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TMI Blog1997 (5) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... and Power House Complex. In C.W.P. No. 199 of 1994, it is for dam, intake and desilting chambers as well as head race tunnel from station 0.0 m to 16042 m including sholding works. In C.W.P. No. 208 of 1994 it is for head race tunnel from station 16042 m to 27295 m including surge shaft. In C.W.P. No. 152 of 1995 the contract was for construction of main concrete dam and coffer dams at Chamera Hydro-Electric Project. According to the petitioner, the works were executed and handed over to the contractee and claims were also submitted for payment. In C.W.P. No. 63 of 1996, the petitioner was awarded a works contract for the implementation and execution of 300 M.W. Baspa Hydro Electric Project Stage-11 in Kinnaur District by the Government of Himachal Pradesh. 3.. Though there are some differences in the contentions raised in the pleading, the arguments advanced by learned Senior Counsel for the petitioners in all the cases are the same. There is no dispute that the petitioners are dealers as defined by section 2(c) of the Act. It is also not in dispute that by the execution of the works contracts, the petitioners would be transferring the property in goods involved in the execut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of tax from the bills/invoices of works contractor. (1) For the purpose of section 12-A of the Act, every person in a department of any Government, a corporation, Government undertaking, a co-operative society, a local body, a trust or a private or public limited company or any other concern responsible for making any payment or discharge of any liability on account of valuable consideration payable for the transfer of property in goods whether as goods or in some other form, involved in the execution of works contract or for carrying out any works, shall at the time of- (i) payment thereof in cash or by issue of a cheque or bank draft or any other mode; or (ii) credit of such sum to the account of the works contractor; or (iii) discharging liability on account of the said valuable consideration to the works contractor, deduct an amount equal to two per centum of such sum towards the tax under section 12-A of the Act. (2) The deduction under sub-rule (1) shall be made from all payments being made in respect of all works contract executed, whether in part or in full. (3)(i) The person making tax deduction of tax under sub-section (1) of section 12-A of the Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (3) of the said section shall also send a return in form S.T. XI-C to the Assistant Excise and Taxation Commissioner or Excise and Taxation Officer, Incharge of the district quarterly within 30 days from the expiry of each quarter in respect of the deductions made by him during the quarter immediately preceding along with the certificate and treasury challan as required in clause (iv) of sub-rule (4) and clause (ii) of sub-rule (3). (6) Any deduction made in accordance with the provisions of sub-section (1) of section 12-A of the Act and paid into the Government treasury in accordance with this rule shall be treated as payment of tax on behalf of the works contractor from whom such deduction was made and credit shall be given to him under rule 26 for the amount so deducted or deposited into the Government treasury: Provided that for the purpose of rule 26, if the amount of tax payable as per return in form S.T. VIII or form S.T. IX, as the case may be, exceeds the amount shown in the treasury challan in form S.T. XI-A and in the certificate in form S.T. XI-B, the works contractor shall make the payment of the balance amount of tax remaining unpaid for the period for which su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supply and Installation of air-conditioning equipments including deep freezers, cold storage plants, himidifications plant and dehumidor. 15 10 Supply and installation of air-conditioners and air-coolers 15 11 Supply and fitting of electrical goods, supply and installation of electrical equipments including transformers. 15 12 Supply and fixing of furnitures and fixtures, partitions including contracts for interior decoration and false ceiling. 20 13 Construction of railway coaches and wagons on under carriages supplied by railway. 20 14 Construction or mounting bodies of motor vehicles and constructions of trailers. 20 15 Sanitary fitting for plumbing and drainages or sewerage. 25 16 Laying underground or surface pipe lines, cables or conductors 30 17 Dyeing and printing of textiles 30 18 Supply and erection of weighing machines and weigh bridges 15 19 Painting, polishing and white-washing. 30 20 All other contracts not specified from se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer of such undertaking and furnish to the assessing authority. It is also argued by him alternatively that the doctrine of reading down should be applied in the case and on a harmonious construction of section 6(3)(a)(iii) and section 12-A, it should be held that none of the petitioners is liable for payment of tax under the Act and consequently there shall be no deduction of any amount from their bills submitted to the contracting party which is an electrical undertaking contemplated in section 6(3)(a)(iii). It is further contended that in any event, rule 31-A should be either struck down as invalid or read down in such a manner that the petitioners and dealers like them are not made to suffer deduction of a percentage from the amount due to them for the work done by them. V. Historical background: 9.. In order to appreciate the contentions of the petitioners and the true scope of the impugned section and the rule, it is necessary to refer to the relevant constitutional provisions and some rulings of the Supreme Court. Entry 54 in List II of the Seventh Schedule to the Constitution empowers the State Legislature to levy taxes on sale or purchase of goods other than newspapers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works contract are not the goods involved in the execution of the works contract but a conglomerate, that is, the entire building that is actually constructed and held that after the 46th Amendment it was not possible to accede to the plea of the States that what is transferred in a works contract is the right in the immovable property. 12.. Pursuant to the said decision of the Supreme Court, fresh writ petitions were filed in the High Court of Rajasthan 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. They were dismissed by the High Court and appeals were filed in the Supreme Court. The judgment of the Supreme Court is reported in Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204; [1993] 1 SCC 364. After an exhaustive discussion of the law on the subject the court set out the following conclusions: "(1) In exercise of its legislative power to impose tax on sale or purchase of goods under entry 54 of the State List read with article 366(29A)(b), the State Legislature, while imposing a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of establishment of the contractor to the extent it is relatable to supply of labour and services, (vii) other similar expenses relatable to supply of labour and services, and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services. (7) To deal with cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the assessing authority the Legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula 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. It would be permissible for the Legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract. (8) While fixing the rate of tax it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that in fixing the situs of the sale under clause (c) of Explanation 3 to section 2(t), the Legislature converted an inter-State sale or sale outside the State into an inside sale and thereby acted beyond its legislative competence was rejected by the court by reading clause (c) in the light of clauses (a) and (b) of the said Explanation. The court also upheld the fixation of the percentage on account of labour and other charges in cases where the amount actually incurred towards such charges were not ascertainable from the books of account maintained and produced by a dealer before the assessing authority. The court also upheld the prescription of different rates of tax for particular types of works contract and rejected the argument that the same violated article 14 of the Constitution of India. 15.. It must be mentioned here that in the Rajasthan case, section 7(2)(c) and rule 46(2) are similar to section 12-A of the Act and rule 31-A of the Rules impugned in this case. The challenge to the validity thereof was not considered by the court as the charging section 5(3) was struck down in that case. In the Karnataka case, the question relating to the validity of section 19-A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: (a) in relation to any dealer who imports for sale or use in manufacturing or processing any goods in Himachal Pradesh, Nil; (b) in relation to any dealer, who himself manufactures or produces any goods for sale, 40,000 rupees; (c) in relation to any dealer, who runs a hotel, restaurant, bakery or other similar establishment wherein food preparations including tea, are served, 1,00,000 rupees; (d) in relation to any particular class of dealers not falling within clauses (a), (b) and/or (c), such sum as may be prescribed; or (e) in relation to any other dealer, 3,00,000 rupees: Provided that the registration of dealers already registered under this clause shall not be cancelled until their turnover in each of three consecutive years does not entitle them to cancellation under clause (b) of sub-section (6) of section 8." 18.. Section 5 provides that a dealer registered under the Central Sales Tax Act, 1956 who is not liable to pay tax under section 4 shall nevertheless be liable to pay tax under the Act on any sale or purchase made by him inside the State and the proviso declares that nothing therein shall apply to a dealer who deals exclusively in goods declared t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have no competence to levy tax. As pointed out already, the attack in this case is only against section 12-A and rule 31-A. A reading of section 12-A shows that it is not a charging provision. It does not seek to impose or levy tax on any transaction by itself. It provides only for deduction of certain amount from the bills or invoices raised by the works contractor. We have already extracted the sections in full in para 4. The crucial words of the sections are "payment or discharge of any liability on account of valuable consideration payable for the transfer of property in goods whether as goods or in some other form involved in the execution of works contract". Thus, the relevant amount is the valuable consideration payable for the transfer of property in goods and not the entire value or consideration for the entire works contract. What is directed to be deducted is only an amount not exceeding four per centum as may be prescribed purporting to be a part or full of the tax payable on such sales (underlining* ours). The word "such" is very significant. It refers to the "transfer of property in goods" mentioned in the earlier part of the section. The expression "tax payable" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of any liability on account of valuable consideration payable for the transfer of property in goods whether as goods or in some other form involved in the execution of works contract are incorporated in the Rule. It is contended that sub-rule (2) travels beyond the section inasmuch as it refers to all payments being made in respect of all works contract executed . This contention is based on a wrong understanding of the Rule. After sub-rule (1) expressly refers to payment on account of valuable consideration payable for the transfer of property in goods, sub-rule (2) begins with the words the deduction under sub-rule (1) . The two sub-rules should be read together in the light of the section. Sub-rules (3) to (6) expressly refer to deduction under sub-section (1) of section 12-A of the Act. Hence, there can be no doubt that the expression all payments being made in respect of all works contract executed means and refers only to payments on account of valuable consideration payable for transfer of property in goods and not other payments. Thus, the Rule does not go beyond the section and enable any person to deduct any amount other than that contemplated by the section. The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he execution of the works contract, which is consistent with article 366(29A)(b) of the Constitution. However, rule 26-A(2) read that such deduction shall be made from all payments being made in respect of all works contracts executed. That is exactly the language of sub-rule (2) of rule 31-A of the Rules introduced in this State. With regard to the said rule 26-A(2), the Division Bench held that the words "all payments being made" shall be read to mean payments made for the transfer of property in goods. The Division Bench observed that on such an interpretation, deductions had to be made only out of payments to be made for the transfer of property in goods and no deduction is to be made in respect of the amounts spent over labour charges and other services in which no transfer of any property in goods was involved. The Bench referred to the well-settled principle of interpretation of statute that if without doing violence to the language of any provision of the Act or the Rules, it can be interpreted in a manner which can make it valid and constitutional that interpretation should be given. 25.. While analysing the rule earlier, we have given a similar interpretation to the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutional and void by a Division Bench of the Orissa High Court. The Bench observed that the section did not provide any mechanism to exclude a transaction from its purview even if ultimately the transaction was not at all liable to levy of sales tax. The section in the Orissa Act provided that 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 the authorities/persons mentioned therein shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft of any other mode, whichever was earlier, deduct an amount towards sales tax equal to two per centum of such sum in respect of the works contract. A bare reading of the section shows that it was not a provision for deduction of an amount payable for the valuable consideration for the transfer of property in goods whether as goods or in some other form involved in the execution of works contracts. On the other hand, the section directed the deduction in respect of the amount payable under the entire works contracts. That was clearly against the provisions of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (w) of that Act. The Division Bench also compared the provisions of section 194-C of the Income-tax Act, 1961 and took note of the absence of similar provision not only in the Madhya Pradesh Act, but also in the Acts of the States of Uttar Pradesh, Bihar, Haryana, Himachal Pradesh, Jammu and Kashmir, Karnataka and Orissa. The Bench had also referred to a notification issued by the State Government under section 17 of the Madhya Pradesh General Sales Tax Act, 1958 providing a machinery for issuing a certificate of exemption from the provision for deduction at source. 30.. In KEC International Limited v. State of Karnataka [1997] 105 STC 192, the Karnataka High Court struck down section 19-A of the Karnataka Sales Tax Act as ultra vires the Constitution. The said section provided for deduction of certain per centum of the total amount payable to the dealers under the works contracts. Thus, the provision in the section was entirely different from the provision in section 12-A of the Himachal Pradesh General Sales Tax Act, 1968. The Division Bench also placed reliance on the following observations of the Supreme Court in Khyerbari Tea Co. Ltd. v. State of Assam AIR 1964 SC 925: "It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State, as it included not only the turnover which was exigible to tax under the Sales Tax Act, but also the amounts which were outside the purview of entry 54 and the amounts which were not exigible to sales tax at all under the State law or the Central law. The Bench also observed that the section was arbitrary, in that, there was no machinery provided under the Act to determine even approximately the taxable turnover of a dealer for the purpose of collection of advance tax, as provided for, under section 194-C(4) of the Income-tax Act, 1961. 33.. As stated earlier, the section in the Karnataka Act was entirely different from section 12-A of the Himachal Pradesh General Sales Tax Act, 1968. We should also point out that the tests prescribed by the Supreme Court in the passage quoted by the Division Bench as above and the Gujarat High Court in the passage quoted as above are satisfied in the present case. (b) Validity of the provision for payment of lump sum in lieu of tax by way of composition: 34.. In Tirath Ram Ahuja Limited v. State of Haryana [1991] 83 STC 523 (P H), a question arose whether a provision for payment of lump sum in lieu of tax by way of composition instea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitutionally valid and in conformity with the law laid down by the Supreme Court in Gannon Dunkerley Co. v. State of Rajasthan [1993] 88 STC 204; (1993) 1 SCC 364. VIII. Prayer for lesser relief: 38.. Though in all the petitions excepting C.W.Ps. Nos. 152 of 1995 and 63 of 1996, the prayers are only for declaring the section and the rule as ultra vires and unconstitutional, in the course of arguments, it has been submitted alternatively that a lesser relief could be granted to the petitioners by declaring that they are not liable to pay any tax under the provisions of the Act in view of the provisions contained in section 6(3)(a)(iii). It is to be mentioned here that in C.W.P. No. 152 of 1995 and C.W.P. No. 63 of 1996, there is a specific prayer to prohibit the 3rd respondent therein from deducting the sales tax out of the payments to be made to the petitioner in each case in respect of the bills submitted. 39.. While the contention of the petitioners in C.W.Ps. Nos. 1839 of 1993, 199 of 1994 and 208 of 1994 is that they are governed by section 6(3)(a)(iii) of the Act inasmuch as their sales are to an undertaking which supplies electrical energy to the public under licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the statutes or the Rules themselves. For example, section 7 declares certain goods to be tax-free and sub-clause (1) of clause (a) of sub-section (3) of section 6 provides for deduction of sales tax on such goods from the gross turnover of the dealer. If the goods, which are declared to be tax-free under section 7 are sold by a dealer, he shall not collect any sum by way of sales tax because of the provisions of section 13 of the Act. Section 6(3)(a)(iii) is different from section 6(3)(a)(i). Hence, a question relating to the dealer getting a benefit under section 6(3)(a)(iii) will have to be decided by the assessing authority on the facts and circumstances of each case. 41.. It is not possible for us in these writ petitions to decide the said question or uphold the claim made by the petitioners that they are entitled to the benefit of section 6(3)(a)(iii) of the Act. In our opinion, the pleadings in these cases and the materials placed before us are hardly sufficient for considering the said question. In any event, it is a matter to be decided only by the assessing authority and not by this Court under article 226 of the Constitution of India. 42.. In C.W.P. No. 1839 of 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the benefit of section 6(3)(a)(iii) of the Act and that the contention of the petitioners that the position has been admitted by the respondents is wholly untenable. 45.. In C.W.P. No. 199 of 1994, similar recitals are found in paragraphs 5 and 9, which read to the extent relevant as follows: "5. That M/s. Nathpa Jhakri Power Corporation Ltd., Delhi, is an undertaking supplying electrical energy to the public under the licence or sanction granted or to be granted or deemed to have been granted under the Indian Electricity Act, 1910. That the said Corporation floated tenders for the construction of civil works for dam, intake and desilting arrangement for the generation and distribution of electrical energy to be supplied to general public. 9.. That by the aforesaid execution of works contract , the petitioner would be transferring the property in goods involved in the execution of the works contract either in full or in the goods as such and the said goods will fall within the ambit of the word sale as defined under the Himachal Pradesh General Sales Tax Act, 1968 (Act No. 24 of 1968)." 46.. In this case also, in the reply filed by the respondents, the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to claim the benefit of section 6(3)(a)(iii) cannot be decided in these writ petitions and it has to be decided only by the assessing authority in the course of assessment proceedings. 52.. In J.K. Cotton Spinning Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563, the Supreme Court had occasion to consider the provisions of sections 7(4) and 8(3)(b) of the Central Sales Tax Act, 1956 read with rule 13 of the Central Sales Tax Rules. The court held that if a process or activity was so integrally related to the ultimate manufacture of goods so that without that process or activity the manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity, as specified in rule 13 would qualify for special treatment. In that case, the court held that drawing and photographic materials falling within the description of goods intended for use as equipment in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use in the manufacture of goods. It was also pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Indian Aluminium Cables Ltd. v. State of Haryana [1976] 38 STC 108; AIR 1976 SC 1711. The contention on behalf of the assessee before the court was that by reason of the Explanation to section 8(2A) of the Central Sales Tax Act read with section 5(2)(a)(iv) of the said Act, it was exempt from the payment of inter-State sales tax. According to the assessee, the expression "goods " for use by it in the generation or distribution of such energy occurring in section 5(2)(a)(iv) of the said Act was descriptive of the goods, but it specified the condition under which exemption was granted. The matter is dealt with in the following passages: "15. Section 6 of the State Act does not speak of exemption, but deals with tax-free goods. In other words, section 6 deals with specified goods on which no tax is payable. Section 5 of the State Act deals with what has to be excluded from the taxable turnover of the dealer. Both the sections deal with goods which do not suffer from sales tax. Section 8(2A) of the Central Act exempts goods from inter-State sales tax where a tax law of the State has exempted them from sales tax. The explanation to section 8(2A) of the Central Act takes away the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of the Punjab and Haryana High Court in Spedding Dinga Singh [1968] 22 STC 319 and that of the Madhya Pradesh High Court in Associated Cement Co. [1971] 28 STC 629 and distinguished the same. The decision of the Division Bench runs counter to the view expressed by the three Judges Bench in the earlier case, namely, Indian Aluminium Cables Ltd. [1976] 38 STC 108 (SC); AIR 1976 SC 1711, wherein the court observed that the specified condition in the section was that the goods purchased by the undertaking must be used for the generation or distribution of electrical energy. 57.. In Commercial Taxes Officer, Circle D, Jaipur v. Rajasthan Electricity Board [1997] 104 STC 89, the Supreme Court followed the judgment rendered in J.K. Cotton Spinning Weaving Mills Co. Ltd. [1965] 16 STC 563 and held that the motor vehicles, soaps, paints, raincoats and battery cells to the extent mentioned in the aforesaid case were integrally related to the distribution of electricity and their non use would make distribution of electricity commercially inexpedient. The court referred to its earlier judgments in Tata Engineering Locomotive Company Ltd. v. State of Bihar [1995] 96 STC 211 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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