Article 14 equality and works contract taxation fail where liability is fixed on a notional valuation formula.

Levying sales tax on works contracts and assessing the value of materials through a fixed, deemed formula was held unconstitutional under Article 14. The court found that the scheme taxed the value of goods involved in execution of works contracts on a notional basis rather than on actual material value, even where proof was available, and that the classification of contracts and uniform percentage deductions ignored real differences in labour and material costs. The result was unequal treatment of similarly placed contractors. The assessment orders were quashed in favour of the petitioners.

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Issues: Whether the levy of sales tax on works contracts and the method of assessing the value of materials used in such contracts under the Mysore sales tax law were unconstitutional as arbitrary and discriminatory under Article 14.

Analysis: The Act treated the value of goods involved in execution of works contracts as taxable turnover and the Rules authorised a deemed, formula-based deduction for labour content. The assessment did not proceed on the actual value of materials used, even where the contractor was willing to prove it, but on a fixed notional basis. The classification of contracts into a few specific categories and a residual group, together with a uniform percentage applied across areas and contracts, was found to ignore real differences in labour and material costs and to create unequal treatment among similarly placed contractors. Fiscal legislation is subject to the equality guarantee, and a taxing scheme that imposes liability on fictional rather than real considerations may offend Article 14.

Conclusion: The levy and assessment method were held unconstitutional as violating Article 14, and the assessment orders were quashed in favour of the petitioners.

Final Conclusion: The petitions succeeded because the statutory scheme for taxing works contracts was held to impose arbitrary and unequal treatment through a notional valuation formula.

Ratio Decidendi: A taxing provision that determines liability on an artificial, deemed basis and classifies similar contracts without a rational relation to real differences in burden offends the guarantee of equality under Article 14.

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