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Issues: (i) Whether section 25A of the Bihar Finance Act, 1981, rule 26A of the Bihar Sales Tax Rules, 1983, and the connected notifications were ultra vires on the ground that they authorised deduction from the entire works-contract bills and imposed tax on labour as well as materials. (ii) Whether deduction was permissible in labour-only contracts and whether the contractors were entitled to reimbursement of the deducted amount.
Issue (i): Whether section 25A of the Bihar Finance Act, 1981, rule 26A of the Bihar Sales Tax Rules, 1983, and the connected notifications were ultra vires on the ground that they authorised deduction from the entire works-contract bills and imposed tax on labour as well as materials.
Analysis: The constitutional amendment inserting article 366(29A) brought within the concept of tax on sale or purchase of goods the transfer of property in goods involved in execution of a works contract. The statutory scheme showed that the impugned deduction was not a levy on the whole contract amount but a collection mechanism for sales tax on the value of goods transferred in the works contract. The deduction was to be adjusted against assessment by the sales tax authorities, and any excess was refundable. The provisions were therefore a mode of recovery of tax and not taxing provisions imposing tax on non-sale components. The four per cent deduction was also held not to be confiscatory.
Conclusion: The impugned provisions and notifications were upheld as intra vires, and the challenge to their validity failed.
Issue (ii): Whether deduction was permissible in labour-only contracts and whether the contractors were entitled to reimbursement of the deducted amount.
Analysis: Where a contract involved only labour and no transfer of property in goods, no sales tax deduction could be made. The Court accepted that such cases would fall outside the statutory deduction scheme. The claim for reimbursement under section 64A of the Sale of Goods Act, 1930, was held to be a separate matter between the parties and did not affect the validity of the deduction scheme.
Conclusion: No deduction was permissible in labour-only contracts, but the reimbursement contention was rejected.
Final Conclusion: The deduction machinery for works contracts was sustained, the writ petitions were dismissed, and only labour-only contracts were excluded from statutory deduction.
Ratio Decidendi: A statutory deduction from works-contract payments is valid if it operates only as a recovery mechanism for sales tax on the transfer of property in goods and not as a tax on the non-sale components of the contract.
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