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TMI Blog1996 (11) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... or Fifth Schedule to the Act. Sub-clause (b) deals with a situation where the "transfer of goods involved in the execution of works contract.......is not in the form of goods but in some other form". In such a case, the rate is specified in the Fourth Schedule to the Act. There are two provisos to clause (iv) which we need not refer to for the purpose of this case. Section 7 provides for payment of tax at compounded rates. We are concerned herein with sub-sections (7), (7A), (7B), (11) and (12) which were inserted along with certain other provisions by Act 23 of 1991 and Act 8 of 1992. Sub-section (7) provides: "Notwithstanding anything contained in sub-section (1) of section 5, every contractor (engaged?) in civil works of construction of building, bridges, roads, dams and canals including any repair or maintenance of such civil works may at his option, instead of paying tax in accordance with clause (iv) of that sub- section, pay tax at the rate of two per cent on the whole amount of contract and which shall be deducted from the payments made by the awarder at every time including advance payment and shall remit it to Government in such manner as may be prescribed." Sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der to the contractor either in lump sum for the whole contract or in instalments, the awarder shall withhold an amount equal to the tax due in accordance with the provisions of the Act from such payment or payments and shall remit it to the assessing authority with whom the contractor is registered as a dealer and if he is not so registered, to the assessing authority having jurisdiction over the place of works contract, within seven days of the amount so withheld along with a statement in form No. 21C. 30A(1). Notwithstanding anything contained in rule 30, every contractor engaged in civil works of construction of building, bridge, road or dam may opt to pay tax in accordance with sub-section (7) of section 7 in respect of each such contract. Explanation.-A composite and indivisible contract for construction of building shall be construed as a civil work of construction of building even if it involves works relating to electrical, sanitary, painting, flooring and the like." [Sub-rules (2) to (7)-omitted as unnecessary.] (Rule 22A has been substantially amended later in 1994 but we are not concerned with the amended rule. We will deal only with the rule as it stood when it was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he High Court has held sub-sections (7) and (7A) of section 7 to be void is that they levy tax at two per cent on the whole amount of the contract [sub-section (7)] or at a particular rate applied to the entire value of contract [sub-section (7A)] and not merely upon the value of the goods transferred in the course of execution of the works contract as contemplated by sub-clause (b) of clause (29A) in article 366. The court also noticed that the goods which are transferred in the course of execution of a works contract may be "declared goods"; they may be goods which are liable to be taxed under the Central Sales Tax Act; the goods so transferred may also be taxable under different Schedules to the Kerala Act which prescribe different rates. In such a situation, it is held, levying tax on the entire value of the contract means levy of tax contrary to the provisions of the Central Sales Tax Act and the Kerala General Sales Tax Act. It also means, the court held, taking the non-taxable components of works contract, e.g., labour and services, etc. For all these reasons, it is held, the said sub-sections are clearly beyond the legislative competence of the State Legislature. With great ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contractor saves himself the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under sub-section (7), the contractor pays two per cent of the total value of the contract by way of tax and he is done with all the abovementioned botheration. The rate of two per cent prescribed by sub-section (7) is far lower than the rates in First, Second and Fifth Schedules referred to in section 5(1)(iv)(a). In short, sub-sections (7) and (7A) evolve a rough and ready method of assessment of tax and leave it to the contractor either to opt to it or be governed by the normal method. It is only an alternative method of ascertaining the tax payable, which may be availed of by a contractor if he thinks it advantageous to him. It must be remembered that the analogous system of alternate method of taxation evolved by certain State Legislatures in the matter of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is largely a prophecy based on meagre and uninterpreted experience'. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secy. of Agriculture v. Central Roig. Refining Co. (1950) 94 L Ed 381, be converted into Tribunals for relief from such crudities and inequities..... If any crudities, inequities or possibilities of abuse come to light, the Legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the Legislature in dealing with complex economic issues." In our opinion, the above passages from the judgment of the Constitution Bench furnish a complete answer to the objections against the validity of the said provisions. Accordingly, the judgment of the Division Bench declaring sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (7) or (7A) of section 7 is concerned, the deduction at the prescribed rate would be at the time of any and every payment by awarder to him, for in his case tax is due at the flat rate prescribed in the relevant sub-section even at the inception of the contract and at all times, until the tax due is satisfied. We fail to see how can any objection be taken to the sub-rule. Sub-rule (3) is really explanatory in nature. It says that notwithstanding anything contained in sub-rule (2), any contractor who pays tax regularly in accordance with the rules, shall be entitled to payment of the full contract amount without any deduction by the awarder, if he produces a certificate issued by the assessing authority to the effect that no tax is due from him. All these provisions are designed to ensure due realisation of the tax due. No exception can be taken thereto. The attack upon rule 30A is equally untenable. It merely provides the procedure according to which the option to come under the alternate method of taxation provided by sub-section (7) or (7A) of section 7 is to be exercised. The Division Bench was, therefore, in error in declaring the said rules as invalid. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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