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TMI Blog2002 (3) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... any liability on account of any amount payable for the transfer of property in goods (whether as goods or in some other form) involved in a works contract specified in Schedule VI or for the transfer of the right to use any goods specified in Schedule VII for any purpose; or (b) every person responsible for paying sale price or consideration or any amount purporting to be the full or part payment of sale price or consideration in respect of any sale or supply of goods liable to tax under this Act to the Government or to a company, corporation, board, authority, undertaking or any other body by whatever name called, owned, financed or controlled wholly or substantially by the Government, shall, at the time of credit to the account of or payment to the payee of such amount in cash, by cheque, by adjustment or in any other manner whatsoever, deduct tax therefrom in the prescribed manner at the rates specified in the Schedules to the Act in respect of sale or supply of goods or transfer of the right to use any goods and at the rate of four per centum of such sum being paid in respect of works contract: Provided that no deduction shall be made under this sub-section where the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of the Central Sales Tax Act, 1956. 6.. Before proceeding further it may be beneficial to recapitulate the history and the judicial decisions concerning the impugned provisions of law. In the case of State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. reported in [1958] 9 STC 353, the apex Court held that a works contract is an indivisible contract and the turnover of the goods used in execution of the works contract could not therefore become exigible to sales tax. Parliament amended article 366 of the Constitution by introducing sub-clause (b) of clause (29-A) to enlarge the scope of "tax on the sale or purchase of goods" so that it may include the transfer of goods referred to in sub-clause (b) of clause (29A) of article 366 which is deemed to be sale of goods. Thus, in view of the forty-sixth amendment, the works contract by a legal fiction altered into a contract which is divisible, that is, one for sale of goods and the other for supply of labour and services. It thus enables the State to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of goods and materials supplied in a building cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt held: "(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(29-A)(b), the State Legislature, while imposing a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. (2) The provisions of sections 3, 4 and 5 and sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by article 366(29-A)(b). (3) While defining the expression "sale" in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression "sale" in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article." 9.. The provisions of Assam Act more particularly the provisions of section 27 of the Act, were challenged before this Court in the case of Santosh Kumar Harlalka v. State of Assam reported in [1995] 99 STC 615; [1995] 2 GLR 95. The challenge was on the ground that the manner of/rate of deduction of tax at source has not been prescribed. This Court finding that the above contentions are correct, allowed the writ petition but provided that "the authority after prescribing the manner and the rate shall be at liberty to deduct tax at source". Similar view was taken by this Court in the case of Gauhati Municipal Corporation Contractors' Association v. Gauhati Municipal Corporation reported in [1996] 102 STC 77; (1996) 2 GLR 172. Thereafter section 27 of the Act was amended providing for the manner and rate of tax. 10.. The case of the respondent-State is that the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm of deduction of tax at source under section 27 is not permitted. In the case of Bhawani Cotton Mills Ltd. v. State of Punjab reported in [1967] 20 STC 290, the apex Court held: "If a person is not liable for payment of tax at all, 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.. Learned counsel for the petitioners in support of their submission have placed reliance on a decision of the apex Court in the case of Steel Authority of India Ltd. v. State of Orissa reported in [2000] 118 STC 297 wherein the provision of section 13-AA of the Orissa Sales Tax Act regarding deduction of tax at source in respect of works contract was set aside by the apex Court. The above decision was followed in Nathpa Jhakri Jt. Venture v. State of Himachal Pradesh reported in [2000] 118 STC 306 (SC) and in para 4 of the said judgment it is observed: "A bare perusal of the two prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is not to be read in isolation inspite of non obstante clause with which the section starts. In our opinion, the non obstante clause means or is to be read as a repugnancy clause only, that is, where the provisions of section 27 are found to be repugnant to the other provisions or else under the Act, section 27 will prevail. We find no force in the submission that section 27 is to be read in isolation only in view of the specific provision that liability to deduct tax at source is confined to any sale or supply of goods liable to be taxed under this Act. It is also submitted that the clause liability to tax under this Act is confined to sale or supply of goods and is not applicable or is not made applicable in respect of transfer of property in goods involved in a works contract. The definition of "sale price" under section 2(34) of the Act includes consideration received or receivable by the dealer in respect of any works contract. There is no dispute that under the Act, a contractor executing works contract is a "dealer" as defined under section 2(10) of the Act. The transfer of property in goods under the contract involves supply of goods and it is deemed to be a sale. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing dealer's certificate of registration as being intended for resale within the State or of containers or other materials for the packing of such goods; (iv) in respect of goods involved in any works contract specified in Schedule VI- (a) the turnover relating to declared goods; and (b) so much of the labour and other charges incurred by the dealer after the transfer of the property in the goods involved in the works contract or at the option of the dealer such percentage towards labour and other charges of the gross turnover after deducting therefrom the turnover relating to declared goods as is specified in that Schedule; (v) such other amount as may be prescribed; and (vi) from the resultant balance an amount arrived at by applying the following formula- Rate of tax X Resultant balance as mentioned above -------------------------------------------------------------- 100 + Rate of tax Explanation.-Where the taxable turnover of a dealer is taxable at different rates or the goods are specified in different Schedules, the aforesaid formula shall be applied separately in respect of each such part of the turnover." 15.. In view of what has been stated above we fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions, if required. Following the majority decision in the case of 20th Century Finance Corpn. Ltd. v. State of Maharashtra reported in [2000] 119 STC 182 (SC); (2000) 6 SCC 12 we hold that the provision of section 27 of the Act should be upheld by reading it down as below: (1) The words sale or supply of goods liable to tax under this Act appearing in section 27 of the Act cover the supply of goods in works contract also and only those goods which are liable to tax or which are included in the taxable turnover will be subject to deduction of tax at source. (2) Section 27 of the Act will have to be read together with charging sections, namely, sections 7, 8 of the Act and deductions and exemptions provided under section 7 and 8 of the Act as regards the inter-State trade, declared goods, exempted goods, etc., etc., shall also be applicable in case of deduction of tax at source under section 27 of the Act. (3) The certificate under rule 35(5) will be available to the contractors executing works contract where deduction of tax at source under section 27 is made. (4) In the Schedule of exempted items and taxable items, which were amended vide notifications dated 24th December, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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