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2011 (9) TMI 887 - HC - VAT and Sales TaxWhether the contract value cannot be taken to be taxable turnover, as given in Explanation V to section 2(1)(aa) of the Act, therefore Explanation V to section 2(1)(aa) of the Act be declared ultra vires? Held that - The impugned Explanation V to section 2(1)(aa) of the Act, being contrary to the provisions of the Act, as interpreted, has to be declared, to be arbitrary, and beyond the competence of the State Legislature, thus, unconstitutional. Consequently, this writ petition is allowed, the Explanation V to section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970 is declared to be ultra vires the Constitution of India, being beyond the competence of the State Legislature.
Issues Involved:
1. Constitutional validity of Explanation V to Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970. 2. Legislative competence of the State to impose additional sales tax based on the total contract value under Section 7C of the TNGST Act. Detailed Analysis: Issue 1: Constitutional Validity of Explanation V to Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970 The petitioner challenged the constitutional validity of Explanation V to Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970, introduced by Amendment Act 23 of 2002. The contention was that Explanation V, which deemed the total contract value as the taxable turnover for dealers opting to pay tax under Section 7C of the TNGST Act, was ultra vires the Constitution of India and beyond the legislative competence of the State. The court referred to the judgment in South India Corporation Ltd. v. Commercial Tax Officer, Coimbatore [2001] 124 STC 654 (Mad), where it was held that the total value of the works contract could not be deemed as taxable turnover under the TNGST Act. The Division Bench had emphasized that the contract value included many components besides the value of goods transferred, and thus, collecting a percentage of the total contract value was a convenient mode left to the dealer's option. The court concluded that Explanation V to Section 2(1)(aa) of the Act, which expanded the scope of the charging section by deeming the total contract value as taxable turnover, was not permissible. This was in line with the Supreme Court's ruling in S. Sundaram Pillai v. V. R. Pattabiraman AIR 1985 SC 582, which stated that an explanation should clarify ambiguities without expanding the scope of the original section. Issue 2: Legislative Competence of the State to Impose Additional Sales Tax Based on the Total Contract Value under Section 7C of the TNGST Act The petitioner argued that additional sales tax could only be levied on taxable turnover as defined under Section 2(p) of the TNGST Act, and in the absence of a provision determining taxable turnover for dealers opting to pay tax under Section 7C, the levy of additional sales tax was unconstitutional. The court examined the legislative competence of the State to impose such a tax and referred to the Supreme Court's judgment in Gannon Dunkerley and Co. v. State of Rajasthan [1993] 88 STC 204 (SC). It was established that the State could not impose tax on the total contract value as it included components beyond the value of goods transferred. The judgment in South India Corporation Ltd. further supported this view, stating that the determination of taxable turnover was crucial for levying additional tax, and such determination was not possible under Section 7C of the TNGST Act. The court also considered the argument that Explanation V was added to overcome the Division Bench's decision. However, it held that the explanation could not expand the scope of the charging section to include the total contract value as taxable turnover, which was beyond the legislative competence of the State. Conclusion: The court declared Explanation V to Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970, as ultra vires the Constitution of India and beyond the legislative competence of the State. Consequently, the writ petition was allowed, and the impugned explanation was struck down. No costs were imposed, and the connected miscellaneous petition was closed.
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