2009 (8) TMI 1078 - HC - VAT and Sales Tax

Constitutional validity of the Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contract (Re-enacted) Act, 1989 challenged - Held that - There was no lack of legislative power in the Legislature of Maharashtra in taxing the goods brought into the State from outside the State and the property in which it is transferred in execution of a works contract. The petitions accordingly fail and are dismissed.

Summary

Issues:
Challenge to constitutional validity of Works Contract Act, 1989 under articles 14, 19(1)(g), and 246(2) read with entry 54, List II in the Seventh Schedule read with article 366 of the Constitution of India.

Analysis:
The petitioners challenged the constitutional validity of the Works Contract Act, 1989, arguing that it was unconstitutional and ultra vires certain provisions of the Constitution. The petitioners contended that the Act sought to charge tax on goods purchased outside the State, which they deemed impermissible. They specifically pointed to section 3 of the Act, which created a liability on dealers based on turnover of all purchases or sales. The definition of "sale price" under the Act included the purchase price of goods brought from outside the State, leading to the taxation of purchases made outside Maharashtra. The petitioners argued that this exceeded the legislative competence of the Maharashtra Legislature.

In response, the court referred to previous judgments, including the Builders Association of India case, which upheld the constitutional validity of the Act. The court highlighted that the Act provided a mechanism for determining the value of goods transferred in works contracts, whether purchased within or outside the State. The definition of "sale price" aimed to prevent disputes in calculating the turnover of works contracts. The court emphasized that the Act did not tax sale transactions outside the State but only provided a method for valuing goods used in works contracts. It concluded that there was no lack of legislative power in Maharashtra's taxation of goods brought into the State for works contracts.

The court rejected the petitioners' arguments, stating that the Legislature of Maharashtra had the authority to tax goods brought into the State for works contracts. It found no grounds to declare the Works Contract Act, 1989, as constitutionally invalid. The petitions were dismissed, and no costs were awarded.

This detailed analysis of the judgment showcases the court's reasoning behind upholding the constitutional validity of the Works Contract Act, 1989, and the legislative competence of the Maharashtra Legislature in taxing goods used in works contracts.