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TMI Blog1992 (11) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the amplitude of the incidence of tax has been widened so as to include transactions which are outside the sphere of taxation available to the State Legislature under entry 54 of the State List. We are, therefore, unable to uphold the decision of the High Court in this regard. Since the invalidity of section 5(3) goes to the root of the imposition of tax and in the absence of the said provision the tax cannot be levied, the appellants in the appeals are entitled to succeed. - Civil Appeal No. 4861-4864 of 1992, W.P. (Civil) No. 197 of 1991 - - - Dated:- 17-11-1992 - KANIA M.H., VEA J.S.RM, AGRAWAL S.C., YOGESHWAR DAYAL, ANAND A.S. DR. JJ. K. Parasaran, F.S. Nariman, B.R.L. Iyengar and Harish N. Salve, Senior Advocates (C. Natarajan, V. Balaji, P.N. Ramalingam, Mrs. Pushpa, A.T.M. Sampath, S.C. Sharma and Ravi Prakash Gupta, Advocates, with them), for the appellants and petitioner. G. Ramaswamy (Attorney-General of India), Dipankar Gupta (Solicitor-General of India), V.R. Reddy (Additional Solicitor-General) and B.B. Ahuja, T.S. Krishnamoorthy Iyer and B. Dutta, Senior Advocates (Ranbir Chandra, Ashok Kumar Sharma, P. Parameswaran, Ms. A. Subhashini, D.A. Dave, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract was single and indivisible the question arose whether there is a "sale" of those materials within the meaning of that word in entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935 and entry 54 in List II of the Seventh Schedule to the Constitution. There was sharp cleavage of opinion among the High Courts on that question. The High Court of Madras in Gannon Dunkerley Co (Madras) Ltd. v. State of Madras [1954] 5 STC 216; AIR 1954 Mad. 1130 took the view that the expression "sale of goods" in entry 48 in List II of the Government of India Act, 1935 and entry 54 in List II of the Constitution had the same meaning as it has in the Sale of Goods Act, 1930 and that construction works contracts were not contracts for sale of the materials used therein and that the contract, being entire and indivisible, could not be broken into a contract for sale of materials and a contract for payment for work done. On that view it was held that the provisions of the amendments introduced by the Amendment Act of 1947 in Madras General Sales Tax Act, 1939, whereby the definition of "sale" was enlarged to include "a transfer of property in goods involved in the execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government of India Act, 1935, to impose a tax on the supply of materials used in such a contract treating it as a sale. The said decision, though rendered in the context of entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935, was equally applicable to the provisions found in entry 54 in List II of the Seventh Schedule to the Constitution. In the Gannon Dunkerley case [1958] 9 STC 353 (SC); [1959] SCR 379, it was made clear that the abovementioned conclusions had reference to works contracts which were entire and indivisible and the Court has observed: "It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell, from the agreement to do work and render service, and to impose a tax thereon cannot be questioned and will stand untouched by the present judgment." (Page 387 of STC; 427 of SCR) It may also be mentioned that in Mithan Lal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of goods includes'- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of the property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration; and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the contentions raised on behalf of the petitioners and the appellants and the submissions urged by the States to meet those contentions, has declared that "sales tax laws passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of article 286 of the Constitution". (Page 403 of STC; 355 of SCR) This Court has observed that Parliament amended article 366 by introducing sub-clause (b) of clause (29-A) in order to overcome the effect of the decision in Gannon Dunkerley case [1958] 9 STC 353 (SC); [1959] SCR 379. Construing the provisions of sub-clause (b) of clause (29-A) of article 366, this Court has laid down: "Sub-clause N of clause (29-A) states that 'tax on the sale or purchase of goods' includes among other things a tax on the transfer of property in the goods (whether as goods or in some other form) involved in the execution of a works contract. It does not say that a tax on the sale or purchase of goods included a tax on the amount paid for the execution of a works co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two parts, namely, one part relating to the sale of materials used in the construction of the building by the contractor to the person who had assigned the contract and another part dealing with the supply of labour and services, sales tax was leviable on the goods which were agreed to be sold under the first part. But sales tax could not be levied when the contract in question was a single and indivisible works contract. After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above. It could not have been the contention of the Revenue prior to the 46th Amendment that when the goods and materials had been supplied under a distinct and separate contract by the contractor for the purpose of constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, supply or delivery of goods which are deemed to be sales under clause (29-A) of article 366 of the Constitution. If any declared goods which are referred to in section 14 of the Central Sales Tax Act, 1956, are involved in such transfer, supply or delivery, which is referred to in clause (29-A) of article 366, the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in section 15 of the Central Sales Tax Act, 1956. Clause (b) is an additional provision which empowers Parliament to impose any additional restrictions or conditions in regard to the levy of sales tax on transactions which will be deemed to be sales under sub-clause (b) or sub- clause (c) or sub-clause (d) of clause (29-A) of article 366 of the Constitution." (Page 397 of STC; 348 of SCR) Rejecting the contention urged on behalf of the States that since sub- clause (b) of clause (3) of article 286 of the Constitution refers only to the transactions referred to in sub-clauses (b), (c) and (d) of clause (29-A) of article 366, the transactions referred to under those three sub-clauses would not be subjected to any other restrictions set out in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned were given the liberty to approach the authorities under the Sales Tax Act or the High Court concerned for necessary relief and further made it clear that it would be open to them to question the validity of the statutory provisions and the rules made thereunder before the High Court concerned. In pursuance of the decision of this Court in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320, fresh writ petitions were filed by the appellants in the appeals challenging the validity of the provisions of the Rajasthan Sales Tax Act, 1954, and the Rajasthan Sales Tax Rules, 1955, relating to imposition of tax on transfer of property in goods involved in the execution of a works contract. The said writ petitions were dismissed by a Division Bench of the Rajasthan High Court by judgment dated September 3, 1991 Reported as Best Crompton Engineering India v. State of Rajasthan in [1993] 88 STC 189 (Raj) supra. The appeals are directed against the said judgment of the High Court. Writ Petition (Civil) No. 197 of 1991 has been filed under article 32 of the Constitution by Larsen Toubro Ltd., a company incorporated under the Companies Act, 1956, which undertakes co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel appearing for the Union of India, did not choose to make any submission for the reason that the matter appertains to the legislative powers of the State Legislatures. On behalf of the contractors, it has been urged that in view of the declaration of the law made by this Court in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320, the State Legislature, in exercise of its legislative power to impose a tax on the transfer of property in goods involved in the execution of a works contract under entry 54 of the State List read with article 366(29-A)(b), cannot levy such a tax in respect of transactions which are in the nature of sales in the course of inter-State trade and commerce or are sales outside the State levying such tax or are sales in the course of import inasmuch as it is beyond the legislative competence of the State Legislature to impose a sales tax on inter-State sales as well as sales outside the State and sales in the course of import or export. It has also been urged that the existence of a law made by the Parliament under article 269(3), article 286(2) and article 286(3)(b) is a condition precedent for the exercise of the legislative power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty in such goods takes place only when the goods are incorporated in the works and this can take place only in the State in which the works is to be executed. It has been further urged that there is a distinction between the nature of the tax and the measure of the tax and that though a tax on transfer of property in goods involved in the execution of a works contract is imposed on the goods which are involved in the execution of a works contract, the value of the works contract can be made the measure for levy of such a tax as well as for prescribing the rate for imposition of such tax. Before we proceed to consider these submissions, it is necessary to deal with the contention urged by Shri Narasimhamoorthy, learned counsel appearing for the State of Karnataka, with regard to the location of the legislative power to impose the tax on transfer of property in goods involved in the execution of a works contract. Shri Narasimhamoorthy has urged that as a result of the Forty-sixth Amendment, a new field of taxation in respect of the works contracts has been made available to the States and that the said power is independent of the legislative power conferred under entry 54 in Lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved: "We are surprised at the attitude of the States which have put forward the plea that on the passing of the 46th Amendment the Constitution had conferred on the States a larger freedom than what they had before in regard to their power to levy sales tax under entry 54 of the State List. The 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contracts as if there was a sale of such goods and materials. We do not accept the argument that sub-clause (b) of article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of entry 54 thereof. As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the 'deemed' sales and purchases of goods under clause (29-A) of article 366 is to be found only in entry 54 and not outside it. We may recapitulate here the observations of the Constitution Bench in the case of Bengal Immunity Co. Ltd. [1955] 6 STC 446 (SC); [1955] 2 SCR 603 in which this Court has held that the operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of its power to review its earlier decisions on the ground that the view pressed before it later appears to the court to be more reasonable, may incidentally tend to make law uncertain and introduce confusion which must be consistently avoided. That is not to say that if on a subsequent occasion, the court is satisfied that its earlier decision was clearly erroneous, it should hesitate to correct the error; but before a previous decision is pronounced to be plainly erroneous, the court must be satisfied with a fair amount of unanimity amongst its members that a revision of the said view is fully justified." (Pages 921 and 922 of SCR) In Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36 (SC); [1980] 1 SCR 769, it has been laid down: "Pronouncements by Constitution Benches should not be treated so cavalierly as to be revised frequently. We cannot devalue the decisions of this Court to brief ephemerality which recalls the opinion expressed by Roberts, J., of the U.S. Supreme Court in Smith v. Allwright [1944] 321 US 649 at 669 'that adjudications of the court were rapidly gravitating "into the same class as a restricted railroad ticket, good for this day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpetence of the State Legislature to make a law imposing or authorising the imposition of a tax on transfer of property in goods involved in the execution of a works contract, with the aid of sub-clause (b) of clause (29-A) of article 366, in respect of transactions which take place in the course of inter-State trade or commerce or transactions which constitute sales outside the State or sales in the course of import or export. Consequently, it is not permissible for a State to frame the legislative enactment in exercise of the legislative power conferred by entry 54 in State List in a manner as to assume the power to impose tax on such transactions and thereby transgress these constitutional limitations. Apart from the limitations referred to above which curtail the ambit of the legislative competence of the State Legislatures, there is clause (3) of article 286 which enables the Parliament to make a law placing restrictions and conditions on the exercise of the legislative power of the State under entry 54 in State List in regard to the system of levy, rates and other incidents of tax. Such a law may be in relation to (a) goods declared by the Parliament by law to be of special i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1) of article 286 [article 286(2)]. (iii) declaration of goods to be of special importance in inter-State trade or commerce and specification of restrictions and conditions in regard to system of levy, rates and other incidence of tax in respect of a tax on the sale or purchase of such goods [article 286(3)(a)]; and (iv) specification of restrictions and conditions in regard to system of levy, rates and other incidence of tax in respect of a tax on the sale or purchase of goods being tax of the nature referred to in sub-clause (b), sub- clause (c) and sub-clause (d) of clause (29-A) of article 366 [article 286(3)(b)]; The Central Sales Tax Act is a law in respect of matters (i), (ii) and (iii) referred to above. It is a composite law which has been enacted under entry 92-A of List I read with clause (1) of article 269 as well as under clause (3) of article 269, clause (2) of article 286 and sub-clause (a) of clause (3) of article 286. Chapter II (sections 3, 4 and 5) bears the heading "formulation of principles for determining when a sale or purchase of goods tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been observed: "After the 46th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above." (Page 400 of STC; 351 of SCR). This would mean that as a result of the Forty-sixth Amendment, the contract which was single and indivisible has been altered by a legal fiction into a contract which is divisible into one for sale of goods and other for supply of labour and services and as a result such a contract which was single and indivisible has been brought at par with a contract containing two separate agreements. Since the provisions of sections 3, 4 and 5 were applicable to such contracts containing two separate agreements, there is no reason why the said provisions should not apply to a contract which, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of levy of inter-State sales tax under section 6 of the Central Sales Tax Act is not in issue in these cases which only relate to imposition of sales tax by the States, we do not propose to go into the question, whether such a tax can be levied on deemed sales resulting from transfer of property in goods involved in the execution of a works contract without amending the definition of "sale" in section 2(g) of the Central Sales Tax Act, so as to include such transfers within its ambit. It is, however, made clear that the absence of any amendment in the definition of "sale" contained in section 2(g) of the Central Sales Tax Act, 1956, so as to include transfer of property in goods involved in execution of a works contract does not in any way affect the applicability of the sections 3, 4 and 5 and sections 14 and 15 of the Central Sales Tax Act to such transfers. On the basis of article 286(3)(b) which has been introduced by the Forty-sixth Amendment, it has been urged on behalf of the contractors that till the Parliament makes a law specifying the restrictions and conditions in regard to the system of levy, rates and other incidents of the tax referred to in article 366(29-A)(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot, therefore, be regarded as a condition precedent for the exercise of the taxing power of the State under entry 54 in List II to impose a tax of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of article 366. This does not, however, absolve the Parliament from enacting a law as envisaged by article 286(3)(b). Keeping in view the grievance of the contractors that there is wide disparity in the sales tax legislation of the various States in the matter of imposition, mode of assessment, rates, etc., of the tax on deemed sales resulting from transfer of property in goods involved in the execution of a works contract referred to in sub-clause (b) of clause (29-A) of article 366, the need for the law envisaged by article 286(3)(b) cannot be minimised. On behalf of the States it has been seriously contended that a deemed sale resulting from transfer of property in goods involved in the execution of a works contract can never be a sale in the course of inter-State trade or commerce and it cannot be an outside sale or a sale in the course of import since the transfer of property in the goods takes place only at the stage when the goods are incorporated in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial importance in inter-State trade or commerce under section 14 of the Central Sales Tax Act except in accordance with the restrictions and conditions contained in section 15 of the Central Sales Tax Act. Having thus defined the ambit of the field available to the State Legislature for enacting a law imposing a tax on transfer of property in goods involved in the execution of a works contract, we may now examine some aspects of such a law to which reference has been made during the course of arguments by the learned counsel for the contractors. We propose to deal with these aspects separately. Definition of "sale": It has been contended on behalf of the contractors that while it is permissible for the State Legislature to define the expression "sale" in the sales tax legislation to include transfer of property in goods involved in the execution of a works contract it is not permissible for the State Legislature to locate the situs of such sale in a manner as to treat a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import and export, as a sale inside the State and thereby assume the power to impose a tax on sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the value of the works contract cannot be made the measure for levying the tax. The submission is further that the value of such goods would be the cost of acquisition of the goods by the contractor and, therefore, the measure for levy of tax can only be the cost at which the goods involved in the execution of a works contract were obtained by the contractor. On behalf of the States, it has been submitted that since the property in goods which are involved in the execution of a works contract passes only when the goods are incorporated in the works, the measure for the levy of the tax would be the value of the goods at the time of their incorporation in the works as well as the cost of incorporation of the goods in the works. We are in agreement with the submission that measure for the levy of the tax contemplated by article 366(29-A)(b) is the value of the goods involved in the execution of a works contract. In Builders Association case [1989] 73 STC 370 (SC); [1989] 2 SCR 320 it has been pointed out that in article 366(29-A)(b), the emphasis is on the transfer of property in goods (whether as goods or in some other form) (page 396 of STC; 347 of SCR). This indicates that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct's fees; (iv) charges for obtaining on hire the machinery and tools used in the execution of the works contract; (v) cost of consumables such as water, electricity, fuel, etc. (vi) transportation charges for transport of goods to the place of works; (vii) overhead expenses of the head office and branch office including rents, salary, electricity, telephone charges, etc., and interest charges to banks and financial institutions; (viii) profits expected on such contract; Keeping in view the legal fiction introduced by the Forty-sixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works [item No. (i)], amounts paid to a sub-contractor for labour and services [item No. (ii)], charges for planning, designing and architect's fees [item No. (iii)], charges for obtaining on hire or otherwise mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent the same are relatable to supply of labour and services will have to be excluded. The amounts so deductible would have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover: (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architect's fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; (h) profit earned by the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for labour and services does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. Since the expenses for labour and services would depend on the nature of the works contract and would not be the same for all types of works contracts, it would be permissible, indeed necessary, to prescribe varying scales for deduction on account of cost of labour and services for various types of works contracts. Rate of tax: A question has been raised whether it is permissible for the State Legislature to levy tax on deemed sales falling within the ambit of article 366(29-A)(b) by prescribing a uniform rate of tax for all goods involved in the execution of a works contract even though different rates of tax are prescribed for sale of such goods. The learned counsel for the contractors have urged that it would not be permissible to impose two different rates of tax in respect of sale of the same article, one rate when the article is sold separately and a different rate when there is deemed sale in connection with the execution of a works contract. On behalf of the States it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport. (2) The provisions of sections 3, 4, 5 and sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by article 366(29-A)(b). (3) While defining the expression "sale" in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit. of article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression "sale" in a way as to bring within the ambit of the taxing power a sale in the course of inter- State trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29-A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in the execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. Section 2 contains the definitions wherein "goods" is defined in clause (h), "sale" is defined in clause (o), "sale price" is defined in clause (p), "taxable turnover" is defined in clause (s) and "turnover" is defined in clause (t). Section 3 provides for incidence of taxation. Section 4 provides for exemption from tax of goods specified in the Schedule to the Act. Section 5 provides for rate of tax. Section 6 provides for registration of a dealer. Section 7 relates to submission of returns. Sections 10 to 20 relate to assessment of tax. Section 23 deals with refunds. Section 26 confers the power to make rules. After the Forty-sixth Amendment, the Rajasthan Sales Tax Act was amended by the Rajasthan Finance Act, 1987 (7 of 1987). By the said Act, among other provisions, the definition of "sale" contained in clause (o) of section 2 was substituted, certain amendments were made in definition of "sale price" contained in clause (p) of section 2, the definition of "turnover" contained in clause M of section 2 was amended, and clause (cc) was inserted in sub-section (2) of section 26 to confer power to frame rules to provide for the determination of the amount payable to the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) A transfer, otherwise than in pursuance of a contract, of property in goods for cash, deferred payment or other valuable consideration; (ii) A transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) A delivery of goods on hire-purchase or other system of payment by instalments; (iv) A transfer of the right to use goods for any purpose (whether or not for a specified period for cash, deferred payment or other valuable consideration; (v) A supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (vi) A supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply is for cash, deferred payment or other valuable consideration; and such transfer, delivery or supply shall be deemed to be a sale and the word 'purchase' or 'buy' shall be construed accordingly. Explanation I.- The transfer of property in goods (whether as goods or in some other form) involved in the executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 2 which provides as follows: "(s) 'taxable turnover' means that part of turnover which remains after deduction therefrom the aggregate amount of the proceeds of sale of goods- (i) on which no tax is leviable under this Act, (ii) which have already been subjected to tax under this Act, (iii) which have been sold to persons outside the State for consumption outside the State; and (iv) which are taxable at a point of sale within the State subsequent to the sale by the dealer and such sale is covered by a declaration as may be required under any provision of this Act or the Rules made thereunder." (Rest is omitted) Sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules, as substituted by Notification dated June 24, 1989, provides as under- "(2) In case of works contract, tax shall be computed on the turnover of the contractor after deducting- (i) the value of the goods transferred in execution of works contract, whether as goods or in some other form which have already suffered tax at the rate prescribed under section 5 or which are exempted from tax under section 4 of the Act. (ii) all sums towards labour charges, which are directly correlated with the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We will first examine the validity of sub-section (3) of section 5 read with sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules. In this regard, it is necessary to mention that while making provision in relation to works contracts, section 5(3) makes a departure from the other provisions inasmuch as in the case of a works contract the tax is to be levied on the turnover of such contract and not on the taxable turnover as provided in sub-section (1) of section 5 in respect of other sales. The proviso to sub- section (3) of section 5 prescribes that the deductions, as may be prescribed, may be allowed to the contractor while determining his tax liability. The expression "turnover" as defined in clause (t) of section 2 of the Rajasthan Sales Tax Act, 1954, means the aggregate of the amount of sale prices received or receivable for a sale, transfer, delivery or supply by a dealer in any of the ways referred to in clause (o) wherein the expression "sale" is defined. With regard to works contracts, explanation (i) to clause (t) of section 2 lays down that the amount for which the goods are sold or supplied shall, in relation to a works contract, be deemed to be the amount payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration as may be required under any provision of the Act or the rules made thereunder. These provisions indicate that in respect of other sales the amount of the proceeds of sale of goods on which tax is not leviable under the Act has to be excluded from the turnover before it becomes chargeable to tax. This position is further clarified by the proviso to sub-section (1) of section 5 which prescribes that the tax in respect of the sale of any goods which are not included in the Schedule, shall not be leviable (a) if such sale takes place in the course of inter-State trade or commerce within the meaning of section 3 of the Central Sales Tax Act, or (b) if such sale takes place outside the State within the meaning of sub-section (1) of section 4 of the Central Sales Tax Act; or (c) if such sale takes place in the course of import or export within the meaning of section 5 of the Central Sales Tax Act. In the said proviso, reference has also been made to sale of goods which have been declared by section 14 of the Central Sales Tax Act to be of special importance in inter-State trade or commerce as well as to section 15 of the Central Sales Tax Act and it has been directed that in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be of any assistance in resolving the question regarding the validity of section 5(3). We have, however, examined the rules that have been framed and we find that they do not improve the position. The relevant provisions in this regard are contained in sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules which makes provision for deductions from the turnover in the case of a works contract. The said sub-rule (2) contains two clauses. Clause (i), which is referable to the proviso to sub-section (3) of section 5, provides for deduction of the value of the goods transferred in execution of works contract, whether as goods or in some other form, which have already suffered tax at the rates prescribed by section 5 or which are exempted from tax under section 4. Clause (ii) is referable to explanation (i) of section 2(t) and it provides for deduction of all sums towards labour charges, which are directly correlated with the goods, property in which has passed in the execution of works contract, whether as goods or in some other form. Shri Krishnamoorthy Iyer, the learned counsel appearing for the State of Rajasthan, has submitted that the words "which have already suffered tax at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o tax is leviable under section 5, are not required to be deducted from the turnover. The High Court also failed to attach importance to the use of the word "turnover" (instead of word "taxable turnover') in sub-section (3) of section 5 as a result of which the amplitude of the incidence of tax has been widened so as to include transactions which are outside the sphere of taxation available to the State Legislature under entry 54 of the State List. We are, therefore, unable to uphold the decision of the High Court in this regard and it must be held that sub-section (3) of section 5 transgresses the limits of the legislative power conferred on the State Legislature under entry 54 of the State List inasmuch as it enables tax being imposed on deemed sales resulting from transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract which take place in the course of inter-State trade or commerce, or which take place outside the State or which take place in the course of import and export within the meaning of sections 3, 4 and 5, respectively of the Central Sales Tax Act and it does not take into account the conditions and restricti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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