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TMI Blog2006 (9) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor, like the petitioner, is necessarily required to use materials (goods); whether the goods so used in the execution of a contract, could be the subject-matter of tax, on the ground that such transaction constitutes a sale of goods, was the subject of a great legal debate for a period of almost four decades. (1)Oral. Under entry 54 of List II of the Seventh Schedule, the States are authorised to levy tax on sale or purchase of goods, other than newspapers and such a power is required to be exercised, subject to the provisions of entry 92A of List I. The amplitude of the expression sale and purchase of goods, occurring under entry 54, fell for the consideration of the courts, including the Supreme Court in a number of decisions. In State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353; AIR 1958 SC 560, the Supreme Court held that the materials used by the contractor, such as the petitioner, could not be subjected to tax under the abovementioned entry 54, as there was no sale of goods in such a transaction. To get over the decisions of the courts, the Parliament amended the Constitution and clause (29A) came to be inserted in article 366 by the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prescribed if a dealer, who executes any works contract other than the category of contracts notified by the Government under sub-section (2), so opts, the assessing authority of the area may accept, in lieu of the amount of tax payable by him under the Act during the year, by way of composition, [an amount at the rate of four paise on every rupee] of the total amount paid or payable to the dealer towards execution of the works contract: . . . (1) 6(2) Notwithstanding anything contained in sub-rule (1), the tax under section 5F, shall be levied on the turnovers of a dealer who transfers property in goods, whether as same goods or in some other form, involved in the execution of works contract. In determining the turnover of a dealer liable to tax, the amounts specified in clauses (a) to (l) shall, subject to the conditions specified therein, be deducted from the total turnover of the dealer (a) Labour charges for execution of the works; (b) Amount paid to a sub-contractor for the execution of works contract provided such a sub-contractor is a registered dealer and that turnover is included in the return filed by him before the assessing authority concerned; (c) Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such an option is available to the dealer/contractor, subject to the condition stipulated under the Rules. However, such an option is denied to the dealers under sub-section (4), who utilises the goods purchased or received from outside the State for the purpose of using the said goods in the execution of the works contract. In substance, sub-section (4) stipulates that if a dealer uses goods, which are not subjected to tax under the APGST Act, in the execution of the works contract, he is not entitled for the option given under section 5G of the Act, to be taxed under the lower rate. It is worthwhile mentioning here that sub-section (4) does not even prescribe the minimum value of the goods purchased from outside the State of Andhra Pradesh. Therefore, if we take the case of a dealer, who receives an amount of rupees one crore during the relevant period, payable towards execution of a works contract and assume fifty lakhs is the value of goods utilised by such dealer and the balance towards the other heads and out of the value of the abovementioned fifty lakhs, the dealer purchases goods worth forty -nine lakhs ninety thousand within the State of Andhra Pradesh and the balance am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tercourse throughout the territory of India, shall be unfettered as the economic prosperity of the country depends on such free trade and commerce. The fact that in certain extraordinary situations, such a freedom is required to be restricted and the power to create such restriction is exclusively entrusted to the Parliament, is also taken note of. Restrictions can be in various forms, like prohibition, either total or partial, of goods from one State to another. Levy of tax creates a burden. Levy of tax on the inter-State sale or purchase of goods, being a burden, is mandated not to be discriminatory, thereby, creating a disincentive for inter-State sale or purchase of goods. Whether taxation, per se, is one of the restrictions, which is inconsistent with the freedom guaranteed under article 301 of the Constitution is a question which fell for the consideration of the Supreme Court in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232. Justice Gajendra Gadkar, who spoke for three judges of the bench, with whom justice Shah concurred in a separate judgment, held at Paragraph No. 51: Thus the intrinsic evidence furnished by some of the articles of Part XIII shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed from out of the State, by the dealers (the petitioners) and utilised in the execution of the works contracts. The impugned provision only seeks to withdraw an option to such dealers, which is otherwise available to them under section 5G, if the dealer used all the material procured within the State of Andhra Pradesh in the execution of the works contracts. Therefore, going by the majority judgment of the Supreme Court in Atiabari Tea Co.'s case AIR 1961 SC 232, there is no direct or immediate restriction by way of taxation on the freedom of trade and commerce, guaranteed under article 301 of the Constitution. Whether the exclusion of the option that is made available under section 5G of the Act, would, in any other way, violate the freedom guaranteed under article 301, is required to be examined. The learned counsel for the petitioners argued relying on the following judgments: 1.. Anand Commercial Agencies v. Commercial Tax Officer, VI Circle, Hyderabad [1997] 107 STC 586 (SC); [1997] 25 APSTJ 254 (SC). 2.. Indian Cement Ltd. v. State of Andhra Pradesh [1988] 69 STC 305 (SC); AIR 1988 SC 567. 3.. H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC); A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Tamil Nadu General Sales Tax Act, 1959, lottery tickets of the various States are subjected to sales tax in the State of Tamil Nadu, whereas the lottery tickets of the State of Tamil Nadu are exempted from such levy, and held as follows (page 187 of STC): . . . that because of the notification imported goods are at a disadvantage as compared to indigenous goods, both being of identical type. The real question is whether the direct and immediate result of the impugned notification is to impose an unfavourable and discriminatory tax burden on the imported goods (here lottery tickets of other States) when they are sold within the State of Tamil Nadu as against indigenous goods (Tamil Nadu Government lottery tickets) when these are sold within the State, from the point of view of the purchaser and this question has to be considered from the normal business or commercial point of view and indisputably if the question is so considered the impugned notification will have to be regarded as directly and immediately hampering free-flow of trade, commerce and intercourse. Discriminatory treatment in the matter of levying the sales tax on imported lottery tickets which are simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skins and repelled the challenge (at page 570) . Article 304(a) does not prevent levy of tax on goods: what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free-flow of inter-State trade and commerce. The question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied . . . The question before the Supreme Court in Vrajlal Manilal Co. v. State of Madhya Pradesh [1986] 63 STC 1; AIR 1986 SC 1085, was whether taxing the sales and purchases of tendu leaves on a higher rate than that of in the neighbouring States would be violative of article 301. The Supreme Court answered in the negative. In State of Kerala v. A.B. Abdul Kadir AIR 1970 SC 1912, the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar goods imported from outside the State, which was found to be violative of the freedom guaranteed under article 301. The incidence of such tax is directly on the goods, which are the subject-matter of inter-State trade and commerce. In contrast, the impugned provision under section 5G(4) does not impose any such tax. On the other hand, it seeks to bar an option otherwise available to a dealer falling under section 5F. The utilisation of goods procured from outside the State of Andhra Pradesh in the execution of the works contract only makes the dealer ineligible for being assessed at a lower rate of tax, though such lower rate of tax is levied on the total turnover of the dealer, which is a higher amount than the amount contemplated under section 5F, i.e., the amount received or payable for the year, for the work done, which amount includes not only the actual value of the goods utilised, but also certain other items of expenditure incurred during the course of execution of the contract, like labour charges, etc., specified under rule 6(2), noticed earlier. We are conscious of the fact that though the provision facially seeks to impose a higher burden of tax on the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipts of the dealer and the State is relieved of the burden of meticulously examining the information furnished by the dealer. But, the question still remains whether such a provision is violative of article 14 of the Constitution of India on the ground that from out of the same class of dealers who are taxable under section 5F of the APGST Act, some are allowed an option for a specified mode of assessment provided under section 5G and others are debarred from availing that option on the ground that they utilised goods procured from out of the State of Andhra Pradesh. Learned counsel for the petitioner argued that though such sub-classification of the dealers who otherwise form single class for the purpose of section 5F is not totally prohibited, the burden that such sub-classification bears a reasonable nexus to some legitimate purpose is on the State. Though it is a definite case of the petitioners that the impugned provision is violative of article 14 of the Constitution of India, no specific reason is given in the counter-affidavit filed by the State indicating any legitimate purpose that is sought to be achieved by making such a sub-classification. We see substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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