Levy of sales tax on goods in works contracts upheld; assessing authority may use State rules and Rule 9/Rule 44-B

SC upheld levy of sales tax on transfer of property in goods in works contracts, holding that in absence of Central rules the Assessing Authority may determine taxable turnover using State rules and incorporated provisions (including Rule 9 of the Central Sales Tax (U.P.) Rules, 1957 and Rule 44-B / Section 3F(2)(b) of the Uttar Pradesh Trade Tax Rules, 1948). The Court found the 2005 amendments non-retrospective and merely enabling, rejected the contention that a subsequently added proviso restricts earlier provisions, and held an assessee cannot benefit from non-framing of contemplated rules. Appeals dismissed.

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Issues Involved:
1. Levy of Sales Tax on Works Contract
2. Absence of Rules for Determination of Sale Price
3. Application of State Rules in Absence of Central Rules
4. Validity of Assessments Made by the Assessing Authority

Detailed Analysis:

1. Levy of Sales Tax on Works Contract:
The appellant is engaged in printing question papers for various boards and universities outside Uttar Pradesh, which is considered a works contract in the course of inter-State trade or commerce. The Central Sales Tax Act, 1956 (1956 Act) did not initially contain provisions to levy tax on works contracts. The Supreme Court in M/s. Gannon Dunkerley and Co. v. State of Rajasthan observed that without amending the definition of 'sale' in Section 2(g) of the 1956 Act to include works contracts, it was not permissible for State Legislatures to impose such a tax. However, the legislative power of the State could still be exercised under Entry 54 in List II of the Constitution. The Parliament later amended Section 2(g) of the 1956 Act by the Finance Act, 2002, to include works contracts within the definition of 'sale'.

2. Absence of Rules for Determination of Sale Price:
Despite the amendment in 2002, no rules were framed for determining the sale price of goods involved in works contracts. The Assessing Authority applied provisions of the Uttar Pradesh Trade Tax Act, 1948 (1948 Act) and its rules for calculating the sale price. The appellant contended that in the absence of specific rules under the 1956 Act, the taxable turnover could not be determined, and the determination should not be left to the discretion of the Assessing Authority.

3. Application of State Rules in Absence of Central Rules:
The State of Uttar Pradesh framed rules under the 1956 Act, applying the provisions of the 1948 Act and its rules to the assessment of Central sales tax. The Supreme Court observed that Section 9(2) of the 1956 Act allows State authorities to assess, re-assess, collect, and enforce payment of tax under the 1956 Act as if it were under the State Act. The State rules, therefore, could be applied in the absence of Central rules, provided they were not inconsistent with the Central Act. Rule 44B of the Uttar Pradesh Trade Tax Rules, 1948, which provides for deductions in determining the net turnover, was deemed applicable.

4. Validity of Assessments Made by the Assessing Authority:
The Supreme Court held that the machinery provisions for calculating tax should be construed to make the statute workable. The absence of Central rules did not mean that no tax was leviable. The State rules provided sufficient guidelines for the determination of turnover. The Court rejected the appellant's argument that the amendments made by the Finance Act, 2005, were applicable, stating that they provided only an enabling provision and were not retrospective. The Court upheld the validity of the assessments made by the Assessing Authority based on the State rules.

Conclusion:
The appeals were dismissed, affirming the application of the Uttar Pradesh Trade Tax Rules for determining the sale price of goods involved in works contracts in the absence of specific Central rules. The Court emphasized that the machinery provisions must be construed to make the statute workable, and the absence of specific rules did not preclude the levy of tax.

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