2007 (2) TMI 73 - SC - VAT / Sales Tax

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

MAHIM PATRAM PRIVATE LTD. Versus UNION OF INDIA

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 ... Levy of Sales Tax on Works Contract - inter-State trade or commerce - Valuation - retrospective operation of the amendments of Section 2 and Section 13 of the 1956 Act by Finance Act, 2005 - determination of the sale price in respect of transfer of property in goods involved in the execution of the works contract as envisaged under Section 2(h) of the 1956 Act - taxable turnover under Section 8A - appellant submitted that in the absence of any rule for determination of the sale price in respect of transfer of property in goods involved in the execution of the works contract as envisaged under Section 2(h) of the 1956 Act, the taxable turnover under Section 8A of the said Act cannot be computed for the purpose of levy of tax on the transfer of property in goods involved in the execution of works contract in the course of inter-State trade and commerce. HELD THAT:- So long as, therefore, the Central Government does not make any rules, the determination of turnover may be carried out by the Assessing Authority in terms of the State Rules, in view of Section 13(3) of the 1956 Act read with Rule 9 of the Central Sales Tax Act (U.P.) Rules, 1957. The rules made by the State Government as also the provisions of the Act are incorporated by reference. When a provision is incorporated by reference, it need not be so stated again and again. Validity of Rule 9 of the Central Tax Act (U.P.) Rules, 1957 is not under challenge. Furthermore, it is not necessary that the charging provision and the machinery provisions must be found at the same place in the same section, as the machinery provisions may be found elsewhere. If the rules of the State are applicable, Rule 44-B of the Uttar Pradesh Trade Tax Rules, 1948 would apply, which provides for computation of net turnover by providing for deduction under Section 3F(2)(b) of the 1948 Act from the gross turnover. Section 3F(2)(b) of the 1948 Act in turn provides for all the deductions as has been directed by this Court in M/s. Gannon Dunkerley [1958 (4) TMI 42 - SUPREME COURT]. If enough machinery provisions can be found in the existing Act, it is not necessary to construe the provisions having regard to the subsequent legislation. A proviso inserted subsequently cannot be the determinative factor for restricting the operation of the Act. The proviso would be applicable subject to the other provisions of the Act. If in absence of any rules, the determination of turnover becomes payable, an assessee or a dealer cannot derive any benefit by reason of non-framing of any rule which is contemplated under the Act. We have noticed hereinbefore that the 2005 amendments are not retrospective in operation. Furthermore, they provide merely for an enabling provision. If enough machinery provisions can be found in the existing Act, it is not necessary to construe the provisions having regard to the subsequent legislation. We do not find any merit in these appeals, which are dismissed accordingly. Issues Involved:1. Levy of Sales Tax on Works Contract2. Absence of Rules for Determination of Sale Price3. Application of State Rules in Absence of Central Rules4. Validity of Assessments Made by the Assessing AuthorityDetailed 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.