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TMI Blog2003 (11) TMI 565X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent prescribed and deductions in case of works contract in relation to any other charges in the manner and to the extent prescribed. When the law requires that the extent and the manner is to be prescribed in relation to the labour charges then it must be provided in relation to the labour charges. When the law says that the manner and extent must also be prescribed in relation to any other charges then it must be so prescribed under the Rules or must be provided under the body of the Act itself. We have already observed that section 21 does not provide the manner and the extent of the amount required to be deducted in relation to any other charges. Similarly, rule 13A does not prescribe the deductions in relation to any other charges nor the manner and the extent. The word and has not been used as a disjunctive, it has been used as a conjunctive. The State under these circumstances is required to provide or prescribe the manner and the extent of deduction of the amount relating to labour charges and also of the other charges. If that is not done then the provisions become unworkable. When the Supreme Court said that particular articles, items and expenses are to be deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r) and C.W.J.C. No. 3327 of 2002 (M/s. Larsen & Toubro Ltd. v. State of Bihar). 2. The petitioner, M/s. Larsen & Toubro Ltd., is registered as a dealer in commercial tax at Begusarai Circle as a works contractor. The petitioner secured a turn-key contract of divisible nature from M/s. Indian Oil Corporation Limited, New Delhi ("IOCL", for short) vide letter of acceptance dated April 28, 2000 followed by detailed contract agreement. The said contract agreement provides a separate Schedule for supply of goods with separate consideration for the same as well as another schedule relating to erection/installation including civil portion of work to be executed, as appended to the contract. After securing the contract the petitioners secured an exclusive registration on the file of the Deputy Commissioner of Commercial Taxes, Barauni, respondent No. 3. It is submitted by the petitioners that in response to the notice issued by respondent No. 3, they produced their books of accounts and other details to finalise the assessment for the period April 1, 2000 to March 31, 2001 under the Bihar Finance Act, 1981 and the Central Sales Tax Act, 1956. It is also submitted that in complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted by various entries for the exemption claimed under the specific caption. According to them they are entitled to deduction under the head of sales tax, inter-State sales turnover, tax paid works and labour charges. According to them the authority did not appreciate the true import of taxable turnover and also issued a notice observing that the petitioners had brought in certain goods, therefore, they were liable to pay the sales tax. They have also submitted that unless the follow up legislation to section 21(1) of the Bihar Finance Act is enacted, the said section 21(1) of the Act would not become workable and in the matter of works contract, the works contractor cannot be assessed. Number of other pleadings were raised by the petitioners in the writ applications, however, the argument was confined to the follow up legislation to section 21(1)(a)(i) of the Bihar Finance Act, 1981 prescribing the "manner and extent of deduction". The other questions raised in the writ applications were not pressed into service probably because this Court could direct that the petitioners may raise all the questions in a duly constituted appeal. 4. The respondents have filed their co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice from the concerned assessing authority and they made a submission before the authority that the questions raised by them are pending consideration in C.W.J.C. No. 3827 of 2002, therefore, the assessment for the year 2001-2002 be deferred and the judgment in C.W.J.C. No. 3827 of 2002 be awaited. The matter was adjourned for some time but thereafter the authority started persuading the petitioners and it was informed to the representative of the petitioners that the matter would not be adjourned any further thereafter the assessing authority proceeded ex parte and passed the assessment order, contained in annexure 7 impugned in C.W.J.C. No. 2740 of 2003. 8. For proper appreciation of the disputes between the parties, it would be necessary to refer to the history of the legislation. In the matter of the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353, the Supreme Court held that a works contract was an individual indivisible contract and the turnover of the goods used in execution of the works contract could not, therefore, become exigible to sales tax. To overcome this difficulty and meet the judgment of the Supreme Court, the Parliament amended arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lauses (a) to (f) of clause (29A), the latter part of clause (29A) says that "such transfer, delivery or supply of any goods" shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. The Supreme Court also observed that since not less than one-half of the State Legislature had ratified the Constitution (46th Amendment) Bill, 1981 in accordance with the provisions of the proviso to article 368(2) of the Constitution of India, the Constitution (46th Amendment) Act, 1982 is valid. The Supreme Court also observed that when the law creates a legal fiction such fiction should be carried out to its logical end. There should not be any hesitation in giving full effect to it. According to the Supreme Court if the power to tax a sale in an ordinary sense is subject to certain conditions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under article 366(29A) of the Constitution should also be subject to the same restrictions and conditions. Ordinarily unless there is a contract to the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of this definition it would clearly appear that any and every agreement for carrying out for cash or deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property. A turn-key contract for construction and commissioning the unit which includes a civil and construction work would certainly be a works contract. The petitioners do not dispute that the contract entered into between the petitioners and the IOCL is a works contract. The petitioners also admit that they are dealers in accordance with section 2(e) of the Bihar Finance Act. The basic dispute is in relation to the gross turnover and applicability and workability of section 21(1) of the Bihar Finance Act. The words "gross turnover" has been defined under section 2(j) of the Bihar Finance Act, which reads as under: "2(j) 'Gross turnover' means- (i) for the purposes of levy of sales tax, in respect of sale of goods, aggregate of sale prices received and receivable by a dealer, including the gross amount received or receivable for execution of works contract or for the transfer of right to use any go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les which are outside the State and sales in the course of import and export. The question whether a sale is an outside sale or a sale inside the State or whether it is a sale in the course of import or export will have to be determined in accordance with the principles contained in sections 4 and 5 of the Central Sales Tax Act and the State Legislature while enacting the sales tax legislation for the State cannot make a departure from those principles. It was also submitted before the Supreme Court that in the execution of the works contract, the tax can be levied only on the value of the goods so involved and the value of the works contract cannot be made measure for levying the tax. The Supreme Court accepting the said argument observed that measures for levying of the tax contemplated by article 366(29A)(b) is the value of the goods involved in execution of a works contract. The Supreme Court further observed that the tax is imposed on the transfer of property in works involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. The Supreme Court, however, disagreed with the argum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, electricity, fuel, etc., which are consumed in the process of execution of a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in [item No. (vi)] cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. We may, however, make it clear that apart from the deductions referred to above, it will be necessary to exclude from the value of the works contract the value of the goods which are not taxable in view of sections 3, 4 and 5 of the Central Sales Tax Act and goods covered by sections 14 and 15 of the Central Sales Tax Act as well as goods which are exempt from tax under the sales tax legislation of the State. The value of goods involved in the execution of a works contract will have to be determined after making these deductions and exclusions from the value of the works contract." 13. From this judgment of the Supreme Court it would be crystal clear that particular amounts are deductible and apart from that it would be necessary to exclude from the value of the works contract, the value of those goods which are not taxable in view of sections 3, 4 and 5 of the Central Sales Tax Act and goods covered by sections 14 and 15 of the Central Sales Tax Act as well as goods which are exempt from tax under the sales tax legislation of the State. 14. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable to the State Legislature under entry 54 of the State List. The Supreme Court observed that it must be held that sub-section (3) of section 5 transgresses the limits of the legislative power conferred on the State Legislature under entry 54 of the State List inasmuch as it enables tax being imposed on deemed sales resulting from transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract which takes place in the course of inter-State trade or commerce, or which takes place outside the State or which takes place in the course of import and export within the meaning of sections 3, 4, and 5, respectively of the Central Sales Tax Act, etc. The Supreme Court also observed that clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules also suffers with the same infirmity and therefore section 5(3) of the Act and clause (i) of sub-rule (2) of rule 29 of the Rules must, therefore, be held to be unconstitutional and void. The Supreme Court observed that since the invalidity of section 5(3) goes to the root of the imposition of tax and in the absence of the said provision the tax cannot be levied, the appellants bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (c) of sub-section (1) but are utilised by him for any purpose other than those specified in such a notification or specified in clause (c) of sub-section (1), as the case may be, the sale price of the goods so purchased shall, without prejudice to any action which is or may be taken under section 49, be deducted from the gross turnover of the selling dealer but shall be included in the taxable turnover of the purchasing dealer." 19. "Gross turnover" is defined under clause (j) of section 2 of the Act while "taxable turnover" is described in section 21 of the Act. According to section 21(1), the taxable turnover of a dealer shall be that part of his gross turnover which remains after deduction therefrom (a)(i) in case of the works contract the amount of labour and any other charges in the manner and to the extent prescribed (emphasis supplied). 20. From a perusal of clause (a)(i) of section 21(1) it would appear that the deductions are to be given in case of the works contract of the amount of labour and any other charges. The said deductions are to be given in the manner and to the extent prescribed. 21. The word "prescribed" accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-rule (2) of rule 29 of the Rajasthan Sales Tax Act and the Rules were not providing for particular deductions the same were invalid. In the present matter the constitutional provision of law says that particular deductions would be provided but unfortunately nothing is provided in relation to the other charges either in section 21 itself or in the Rules framed in exercise of the powers conferred by section 58 of the Bihar Finance Act. 24. It is contended by the authorities and the learned counsel for the State that whatever deductions were claimed by the petitioner, if are given to him in relation to labour and other charges and if the judgment of the Supreme Court in Gannon Dunkerley Co. [1993] 88 STC 204, is observed in its full spirit while granting exemption then the petitioner would have no say. According to them, the assessing officer has given fullest deductions in favour of the petitioner and therefore if the manner and extent of deductions relating to any other charges even if is not provided or prescribed then too it would not help the case of the petitioner. This argument though appears to be impressive and lucrative but an identical argument was rejected by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt must also be prescribed in relation to any other charges then it must be so prescribed under the Rules or must be provided under the body of the Act itself. 25. We have already observed that section 21 does not provide the manner and the extent of the amount required to be deducted in relation to any other charges. Similarly, rule 13A does not prescribe the deductions in relation to any other charges nor the manner and the extent. 26. There is submission of the respondents that the benefit can be given to the petitioners even if there is no rule to prescribe the manner and the extent relating to the deductions in relation to the other charges. We are of the view that this argument should not detain us unnecessarily because if the law requires a thing to be done then the State cannot say that that it stands above law and would not provide/prescribe a particular thing in the Rules and would simply observe the directions issued by the Supreme Court. 27. In the matter of Gannon Dunkerley & Co. [1993] 88 STC 204, the Supreme Court has observed that particular deductions must be prescribed/provided. The State Legislature cannot say that it would simply prescribe one and without pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hasis on the use of the word 'as' which is significant. The manner is dependent upon 'as' may be prescribed, if it is not prescribed, there is no manner available such as to be followed. The meaning of the word 'as' has been indicated in 'Concise Oxford English Dictionary, Tenth Edition 2002' amongst others to mean as follows: 'Used in comparison to refer to the extent or degree of something; used to indicate by comparison the way that something happens; during the time of being.' (Emphasis supplied) In 'Words and Phrases Permanent Edition 4' 1969 Edition, in general amongst others, at page 514 its meaning has been indicated as follows: 'As' means 'to the extent,' 'in the manner' and 'when'; and may be employed to indicate a combination of time with extent or manner. Moore v. Coates, DC Mun App 40 A 2d68, 70.' (Emphasis supplied). It is further indicated to mean importing a contingency and at page 520, it is indicated as follows: 'When, importing a contingency, a devise to certain children "as" they arrive at the age of 21 means "when" they arrive at such age.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not prescribed, there is no manner available such as to be followed. In the present matter sub-clause (i) of clause (a) of section 21(1) does not use the phrase "as may be prescribed". If this was the phrase then there would have been no difficulty in holding that if the State Legislature has not prescribed the manner, etc., then nothing would be wrong. In the present matter unfortunately for the State the phrase says "in case of the works contract", the deductions are of the amount of labour and any other charges in the manner and to the extent prescribed. In paragraph 12 of the judgment of the Supreme Court, the Supreme Court has found a distinction between the words/phrase "as may be prescribed" and the phrase "in the manner prescribed". Sub-clause (i) does not leave any lever or play in the working of the provision. It gives a mandate against the State to prescribe the manner and the extent of the deduction. The provision does not say "as may be prescribed" or "if prescribed". One could understand the inaction/non-action on the part of the State if the provisions say "as may be prescribed" or "if pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but in absence of a workable provision it would not be possible for the State to assess any dealer. 31. In our considered opinion sub-clause (i) of clause (a) of section 21(1) read with rule 13A of the Rules did not make subclause (1) fully workable because the manner and extent of deduction relating to any other charges has not been provided/prescribed by the State. 32. The assessment orders in view of the discussions aforesaid cannot be allowed to stand. The same deserve to and are accordingly quashed. Consequently neither recovery proceedings can be initiated against the petitioners nor any coercive action can be taken against them. 33. It is, however, made clear that the liability of the dealer shall survive and continue and he would be liable to be taxed after the provisions are made workable. 34. Before parting with the case, we must also observe that the assessing officer in passing the order of assessment did not act fairly. In cases of turnover worth crores it is not expected of the assessing officer that he would act in a hot haste and just to earn the Revenue in favour of the State or to show to his senior officers that he is a competent officer, he would play fraud ..... X X X X Extracts X X X X X X X X Extracts X X X X
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