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TMI Blog2009 (10) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... The impugned order dated February 12, 2009 thus, cannot be allowed to stand. The assessing authority is required to reconsider the application of the petitioner afresh in the light of the observations made above in accordance with law. In the result, the writ petition is allowed to the extent stated above but no order as to costs. - Writ Tax No. 1059 of 2009 - - - Dated:- 15-10-2009 - PRAKASH KRISHNA AND SUBHASH CHANDRA NIGAM , JJ. The judgment of the court was delivered by PRAKASH KRISHNA J. By means of the present petition, the petitioner has sought a writ order or direction in the nature of certiorari for quashing of the notification dated March 4, 2008 issued by the State Government (annexure 8 to the writ petition), being unconstitutional and ultra vires to the U.P. Value Added Tax Act, 2008 (hereinafter referred to as, the Act ). Also quashing of the order dated February 12, 2009 has been prayed for. A writ of mandamus commanding the respondents, namely, Deputy Commissioner, Commercial Taxes, Sector 5, Kanpur and Indo Gulf Fertilizers (a Unit of Aditya Birla Nuvo Ltd.) not to ask for or make any deduction towards tax at source under the said Act in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cks any material plea in defence. Sri S. D. Singh, learned counsel for the petitioner, invited attention of the court towards the relevant clauses of the contract, clause (11) specifically, which provides that the contractor shall arrange all types of consumables like electrodes, grinding wheels, oxygen and DA cylinders required to carry out the job. Elaborating the arguments, he submits that the contract in question is in the nature of pure and simple works contract, no tax liability can be imposed on the petitioner. He submits that in view of the above, the impugned notification dated March 4, 2008 (annexure 8 to the writ petition) is liable to be struck down being ultra vires to the powers of the State Legislature as it does not provide any exception to deduct the tax at source on works contract. A works contract is not exigible to tax under the said Act and as such, the tax at source cannot be deducted and if there is any such provision, it is without jurisdiction and ultra vires the powers, submits the learned counsel for the petitioner. Sri U.K. Pandey, learned standing counsel for the Department, on the other hand, supports the action of the respondents and submits tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res; or 7.. Any other person engaged in construction of a building, shop, apartment, houses etc., for sale or other commercial purposes (except house and building constructed for personal use). The above notification has been issued in exercise of powers conferred under section 34 of the Act, therefore, it should be read and understood in the light of the provisions of section 34(1) and 34(2) of the Act. The relevant portion of the section for the present purposes is reproduced below: 34. Tax deduction at source. (1) Without prejudice to any other mode of recovery, payment or collection of tax under this Act, the State Government may, by notification in the Gazette, direct that, in a specified case and in the specified circumstances but subject to such conditions as may be specified, every specified person responsible for making payment to the selling dealer, for discharge of liability on account of valuable consideration payable on sale of goods in such cases as may be specified, shall, at the time of making such payment to the seller, either by credit or in cash or in any other manner, towards satisfaction of tax payable by the dealer on account of sale of any taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) in the course of inter-State trade or commerce; or (ii) outside the State; or (iii) in the course of the export out of, or import into, the territory of India. The main contention of the learned counsel for the petitioner is that under sub-section (1) of section 34 of the Act, a notification for deduction of tax at source can be issued towards satisfaction of tax payable by the dealer on account of sale of any taxable goods . It was contended that in the present case, the petitioner has entered into a pure work/labour contract, not involving any transfer of property in goods involved in its execution. According to the petitioner, all goods used in the installation of the air pre-heater (APH) at Sultanpur Plant of M/s. Indo Gulf Fertilizers are purchased and owned by Indo Gulf Fertilizers and thereafter made available to the petitioner only for the purposes of carrying out the labour contract/work order of installing the same in the factory premises of Indo Gulf Fertilizers. The petitioner is only required to purchase consumables, like electrodes, grinding wheels, oxygen and DA cylinders. The electrodes in particular are wholly consumed in the process of welding nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce while making payment to works contractor was subject-matter of challenge, on the ground that the said section sought to deduct tax on inter-State sales, outside sales and import sales. The dealer therein challenged the vires of section 13AA providing deduction of sales tax at source at the rate of four per cent in respect of payment qua inter-State sales, outside sales and import sales, on the ground that these sales are outside purview of the Orissa Sales Tax Act. The apex court considered entry 54 of List II of the Seventh Schedule read with article 246 of the Constitution of India and reached to the conclusion that the State Legislatures are empowered to levy tax on the sale or purchase of goods other than newspapers. Fortysixth Amendment to the Constitution introduced, inter alia, clause (29A)(b) in article 366 of the Constitution, as a result, the tax on the purchase or sale of goods included a tax on the transfer of property in goods (whether as goods or in some other forms) involved in the execution of a works contract . Interpreting the aforesaid provision and also taking into consideration its earlier judgment in the case of Gannon Dunkerley Co. v. State of Rajastha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contracts 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. v. State of Punjab [1967] 20 STC 290 (SC); AIR 1967 SC 1616. Further, there is no provision for certification of the extent of the deduction that can be made by the authority. Therefore, we must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner. Sri S. D. Singh, learned counsel for the petitioner when it was pointed out to him by the court, fairly accepts the above position. But, he maintains that the ratio laid down in the above cases would apply in the case of a pure work/labour contract. In the present fact situation, we are concerned with intra sales only. The next limb of the argument is that on the principle as delineated in the aforesaid cases, a works contract being not liable to be taxed under the Act, no deduction in tax can be made at source and as such, there being no provision granting any exemption in respect of a pure work/labour contract, the notification is beyond the purview of section 34(1) of the Act, is required to be considered. Before proceeding further, we may note that we are dealing with a provision relating to deduction at source, vires of which has not been challenged. Rule 9 of the Rules framed under the Act provides that while determining the turnover in respect of works contract, deduction specified therein subject to fulfilment of the conditions laid therein, may be made. Clause (a) of rule 9(1) says that all amounts representing the value of goods consumed in executi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contractee has been empowered under section 34(5) of the Act to pass necessary order on being satisfied that the contractor is either not liable to pay tax or is liable to pay tax at a lesser rate of tax than the rate at which the tax is being sought to be deducted at source. It goes without saying that as and when the concerned authority is approached by such a contractor, necessary order would be passed in this regard by such authority. On a fair reading of the contract agreement the assessing authority, after recording the reasons (may be in brief) is required to pass appropriate order taking into consideration the attending facts and circumstances of the case, within four corners of the Act. The object and purpose of enacting sub-sections (2), (4), (5) and (14) of section 34 of the Act is loud and clear, to avoid any such eventuality and to deduct the tax at source where the sale is in respect of taxable goods. The assessing authorities are required to act judiciously so that an honest taxpayer may not feel that he is being unnecessarily harassed on account of the notification issued under section 34 of the Act. While doing so, it goes without saying, the assessing authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be difficult for the Department to trace him out. The contract works are spread over the years and intermediate payments are made by the contractee to the contractor. Some times the contractors do belong to outside the State in which contract works are being executed. They do not have any office or regular place of business in the State of U.P. They go on shifting from one place to another depending upon exigencies of the contract. It is, therefore, more convenient and easy for such contractors to get the tax deducted at source as and when they receive payments from the contractee. This also absolves them from the cumbersome process of assessment, if they are satisfied with the amount deducted at source and also makes the work of the Department easier, to collect the revenue. The argument of the learned standing counsel that the amount of tax deducted at source would be refunded after assessment if ultimately it is found that no tax was payable by the dealer, is misplaced one. Similar arguments were rejected by the apex court in the case of Bhawani Cotton Mills Ltd. v. State of Punjab [1967] 20 STC 290; AIR 1967 SC 1616 followed in Nathpa Jhakri JT. Venture v. State of Himac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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