] 73 STC 370, which upheld the constitutional validity of clause (29A). The Tribunal concluded that the definition of "sale" in section 2(n)(ii) was a repetition of the constitutional provision and was therefore valid. The deemed sale in works contracts was upheld by the Supreme Court, and its adoption in the Tamil Nadu General Sales Tax Act was found to be constitutionally sound.

5. Arbitrariness of the percentage fixed towards labour charges under rule 6-B of the Tamil Nadu General Sales Tax Rules, 1959:
The petitioners challenged the 30 percent fixed for labour charges as arbitrary. The Tribunal referred to the Madras High Court's decision, which held that contractors could claim deductions for actual labour charges. In cases where proper accounts were not maintained, the State was entitled to fix a percentage for labour charges. The Tribunal found that the provision was consistent with the principles laid down by the Supreme Court in Gannon Dunkerley's case and Builders' Association case. The fixed percentage was deemed necessary to ensure fair taxation in the absence of proper accounts.

Conclusion:
The Tribunal upheld the validity of section 3-B and section 3-B(2)(b) of the Tamil Nadu General Sales Tax Act, 1959. It found that the provisions were consistent with the constitutional framework and the Central Sales Tax Act. The Tribunal dismissed the petitions, affirming the decisions of the Madras High Court and the Supreme Court on related matters. The Tribunal also modified the appellate authority's order, extending the deadlines for the petitioner to pay the disputed taxes and file a personal bond.

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