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TMI Blog1993 (6) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... gislative competence to impose any tax on such transactions. During the years ending March 31, 1978, March 31, 1979 and March 31, 1980, respectively the applicant-company purchased goods valued at Rs. 183.5 lakhs, Rs. 434.98 lakhs and Rs. 514.58 lakhs in respect of works contracts executed in the State of West Bengal. In the year 1979 the West Bengal Taxation Laws (Second Amendment) Act, 1979, was enacted amending several provisions of the 1941 Act and inserting section 6C, in terms of which purchase tax became payable. A person who purchased goods in West Bengal for execution of works contract had to pay usual sales tax at the time of making purchases and also had to pay purchase tax at 2 per cent if the notified purchase price exceeded Rs. 50 lakhs during a year. But even if he was a registered dealer, he was not entitled to any concessional rate of sales tax, unlike other registered dealers who purchased goods for resale or manufacture, and got the benefit of a concessional rate of tax. Thus, section 6C purported to levy tax on execution of indivisible works contracts on which allegedly the State Legislature had no competence to impose tax, being outside the scope of entry 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quential amendments were made in the 1941 Act with effect from April 1, 1979. In section 2(1a) the words-"works contract" were incorporated in the definition of "business". Section 2(ddd) was incorporated to define "notified purchase price" so as to include purchase price of goods for use in execution of contract. Section 2(b), being the definition of "contract" was amended with effect from April 1, 1979, so as to include works contract. Three-fold arguments were advanced by the learned advocate for the applicant challenging the validity of section 6C. It was contended that (i) section 6C is violative of articles 14 and 19(1)(g) of the Constitution, as a discrimination was done in respect of works contractors as dealers by levying a new purchase tax on their transactions of purchase, while no such tax was payable by other dealers on their purchases and by denying them a concessional rate of sales tax on their purchases; (ii) section 6C contravenes article 301, as it amounts to a restriction on free-flow of trade; (iii) it was a colourable legislation, because the State Legislature was not competent to legislate for imposing tax on indivisible works contracts until April 1, 1984, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, that the ratio of this decision of the Supreme Court does not apply to the present case. Mr. Bose rightly argued that even in the case of Nepal Chandra Banerjee [1992] 86 STC 130 (WBTT), the validity of section 6C was not decided on the basis of any contested dispute. In any case, in the unreported judgment dated June 19, 1990, in the case of Debakinandan Mitra, RN-51(T) of 1990, this Tribunal did not decide the validity of section 6C, but merely referred to the decision in Nepal Chandra Banerjee v. State of West Bengal [1992] 86 STC 130. The case was however decided on consent and therefore it does not support the contention of the learned State Representative. As regards Nepal Chandra Banerjee v. State of West Bengal [1992] 86 STC 130, section 6C was initially challenged in that case, but it will appear from paragraph 31 of the said judgment that the challenges directed at section 6C were not pressed. That being the position, the ratio of decision in the case of Nepal Chandra Banerjee [1992] 86 STC 130, cannot be applied in the present case so as to invoke the doctrine of stare decisis. In other words, the challenges now thrown at the validity of section 6C are to be examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sident, it also contravenes article 304(b) of the Constitution. Mr. Bose did not explain to us how imposition of the tax amounted to an impediment to the trade, commerce and intercourse throughout India either generally or in the case of the applicant in particular. The object of section 6C is to impose a purchase tax on purchases of goods for use in works contracts. It is well-settled that the restriction on the freedom of trade laid down in article 301 should be direct and immediate. Object of article 301 is to ensure that the economic unity of India may not be broken up by internal barriers. Reference may be made to the cases of Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232, Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 and State of Madras v. Nataraja Mudaliar [1968] 22 STC 376 (SC). In the present case nothing has been shown to us to the effect that section 6C is creating any economic barrier or directly impeding the free-flow of trade within the State of West Bengal or outside. Therefore, the contention that section 6C is violative of articles 301 and 304(b) is without substance. 9.. The next contention is that the period in dispute w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and from April 1, 1984. Therefore, during the period from February 3, 1983 to March 31, 1984, the State Legislature had the competence to impose tax on sale or purchase of goods used in the course of execution of works contracts to the extent permitted by amended article 366(29A)(b). That being the position, section 6C, assuming that it imposes tax on goods used in works contracts, as alleged by the applicant, was within the legislative competence of the West Bengal State Legislature at least during the period from February 3, 1983 to March 31, 1984, by reason of the amended article 366(29A)(b). 12.. Therefore, the question is whether section 6C was within the legislative competence of the State Legislature up to the February 2, 1983. Mr. Bose contended that the State Legislature is competent to impose purchase tax where taxable event is purchase of goods. But according to him, in the instant case the taxable event is not purchase of goods but execution of works contract, because the proximity of taxable event is more to the execution of works contract. He argued that the levy of purchase tax was not made when the goods were purchased. The goods might be stored for any period and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax under section 6C was levied on purchases of the goods, may be for use in works contracts, but it was not levied on the event of the actual use of the same goods in works contracts. If we explain a little more, the State Legislature did not possess the competence to impose tax on transfer of property in goods used in execution of works contracts up to February 2, 1983. But the Legislature had the competence prior to February 2, 1983 to impose tax on sale or purchase of goods which might or might not be used in execution of works contracts. These are two completely different events. The event as contemplated in section 6C is the sale of goods by the seller to the works contractor and purchase by the latter for use in works contracts. The State Legislature was not lacking this power in any manner under entry 54, List II of the Seventh Schedule. What the State Legislature was lacking was the power to levy tax on sale or purchase of goods taking place during the execution of works contracts. Prior to the 46th Amendment of the Constitution, the law as settled by the courts was that entry 54 did not comprehend the power to impose tax on transfer of goods by the contractor to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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