2008 (8) TMI 824 - HC - VAT and Sales Tax

Section 10C of the Punjab General Sales Tax Act, 1948 questioned - Held that - If the enunciation of law as referred to above is considered in the facts and circumstances of the present case, the inescapable conclusion is that the provisions of section 10C of the Act which are pari materia to the provisions, which were struck down by the honourable Supreme Court and various High Courts, have to be declared ultra vires to the Constitution of India as the same is clearly beyond the competence of the State Legislature. Accordingly, section 10C of the Punjab General Sales Tax Act, 1948 is declared to be ultra vires. The amount of tax deducted in the account of the petitioners is directed to be refunded forthwith.

Issues Involved:
1. Challenge to the vires of section 10C of the Punjab General Sales Tax Act, 1948.
2. Declaration of section 10C as ultra vires to the Constitution of India.
3. Restraining the contractee from deducting the tax at source.
4. Refund of the amount of tax already deducted from the bills of the petitioners.
5. Grant of interest on the amount of tax retained by the official respondents without authority of law.

Issue-Wise Detailed Analysis:

1. Challenge to the vires of section 10C of the Punjab General Sales Tax Act, 1948:
The primary challenge in the petitions is to the vires of section 10C of the Punjab General Sales Tax Act, 1948. The petitioners argued that the State Legislature is not authorized to levy taxes on transactions where it is not competent to legislate. They contended that section 10C is beyond the legislative competence of the State, as it mandates tax deduction at source (TDS) on works contracts, which may involve transactions not taxable under the Act.

2. Declaration of section 10C as ultra vires to the Constitution of India:
The petitioners sought a declaration that section 10C is ultra vires to the Constitution of India. They argued that the provision violates Article 265 of the Constitution, which states that no tax shall be levied or collected except by the authority of law. The petitioners cited various judgments, including *Steel Authority of India Ltd. v. State of Orissa* and *Nathpa Jhakri JT. Venture v. State of Himachal Pradesh*, where similar provisions under different State Acts were struck down by the Supreme Court as beyond the competence of the State Legislature.

3. Restraining the contractee from deducting the tax at source:
The petitioners requested the court to restrain the contractee from deducting tax at source under section 10C. They argued that the deduction of tax at source, even when the contractor may not be liable to pay tax on certain transactions, results in unnecessary harassment and is in violation of Article 265 of the Constitution.

4. Refund of the amount of tax already deducted from the bills of the petitioners:
The petitioners sought a refund of the amounts already deducted from their bills under section 10C. They contended that the deduction was made without proper authority, and therefore, the amounts should be refunded. The court, following the principles laid down in earlier judgments, directed that the amounts deducted be refunded forthwith.

5. Grant of interest on the amount of tax retained by the official respondents without authority of law:
The petitioners also prayed for the grant of interest on the amounts retained by the official respondents without proper authority. They argued that retaining the deducted amounts without legal backing entitles them to interest. The court acknowledged this claim and directed for the refund of the amounts along with applicable interest.

Conclusion:
The court concluded that section 10C of the Punjab General Sales Tax Act, 1948 is ultra vires to the Constitution of India and beyond the competence of the State Legislature. Consequently, the court declared section 10C as ultra vires and directed the immediate refund of the amounts deducted under this provision. The judgment extensively relied on precedents where similar provisions were struck down by the Supreme Court and various High Courts, reinforcing the principles of legislative competence and constitutional validity.

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