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TMI Blog2000 (2) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... Vellapally, Senior Advocate (Sunil Kumar Jain, Vijay Hansaria and Bibek Mohanty, Advocates, with them), for the appellant in C.A. Nos. 1748 and 1749 of 1998. Janatanjan Das, K.K. Mahalik, K.N. Tripathy and P.C. Mohapatra, Advocates, for the respondents in C.A. Nos. 1748 and 1749 of 1998. -------------------------------------------------- The judgment of the Court was delivered by S.P. BHARUCHA, J.- Before it was held to be unconstitutional on 28th April, 1993, section 13-AA of the Orissa Sales Tax Act read thus: 13-AA. Deduction of tax at source from the payment of works contractor.- (1) Notwithstanding anything contained in section 13 or any other law or contract to the contrary, any person responsible for paying any sum to any contractor for carrying out any works contract in pursuance of a contract between the contractor and- (a) Central Government or any State Government, or (b) any local authority, or (c) any authority or corporation established by or under a statute, or (d) any company incorporated under the Companies Act, 1956 (1 of 1956) including any State or Central Government undertaking, or (e) any co-operative society or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke deduction of two per cent from the amount to be paid. In the absence of any discretion with the authority and in the absence of any mechanism by which the contractor could approach any authority and obtain a certificate to the effect that the transaction did not amount to a sale, the deduction of two per cent from the amount could not but be held to be grossly discriminatory and confiscatory in nature and, therefore, the same had to be struck down. The High Court added that by conferring arbitrary, unbridled and uncanalised powers on the person concerned to deduct two per cent from the sum payable to the contractor, irrespective of the question whether, ultimately, the transaction was liable for payment of any sales tax at all, could not be held to be a levy of tax under any valid legal provision. It was true that the deduction of two per cent under section 13-AA was to be ultimately adjusted where the transaction in question was liable for levy of sales tax, but where the transaction was not at all liable for levy of sales tax, there the question of adjustment would not arise and, therefore, the deduction would be confiscatory in character and effect and it could not be held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k from the date of deduction in such form or challan as may be prescribed. (4) Such deposit into the Government treasury shall be adjusted by the Sales Tax Officer towards the sales tax liability of the contractor and would also constitute a good and sufficient discharge of the liability of the deducting authority to the contractor to the extent of the amount deposited. (5)(a) Where, on an application being made by the contractor in this behalf, the Commissioner is satisfied that any works contract of the nature referred to in sub-section (1) involves both transfer of property in goods and labour or service, or involves only labour or service and, accordingly, justifies deduction of tax on a part of the sum in respect of the works contract or, as the case may be, justifies no deduction of tax, he shall, after giving the contractor a reasonable opportunity of being heard, grant him such certificate as may be appropriate, in the manner prescribed: Provided that nothing in the said certificate shall affect the assessment of the sales tax liability of the contractor under this Act. (b) Where such a certificate is produced by a contractor before the deduct- ing authority, unti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the Orissa Sales Tax Act. The Commercial Tax Officer, Rourkela, did not accept this stand of the appellant and issued to it notices to show cause why penalty proceedings should not be initiated in respect of the assessment years 1994-95 and 1995-96. The notices were challenged by the appellant by a writ petition filed in the High Court of Orissa. At an interim stage, the authorities were permitted to proceed with the hearing on the show cause notices but the final order thereon was made subject to the result of the writ petition. Thereafter, the High Court ordered that no coercive steps for recovery should be taken against the appellant. Pursuant to the show cause notices, the Sales Tax Officer imposed penalties upon the appellant for the assessment years 1994-95 and 1995-96 on the ground that the appellant should have deducted four per cent of the totality of its payments to Mukund. The penalties, in the sum of Rs. 26.98 crores imposed by the order dated November 11, 1997, for the assessment years 1994-95 and 1995-96, were challenged by the appellant in a fresh writ petition. On the earlier writ petition the order under challenge in the appeal was passed. It held that sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract which involves the transfer of property in goods (now, for convenience, referred to as the owner ) is obliged to deduct, at the time of credit of that sum to the account of the contractor or payment thereof to him, an amount towards sales tax equal to four per cent of such sum in respect of the works contract , provided the value of the works contract exceeds rupees one lakh. The deduction, therefore, is towards the sales tax that is payable to the State upon the works contract and it is of four per cent of the value of the works contract. Sub-section (2) requires the owner to grant to the contractor a certificate in respect of such deduction. By reason of sub-section (3), the amount that the owner has deducted must be deposited by him into the Government treasury within a week of the deduction. By reason of sub-section (4), such deposit is required to be adjusted by the Sales Tax Officer towards the sales tax liability of the contractor and it constitutes good and sufficient discharge of the liability of the owner to the contractor to the extent of the amount deposited. Sub-section (5)(a) permits the contractor to make an application to the Commissioner of Sales Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid; because, if particular sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax . 13.. There can be no doubt, upon a plain interpretation of section 13-AA, that it is enacted for the purposes of deduction at source of the State sales tax that is payable by a contractor on the value of a works contract. For the purposes of the deduction neither the owner nor the Commissioner who issues to the contractor a certificate under section 13-AA(5) is entitled to take into account the fact that the works contract involves transfer of property in goods consequent upon of an inter-State sale, an outside sale or a sale in the course of import. The owner is required by section 13-AA(1) to deposit towards the contractor s liability to State sales tax four per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract includes the value of inter-State sales, o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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