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TMI Blog2001 (7) TMI 1258X X X X Extracts X X X X X X X X Extracts X X X X ..... orks entrusted to them by various Government departments and use the material purchased while executing them. In the process of execution of those works, the works contractors do not make any sale so as to make them liable for payment of sales tax. Therefore the inclusion of the "works contractor" in the definition of "dealer" in section 2(1)(e) of the Act and consequent application of the amended provisions for deduction of tax is illegal and arbitrary. 3.. The learned counsel in support of his contentions relied upon the following judgments: Rainbow Colour Lab v. State of Madhya Pradesh [2000] 118 STC 9 (SC); (2000) 30 APSTJ 96, Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314 (SC) and Steel Authority of India Ltd. v. State of Orissa [2000] 118 STC 297 (SC); (2000) 30 APSTJ 202. 4.. The learned Special Government Pleader for Sales Taxes on the other hand, opposed the contentions of the learned counsel for the petitioners. It is stated that the said amendment to the definition of the "dealer" in section 2(1)(e) is consequent upon the amendment made to article 366 of the Constitution by the 46th Amendment, as a result of which the scope of the term "dealer" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly in conformity with the amended provisions of the Constitution. It would be appropriate to refer to the relevant part of the judgment of the apex Court in the case of Builders Association of India [1989] 73 STC 370. "It was in order to overcome the effect of the decision of the Supreme Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 wherein it was held that a works contract was an indivisible contract and the turnover of the goods used in execution of the works contract could not, therefore, become exigible to sales tax, that Parliament amended article 366 of the Constitution of India by introducing sub-clause (b) of clause (29-A). Sub-clause (b) 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 contract. It refers to a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under article 366(29-A) of the Constitution should also be subject to the same restrictions and conditions. Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building. The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work." 6.. From the above it is clear that the contractor becomes liable to pay sales tax when the goods or materials are so used in the construction or used in the execution of the works contract. In fact, the term "dealer" referred to in section 2(1)(e) was amended by Act 18 of 1985 with effect from July 1, 1985, which was made in conformity with the amended provisions of the Constitution of India. Therefore, there is no illegality or arbitrariness insofar as the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment and thereafter a delivery order and a bill were prepared. Since it was required by the defence audit, the labour charges and material charges were shown separately. The question was whether the equivalent to the money value of the spare parts of the aircraft which the appellant had supplied to the Air Force as a result of their use in the process of repairing, servicing and overhauling the aircraft, could be subjected to tax. The assessee claimed that there had been no contract for the sale of spare parts to the Air Force and that the spare parts were used during the course of execution of the works contract relating to servicing, repairing and overhauling of the aircraft, etc. The said claim was rejected by the Tribunal, which was confirmed by the High Court. On appeal the Supreme Court held, reversing the decision of the High Court, "that the contract was to accomplish for the Government the servicing and maintenance of aircraft of the Air Force and works required on visiting aircraft according to the specified standard. The Government undertook to supply the bulk of the materials and it was only because the aircraft had to be kept in readiness and there should be no del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. The apex Court reversed the judgment of the High Court of Himachal Pradesh. The relevant part of the judgment is as under: "A bare perusal of the two provisions will make it clear that in either provision there is an obligation to deduct from transactions relating to works contract on bills or invoices raised by the works contractor an amount not exceeding four per cent or two per cent, as the case may be. Though the object of the provision is to meet the tax in respect of the transactions on all works contract on the valuable consideration payable for the transfer of property in goods involved in the execution of the works contract, the effect of the provision is that, irrespective of whether the sales are inter-State sales or outside sales or export sales which are outside the purview of the State Act and those transactions in respect of which no tax can be levied even in terms of the enactment itself, such deductions have to be made in the bills or invoices of the contractors. To say that if a person is not liable for payment of tax inasmuch as on completion of the assessment refund can be obtained at a later stage is no solace, as noticed in Bhawani Cotton Mills Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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, outside sales or sales in the course of import. There is, in our view, therefore, no doubt that the provisions of section 13-AA are beyond the powers of the State Legislature for the State Legislature may make no law levying sales tax on inter-State sales, outside sales or sales in the course of import. Accordingly, section 13-AA of the Orissa Sales Tax Act, 1947 was struck down as beyond the purview of Orissa State Legislature and such amounts should be refunded forthwith by the State holding that 'section 13-AA should have been precisely drafted to make it clear that no tax was levied on that part of the amount credited or paid that related to inter-State sales, outside sales and sales in the course of import, particularly after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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