Contractors liable for sales tax on goods in works contracts under Central Sales Tax Act. Rule 13-A deductions deemed invalid.

The court held that contractors are liable to pay sales tax on goods supplied in works contracts as per the Central Sales Tax Act. Rule 13-A allowing deductions based on labor charges was deemed invalid as labor costs alone were not taxable. Assessing authorities were directed to assess contractors based on established legal principles. The judgment clarified the tax liability of contractors in works contracts, partly allowing the writ petitions and providing clarity on the issue. Justice N.S. Rao concurred with the decision, leading to the disposal of the writ petitions.

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Issues involved:
The validity of the Constitution (Forty-sixth Amendment) Act, 1982 introducing clause (29A) in article 366 of the Constitution and the imposition of sales tax on works contract under the Bihar Finance Act, 1981 were challenged. Surviving issues included the validity of rule 13-A in the Bihar Sales Tax Rules, 1983 and the liability of contractors to pay sales tax on works contracts.

Validity of Rule 13-A and Liability for Sales Tax:
The petitioners, an association of contractors, argued that tax liability should only apply to the sale of goods in works contracts, not on labor costs. They contended that rule 13-A, which allowed deduction based on labor charges, was ultra vires. The State argued that contractors must pay tax on goods supplied by employers for the works contract. The court noted that labor charges alone were not taxable and that the rule did not account for the entire labor cost incurred.

Interpretation of Central Sales Tax Act and Constitution:
The court emphasized that state sales tax laws must adhere to Article 286 of the Constitution, especially in works contracts. It was held that assessing officers must consider if goods used in works contracts are declared goods under the Central Sales Tax Act. The court highlighted the importance of determining the applicability of the Central Sales Tax Act in such cases.

Analysis of Legal Precedents:
Reference was made to the judgment in Builders Association case, where it was agreed that contractors are liable for tax if they supply goods for works contracts. The court also discussed the Goel & Co. case, emphasizing that if there is an agreement for the supply of materials by the employer, the contractor is deemed to have sold goods and is liable for tax. The court clarified the legal position regarding the transfer of property in goods in works contracts.

Conclusion and Disposition:
The court directed assessing authorities to proceed with assessments of contractors based on the legal principles established in the Builders Association and Goel & Co. cases. The writ petitions were partly allowed, with the judgment providing clarity on the tax liability of contractors in works contracts.

Separate Judgment by N.S. Rao, J.:
Justice N.S. Rao concurred with the decision, and the writ petitions were disposed of accordingly.

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