2007 (5) TMI 583 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability to payment of tax under the Assam General Sales Tax Act, 1993 on the deemed sale of goods arising from the works contract executed by the petitioner.
2. Whether the goods used in the execution of the works contract, which have already been subjected to tax at the point of first sale, can be taxed again under the deemed sale provision.

Detailed Analysis:

1. Liability to Payment of Tax on Deemed Sale of Goods:
The petitioner, a proprietorship concern engaged in tyre retreading, received a notice from the Superintendent of Taxes, Jorhat, proposing summary assessment under section 17(5) of the Assam General Sales Tax Act, 1993, due to failure to furnish returns and produce books of account for the period March 31, 1997-March 31, 1999. The petitioner contended that the raw materials used, namely "rubber and synthetic rubber products," were locally purchased and taxed at the point of first sale under Schedule II of the Act. Hence, these goods should not be subjected to further tax even in the case of deemed sale arising from the execution of the works contract.

The assessing officer, however, did not accept this contention and proceeded with the assessment under section 17(5), followed by a notice of demand. The petitioner challenged this assessment, arguing that the goods used in the works contract had already been taxed and should not be taxed again under the deemed sale provision.

2. Double Taxation on Goods Already Taxed at First Sale:
The petitioner's counsel argued that the goods used in the execution of the works contract, having already been subjected to tax at the point of first sale, should not be taxed again on the deemed sale. This argument was supported by the Supreme Court's decisions in Builders Association of India v. Union of India and Gannon Dunkerley & Co. v. State of Rajasthan, which clarified that the power to tax a transaction of a works contract is limited to the deemed sale of goods involved in the contract, not the entire transaction itself.

The court noted that the Forty-sixth Amendment of the Constitution and the insertion of article 366(29A) allowed states to levy tax on the transfer of property in goods involved in the execution of a works contract. However, this power is subject to the same conditions and restrictions as any other sale under entry 54 of the State List. Consequently, goods that have already been taxed at the point of first sale cannot be taxed again under the deemed sale provision.

In this case, the petitioner claimed that the rubber products used in tyre retreading were locally purchased and taxed at the point of first sale. If this claim is verified, the deemed sale of these goods arising from the works contract cannot be taxed again.

Conclusion:
The court allowed the writ petition to the extent that the impugned assessment order and notice of demand were set aside. The petitioner's claim that the goods used in the execution of the works contract had been taxed at the point of first sale must be verified by the authority. The matter should then be dealt with in accordance with the observations and holdings in this judgment. The writ petition was thus partly allowed.