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TMI Blog2011 (3) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule, fixing rates of tax, in respect of various goods involved in the execution of works contract, is not, as a matter of law, necessary or imperative and cannot be said to be invalid, because it does not specifically allow deductions in respect of labour and other charges, which have been held allowable in Gannon Dunkerley’s case [1992 (11) TMI 254 - SUPREME COURT OF INDIA]. No tax can be assessed and recovered in respect of sale arising out of a works contract, by taking recourse to section 3A inasmuch as tax is leviable on turnover, but the manner of computation of turnover has not been provided for in the TST Act, 1976, in respect of works contract making thereby assessment and computation of tax inapplicable in respect of works contract. The State does not have power to impose tax on deemed sales in respect of sales, which take place in the course of inter-State trade or commerce or if the transactions constitutes a sale outside the State or if it is a sale in the course of import of goods into, or export of the goods out of, the Territory of India. The State Legislature is, however, not prevented from imposing tax on the goods, which are declared to be of special import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(h) of the TST Act, 1976, and "turnover", as given in section 2(m) of the TST Act, 1976. W.P. (C) No. 570 of 2000 The factual background of the case, which has given rise to the above challenges posed to the constitutional validity of the various provisions of the TST Act, 1976, and the Rules framed thereunder, may, first, be noted. Factual background Respondent No. 2, namely, Executive Engineer, Rig Division, Department of Public Works, Government of Tripura at Agartala, issued a Notice Inviting Tender (in short, "the NIT") for drilling and development of 15 deep tube-wells in different places of West Tripura district, the estimated cost of the work being Rs. 24,36,390. In response to the NIT, the petitioner, amongst others, participated in the tender process and was, eventually, awarded the contract. The petitioner accordingly started execution of the contract work and raised, in course of time, 15 Running Accounts Bill (in short, "the RA Bills"). However, respondent No. 2 made a deduction, at source, at the rate of four per cent from the RA Bills in respect of sales tax, deductible at source, treating the said contract as a contract for works, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision of the Constitution in so evident a manner as to leave no manner of doubt. This violation can, of course, be in different ways, e.g., if a State Legislature makes a law which only Parliament can make under List I to the Seventh Schedule, in which case it will violate article 246(1) of the Constitution, or the law violates some specific provision of the Constitution (other than the directive principles). But before declaring the statute to be unconstitutional, the court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope. . ." (emphasis1 added) The court certainly has the power to decide the constitutional validity of a statute; but since this power prevents the foreplay of democratic process, it is vital that it be exercised with rigorous self-restraint. Legislature must be given freedom to do e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of an enactment, shall be that it starts with the presumption of constitutionality, the court should try to sustain its validity to the extent possible, it should strike down the enactment only when it is not possible to sustain it. The Supreme Court has also pointed out, in Bihar Distillery Ltd. [1997] 2 SCC 453, that the court should not approach an enactment with a view to pick holes or to search for defects of drafting, much less inexactitude of language employed; rather, the defects of drafting, if any, should be ironed out as part of the attempt to sustain the validity/constitutionality of the enactment, for, an Act, made by the Legislature, represents the will of the people and that cannot be lightly interfered with. The relevant observations, made, in this regard, in Bihar Distillery Ltd. [1997] 2 SCC 453, read as under: ". . . The approach of the court, while examining the challenge to the constitutionality of an enactment, is to start with the presumption of constitutionality. The court should try to sustain its validity to the extent possible. It should strike down the enactment only when it is not possible to sustain it. The court should not approach the enac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fiscal statute, one has to merely look at what is clearly stated therein. There is no equity about a tax. There is neither any room for any intendment nor is there any presumption as to a tax. In A.V. Fernandez v. State of Kerala [1957] 8 STC 561 (SC); AIR 1957 SC 657 (661), Bhagwati, J. observed as follows (page 570 in 8 STC): "It is no doubt true that in construing physical statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statutes or the substance of the law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter." We must bear in mind that while construing fiscal statute, the function of court is not to give a strained and unnatural meaning to the provision. We cannot strain the scope of the provision by analogy or place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. . ." The principles of the strict interpretation of the fiscal enactments were reiterated by the Supreme Court in Ajmera Housing Corpn. v. Commissioner of Income-tax [2010] 326 ITR 642 (SC); [2010] 8 SCC 739. In the said decision, the Supreme Court held that in interpreting a taxing statute, the court must look squarely at words of the statute and interpret them. Consideration of hardship, injustice and equity are entirely out of place in interpreting a taxing statute. Tax and equity are strangers and an equitable construction has no room in a taxing statute. If interpretation of fiscal enactment is open to doubt, the construction, most beneficial to the subject, should be adopted even if it results in granting a double advantage. In Mahadeolal v. Administrator General of West Bengal AIR 1960 SC 936, Commissioner of Sales Tax v. Parson Tools and Plants [1975] 35 STC 413 (SC); [1975] 4 SCC 22, it has been held that it is the duty of the court to give effect to the words used without scanning the wisdom or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; of materials used in the execution of the "works contract", for, the contract, being entire and indivisible, cannot be broken into two separate segments, one being the contract for sale of materials and the other being the contract for payment of the works done. The court, therefore, concluded that the definition of "sale", as contained in the Madras General Sales Tax Act, 1939, which included, within the definition of the term "sale", a transfer of property in goods, involved in the execution of a works contract, was beyond the legislative competence of the Provincial Legislature. This view was followed by the Hyderabad High Court in Jubilee Engineering Co. Ltd. v. Sales Tax Officer [1956] 7 STC 423 (Hyd). Contrary to the above view taken by the Madras High Court, Mysore High Court, in Mohamed Khasim v. State of Mysore reported in [1955] 6 STC 211 (Mys), upheld the power of the State to impose sales tax on the entire turnover relating to construction work by treating the goods, used in execution of the works contract, as transfer of property in goods involved in the execution of the works contract. The same view was followed by the Kerala High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separate contract, one for transfer of the materials for money consideration and the other for payment of remuneration for the service rendered and the works done. In the latter case, pointed out the Supreme Court, there are really two agreements, though there may be a single instrument embodying both the agreements; hence, the power of the State to separate the agreement to sell from the agreement to do the work and render service is possible and, consequently, the State may, in the latter case, impose tax, so far as the agreement relating to transfer of materials for money consideration, is concerned. In short, in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560, what was held by the Supreme Court was that if, in the case of building construction, the "works contract" is entire and indivisible, the property in goods does not pass to the other party to the contract, but if a "works contract" consists of two separate parts, one relating to the supply of materials for money consideration and the other for payment of remuneration for services rendered and for the works done, the Legislature is competent to impose tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration; and 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." While considering the scope of 46th Amendment, one has to also clearly keep in view the fact that the Constitution (46th Amendment) Act, 1982, also added sub-clause (b) to clause (3) of article 286. To be clearer, it may be noted that clause (3) of article 286 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of a "works contract" and that such transfer of property in goods shall be deemed to be a "sale" of the goods by the person, who makes transfer, deliver or supply, and a purchase of those goods by the person to whom such transfer, delivery or supply is made. In fact, by the 46th Amendment Act of the Constitution, the definition of the word "sale", as given in article 366, was widened by insertion of clause (29A), to make, thereunder, by way of a legal fiction, various transactions, enumerated therein, which were, otherwise, not "sales", have to be deemed, by a legal fiction, as "sales". It may, however, be borne in mind that "sales", which have been created by a legal fiction by introduction of clause (29A), are commonly called "deemed sales" as against the traditional concept of "sales", which are popularly called "actual sales". In the present set of writ petitions, we are concerned only with one kind of transactions, namely, transactions, which involve execution of "works contract". We are, therefore, consciously not taking note of, and entering into, the matter of those other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on the sale or purchase of goods", in entry 54 of the State List, includes a tax on the transfer of property in goods involved in the execution of the "works contract". In short, thus, the object of the amendment was to bring into the tax net of the State Legislature those transactions, which would not have, otherwise, been brought to, or fallen under, the State's sales tax enactment. Following the 46th Amendment of the Constitution of India, the TST Act, 1976, too underwent changes bringing within the ambit of sales tax, the transfer of the property in goods involved in the execution of "works contract". A new provision was inserted, namely, section 3A to levy tax on the transfer of property in goods involved in the execution of "works contract". A careful reading, therefore, not only of the definition of the term, "sale", as contained in section 2(g) and the definition of the term, "dealer", as contained in section 2(b), but also of the provisions contained in the charging section, namely, section 3, is imperative. With the above object in view, section 2(g), section 2(b) and section 3 of the TST Act, 1976, is reproduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such period as may be specified therein. (3) Subject to such restrictions and conditions as may be prescribed, the State Government may make an exemption, or reduction in rate, in respect of any tax payable under this Act on the sales of any taxable goods to such person or class of persons as may be prescribed. (4) Where exemption from the levy of tax under this Act on any sale of taxable goods is claimed by a dealer under the provisions of this section the burden of proof shall lie on such dealer and the Commissioner may require the dealer to substantiate the claim in manner prescribed. (5) If any dispute or question regarding payment of tax arises, the matter shall be referred to the Commissioner whose decision thereon shall be final." From a bare reading of section 3 of the TST Act, 1976, it becomes clear that the liability to pay tax is on the "dealer", who deals with taxable goods, and he becomes liable to pay tax on the "turnover" at the rate specified in the third column of the Schedule to the TST Act, 1976. Since the liability of the "dealer" to pay tax, as indicated above, is based on his "turnover", the definition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in order to attract the liability under the TST Act, 1976, the following pre-conditions have to be fulfilled: "(i) A person must be a 'dealer' under the Tripura Sales Tax Act, 1976. (ii) There must be a 'sale' of any taxable goods. (iii) The 'taxable goods' must have been manufactured, made or processed by him in Tripura or brought by him into Tripura from any place outside Tripura for the purpose of 'sale' in Tripura. (iv) Tax shall be payable on the 'turnover' of the 'dealer', which is the aggregate of the 'sale price' of the goods, meaning thereby the amount of money consideration for the sale on taxable goods manufactured, made or processed by him in Tripura or brought by him into Tripura from any place outside Tripura for the purpose of 'sale' in Tripura." Whether the definition of "dealer" as given in section 2(b) of the TST Act, 1976, is unconstitutional? Mr. S. Deb, learned counsel appearing for the petitioner, contends that since the definition of "sale", as appearing in section 2(g) of the TST Act, 1976, does not include thereunder a "deemed sale" within the meaning of section 3A of the TST Act, 1976, which provides for levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) any aircraft, (4) any component or accessory part of any of the items mentioned in paragraph (1) or (3) above; (iv) the altering, ornamenting, finishing, improving or otherwise processing or adopting of any goods." While considering the provisions of section 3A of the TST Act, 1976, it may be noted that section 3A starts with a non obstante clause and provides that any transfer of properly in goods (whether as goods or in some other forms), involved in the execution of "works contract", shall be deemed to be "sale" of those goods by the person making the transfer and shall be liable to be taxed at the rate specified in column 3 of the Schedule. Considering the fact that section 3A of the TST Act, 1976, clearly provides that the transfer of property in goods, involved in the execution of "works contract", shall be deemed to be "sale", it cannot be said that since the definition of "sale", as provided in section 2(g) of the TST Act, 1976, does not specifically state that the transfer of property in goods, involved in the execution of "works contract", shall be deemed to be a "sale", the inclusion of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drop of the definition of "turnover", as given by section 2(m), when the proviso to section 3A is considered, it becomes transparent that while the term, "turnover", according to section 2(m), means aggregate amount of "sale price" receivable or actually received by the "dealer", the proviso to section 3A makes a "works contractor" liable to pay tax in respect of a "turnover", which means so much of the value of the goods involved in the "works contract", which has "actually" been paid to the "dealer", (i.e., the "works contractor") from the party. Mr. Deb, learned counsel for the petitioner, submits that the procedure for computation of tax under section 3A of the TST Act, 1976, on the transfer of property in goods, involved in the execution of "works contract", having not been provided for in the Act, tax cannot be assessed and recovered under section 3A. It is also submitted by Mr. Deb, learned counsel, that under section 3A of the TST Act, 1976, the liability to pay tax is at the rate specified in column 3 of the Schedule and since no prescription whatsoever has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a bare reading of the Schedule to the TST Act, 1976, it is clear that there is no entry prescribing rate of tax exigible on various materials on account of transfer of property in goods involved in execution of "works contract" (whether in goods or some other forms involved in the execution of "works contract"). Referring to the decisions of this court, in Santosh Kumar Harlalka v. State of Assam [1995] 99 STC 615 (Gauhati), Gauhati Municipal Corporation Contractors' Association v. Gauhati Municipal Corporation [1996] 102 STC 77 (Gauhati), the decision of the Madras High Court, in Indian Sugar & General Industry Export Import Corporation Ltd. v. Commercial Tax Officer [2002] 127 STC 339 (Mad) and the decision of the Supreme Court, in Edward Keventer Pvt. Ltd. v. Bihar State Agricultural Marketing Board [2000] 118 STC 431 (SC), it is contended that due to non-specification of the rate of tax in the Schedule to the TST Act, 1976, in respect of transfer of property in goods, involved in the execution of "works contract", no tax can be imposed by resorting to the provisions of section 3A on the transfer of property in goods involved in execution of &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1976, means the aggregate of the "sale price" receivable or received by a "dealer" and, at the same time, when the expression "turnover", as defined in section 2(m) of the TST Act, 1976, cannot be made applicable to those "sales", which are taxable under section 3A of the TST Act, 1976, it is not discernible from the scheme of the TST Act, 1976, as to how taxable liability in a case of "deemed sale", arising out of a "works contract", would be computed. In other words, under section 3A of the TST Act, 1976, since tax has to be levied on the "turnover" of the transfer of the property in goods, involved in the execution of a "works contract", but when the TST Act, 1976, does not provide for the manner of computation of "turnover" under section 3A of the TST Act, 1976, tax cannot be assessed and recovered in respect of sales arising out of a "works contract". Although the proviso to section 3A of the TST Act, 1976, provides that only so much value of the goods, involved in the "works contract", which has actually been paid to the "dealer" during the period, shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot; or not. The Explanation further makes it clear that the amount, received or receivable, shall include the value of the goods purchased, manufactured, processed or procured by the "dealer" and the cost of freight or delivery as may be incurred by such "dealer" for carrying such goods to the place, where they are used in the execution of "works contract". The object of the 46th Amendment of the Constitution of India is to convert what was not a "sale" into a "sale". Sub-clause (b) of clause (29A) 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 'works contract'". The tax becomes payable "on the transfer of property in goods" (whether as goods or in some other form) involved in the execution of a "works contract". The emphasis is "on the transfer of property in goods" irrespective of the fact as to whether such transfer of property, in goods, takes place "as goods or in some other form". The latter part of clause (29A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlalka [1995] 99 STC 615 (Gauhati) and Gauhati Municipal Corporation Contractors' Association [1996] 102 STC 77 (Gauhati) , which Mr. Deb relies upon, have no application to the facts of the present case inasmuch as the said two cases relate to deduction of tax, at source, from the payments made in respect of "works contract". In the said cases, the relevant provisions of the enactments provided for deduction of tax, at source, at such rate and in such manner as may be prescribed by the Rules. Since the rate and manner for deduction of tax at source, had not been prescribed by the Rules, this court held that no deduction, at source, can be made from the payments made in respect of the "works contract". The said two decisions have no application to the facts of the present case. The decision of the Supreme Court in Edward Keventer Pvt. Ltd. v. Bihar State Agricultural Marketing Board [2000] 118 STC 431 (SC), is also not applicable to the facts of the present case. The decision, in Edward Keventer [2000] 118 STC 431 (SC), relates to the market fee on agricultural produces specified in the Schedule to the Act, which had fallen for consideration in Edward Keventer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le consideration in respect of the "works contract". Labour charges and other charges are to be deducted only when the total amount received for the execution of "works contract" includes the value of goods, the value of labour charges By virtue of the Explanation to section 3A of the TST Act, 1976, tax shall be leviable even on a transaction, which takes place in the course of interState trade or commerce or outside the State or in the course of export of goods out of the territory of India inasmuch as the value of the goods purchased, manufactured, processed, or procured by a "dealer" and the cost of freight or delivery, as may be incurred by such a "dealer" for carrying such goods to the place, where they are used in the execution of "works contract", have been included within the term "property in goods". In such a situation, even in respect of a transaction taking place, in the course of inter-State trade or commerce or outside the State, or in the course of export of goods out of the Territory of India, shall also become taxable if the goods were purchased, manufactured, processed or procured by the "dealer&quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 3, 4 and 5, respectively, of the Central Sales Tax Act, 1956. Section 3A must, therefore, be held, with its Explanation, to be unconstitutional and void. "Whether the provisions of sections 2(b), 2(g) and 2(m) of the TST Act, 1976, also contemplate levy of tax on sale or purchase of goods taking place outside the State or in the course of inter-State trade or commerce or in the course of import of goods into, or export of goods out of, the territory of India and whether such provisions are, in the face of the mandate contained in article 286 of the Constitution of India, sustainable?" The learned counsel for the petitioner submits that a reading of sections 2(b), 2(g) and 3 of the TST Act, 1976, shows that the State Legislature has not put any restriction on imposition of tax on sale and purchase of goods, when such a sale has taken place outside the State or in the course of import of the goods into, or export of the goods out of, the territory of India or on the goods declared to be of special importance under section 14 of the Central Sales Tax Act, 1956. Mr. Deb submits that under the TST Act, 1976, a "dealer" is liable to pay tax on the sale of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uot;turnover" of a "dealer". Section 2(m) defines the term "turnover" to be the aggregate of the "sale price" received or receivable in respect of the sale of any goods. Section 2(h) defines "sale price" in respect of a "dealer" to mean "the amount of money consideration for the sale of taxable goods manufactured, made or processed by him in Tripura or brought by him into Tripura from outside Tripura for the purpose of sale in Tripura" (emphasis1 supplied). As such, money consideration, received or receivable in respect of the sale of only those taxable goods, which have been manufactured, made or processed in Tripura, or brought into Tripura, from any place outside Tripura, for the purpose of sale in Tripura, form the part of "sale price", the aggregate of which is liable to be taxed under the TST Act, 1976. Not only that there is no provision by which tax is sought to be imposed on a "sale", which takes place outside the State or in the course of inter-State trade and commerce or in the course of import of the goods into, or export of the goods out of, the territory of India; rather, the definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable under section 3AA of the Act on account of "works contract". Since section 3AA read with rule 3A(1) provides for deduction of tax at the flat rate of 1.5 per cent in the case of RCC bridge and four per cent in the case of other works from the gross amount of the bill in respect of "works contract" and such deduction does not provide, at the time of making of payment, for exclusion of the amount on which no tax is, otherwise, payable under the Act, the legality and validity of section 3AA of the Act and rule 3A(1) has been challenged on the ground that the said provisions are beyond the legislative competence of the State Legislature. The learned counsel for the petitioner submits that section 3AA read with rule 3A(1) warrants the authority, who makes payment of bill to a "works contractor", to deduct tax, at source, at a flat rate of 1.5 per cent and four per cent, as the case may be, while executing a "works contract", although the total "turnover" is not exigible to sales tax inasmuch as from the gross amount received or receivable for the execution of "works contract", various deductions are required to be made f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make deduction of any amount equal to the amount of tax as mentioned in this rule may refer the matter to the Superintendent of Taxes, having jurisdiction over the area, for provisional computation of the net turnover and the amount of tax payable thereof by such contractor for the valuable consideration of the goods involved in the works contract. (2) Every person responsible for making payment to any person for discharge of any liability on account of valuable consideration payable for any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash or in any manner, shall at the time of making such payment, deduct an amount equal to four per cent of such towards part or, as the case may be, full satisfaction of the tax payable under the Act, on account of such transfer of right: Provided no such deduction shall be made from the bill(s) or invoice(s) of the transfer: (a) On account of such transfer where the transfer of right to use goods was agreed to before first day of January, 1989; (b) The amounts received as penalty for defaults in payment or as damages for any loss or damage caused to the goods by the person to whom such tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a half times the amount not so deducted and/or deposited into the Government Treasury. (11) Without prejudice to the provisions of sub-rule (10), if any such person fails to make the deduction or, after deducting fails to deposit the amount so deducted, he shall be liable to pay simple interest at the rates contained in section 25 of the Act, on the amount not so deducted, and/or deposited from the date on which such amount was deductible to the date on which the amount is actually deposited. (12) Where the amount has not been deposited after deduction, such amount together with interest and penalty, if any, shall be recoverable from the person in default as an arrear of land revenue as per provision of sub-section (3) of section 26 of the Act." From a conscious reading of section 3AA of the TST Act, 1976, along with rule 3A(1) of the Rules, what transpires is that section 3AA makes provisions for deduction of tax at the flat rate of 1.5 per cent and four per cent on the gross amount of the bill in respect of the "works contract" depending upon the nature of works contract. In other words, deduction has to be made at the given percentage of 1.5 per cent or fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusion, while deducting tax, at source, in a "works contract", of those components of the bills of a works contractor, which are not exigible to sales tax and also for having not made any provisions for exclusion of "sales" from the gross "turnover", which may be inter-State sales, or which may be "sales" taking place out of the State, or "sales", which may be taking place in the course of import of goods into, or export of goods out of, the territory of India, section 3AA of the TST Act, 1976, and rule 3(1) of the Rules cannot survive. We may make it clear that section 3AA of the TST Act, 1976, and rule 3A(1) of the Rules are bad, because of the reason that while enacting section 3AA and rule 3A(1), the Legislature is found to have completely lost sight of the fact that even if a "works contract" involves both, transfer of property in goods as well as labour and service, the same is not made a subject of deduction as a taxable liability of a works contractor and also for having not taken into account the fact that State sales tax may not be payable at all on the entire value relating to transfer of property in goods f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llection an executive function. These three expressions "levy", "assessment" and "collection", are expressions of widest significance and embrace, in their broad sweep, all the proceedings, which can possibly be imagined for raising money by the exercise of the power of taxation from the inception to the conclusion of the proceedings. The provisions, as regards deduction of tax, at source, are nothing but one of the modes of collection of tax by the State. Hence, a transaction in respect whereof, no tax can be levied, there cannot be any provision for deduction of such a tax at source. The Supreme Court, in Steel Authority of India Ltd. v. State of Orissa reported in [2000] 118 STC 297 (SC), while declaring the provisions of section 13AA of the Orissa Sales Tax Act, 1947, to be ultra vires, has held as under (page 304 in 118 STC): "There can be no doubt, upon a plain interpretation of section 13AA, that it is enacted for the purposes of deduction at source of the State sales tax that is payable by a contractor on the value of a works contract. For the purposes of the deduction neither the owner nor the Commissioner who issues to the contractor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd. [2000] 118 STC 297 (SC), as under (page 305 in 118 STC): ". . . Unfortunately, it would appear that the State Legislature overlooked its limitations, even as contained in the preamble, when enacting section 13AA. It was also contended that the deduction that was required to be made under section 13AA(1) was of four per cent of the amount credited or paid by the owner to the contractor, whereas the sales tax liability of the contractor thereon was eight per cent. It was contended that this requirement proceeded on the assumption that half of the amount was not liable to tax being in respect of inter-State sales, outside sales and export sales. No such assumption based on the rate of tax at any given point of time can be made. Section 13AA 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 the previous section 13AA had been struck down by the Orissa High Court for the reason that it was couched in terms wider than were permissible to the State Legislature and that judgment was accepted." Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 3A(1) of the Rules, in the present case, are beyond the legislative competence of the State Legislature inasmuch as they mandate deduction not only on those components of the "turnover", which are not exigible to tax by the State Legislature, but also mandates deduction on those amounts, which are outside the purview of entry 54 of List II and/or the amounts, which are not exigible to sales tax at all even under the State laws. Under similar circumstances, this court in Patel Engineering Ltd. v. State of Arunachal Pradesh [2009] 24 VST 481 (Gauhati), wherein one of us (Ansari, J.) was a party, declared section 47A of the Arunachal Pradesh Goods Tax Act as ultra vires. As per section 3AA of the Tripura Sales Tax Act, 1976, tax is leviable on transfer of property in goods involved in execution of "works contract" at the rate specified in column 3 of the Schedule. Different rates of tax have been fixed in the Schedule in respect of different goods. Hence, unless and until a uniform rate is prescribed for all goods used in the execution of works contract, it is not possible to realize or even deduct tax, at source, at uniform or flat rate. To put a little dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Prior to the amendment of article 366, in view of the judgment of this court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353 (SC) the States could not levy sales tax on sale of goods involved in a works contract because the contract was indivisible. All that has happened in law after the Forty-sixth Amendment and the judgment of this court in Builders' case [1989] 73 STC 370 (SC) is that it is now open to the States to divide the works contract into two separate contracts by a legal fiction: (i) contract for sale of goods involved in the said works contract, and (ii) for supply of labour and service. This division of contract under the amended law can be made only if the works contract involved a dominant intention to transfer the property in goods and not in contracts where the transfer in property takes place as an incident of contract of service. . . What is pertinent to ascertain in this connection is what was the dominant intention of the contract. . . . . . On facts as we have noticed that the work done by the photographer which, as held by this court in Assistant Sales Tax Officer v. B.C. Kame [1977] 39 STC 237 (SC) is only in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8] 9 STC 353 (SC); AIR 1958 SC 560, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in article 366(29A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in article 366(29A) continues to be: Did the parties have in mind or intend separate rights arising out of the sale of goods. If there was no such intention there is no sale even if the contract could be disintegrated. The test for deciding whether a contract falls into one category or the other is to as what is 'the substance of the contract'. We will, for the want of a better phrase, call this the dominant nature test." In view of the law laid down in Bharat Sanchar Nigam Ltd. [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 3 SCC 1, it will be appropriate to have a look into the agreement entered into by the present petitioner with Government of Tripura for the work of digging and development o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax under the TST Act, 1976, and the rules framed thereunder. What is, now, pertinent to note is that in the present case, there is, though very little, transfer of property in goods involved in the execution of works contract, the fact remains, as we have already noted above, in the preceding part of this judgment, that there is no provision, in the TST Act, 1976, for determination of the turnover, in respect of works contract, and no sales tax can be assessed and recovered in respect of sales arising out of a works contract and no tax can, therefore, be levied and/or recovered in respect of the transfer of property in goods taking place under the contract, in question. Since we have already held that no sales tax is recoverable, under the TST Act, 1976, in respect of a works contract, in question, and as we have also already declared section 3AA of the TST Act, 1976, which provides for deduction of tax, at source, to be ultra vires the Constitution of India, the action of the respondent-authorities, in deducting tax, at source, from the payments made to the petitioner in respect of the said contract. In the result and for the reasons discussed above, the writ petition succee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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