Provisional tax deduction in works contracts upheld, with delayed assessments open to judicial direction for timely completion.

Section 25B of the Haryana General Sales Tax Act, 1973, and the related notification were upheld as a valid tax-deduction mechanism for works contracts. The Court treated the deduction at source as only provisional, adjustable against final assessment, with refund available for excess recovery, and rejected the contention that prior assessment was required before deduction. It also recognised that unreasonable delay in completing assessment can justify judicial intervention; where assessments had remained pending for years without explanation, a direction was issued for expeditious finalisation and refund, if due, in accordance with law.

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Issues: (i) Whether section 25B of the Haryana General Sales Tax Act, 1973 and the notification issued thereunder, requiring deduction of tax at source from payments made to a works contractor, were ultra vires or liable to be quashed. (ii) Whether the delay in completing assessments in one of the writ petitions warranted a direction for expeditious finalisation of assessment and consequential refund, if any.

Issue (i): Whether section 25B of the Haryana General Sales Tax Act, 1973 and the notification issued thereunder, requiring deduction of tax at source from payments made to a works contractor, were ultra vires or liable to be quashed.

Analysis: The levy under the Act had to be understood in the context of the 46th Constitutional Amendment and the settled position that the value of goods involved in a works contract could be subjected to sales tax. The Court noted that section 26(2) provided an alternative composition scheme for contractors, while section 25B operated as a collection mechanism for contractors who did not opt for composition. The deduction at source was only provisional and was adjustable against the final assessment, with refund available if excess was recovered. The challenge that deduction could not be made without prior assessment was rejected.

Conclusion: Section 25B and the notification issued thereunder were upheld as valid and not ultra vires.

Issue (ii): Whether the delay in completing assessments in one of the writ petitions warranted a direction for expeditious finalisation of assessment and consequential refund, if any.

Analysis: The Court accepted that an assessee cannot be left without recourse where assessment is unduly delayed. While no motive could be attributed in the abstract, the Court held that unreasonable delay in concluding assessment could be corrected by judicial direction. On the facts of one writ petition, the assessments had remained pending for several years without reasonable explanation.

Conclusion: A direction was issued to finalise the pending assessments within four months and to grant refund, if found due, in accordance with law.

Final Conclusion: The constitutional challenge to the tax deduction mechanism failed, but limited relief was granted in the form of a direction for prompt completion of assessment in the petition where delay was established.

Ratio Decidendi: A provisional deduction of tax at source in respect of works contracts, when made adjustable against final assessment and accompanied by a composition option, is a valid mode of tax collection and does not become unconstitutional merely because assessment is deferred; unreasonable delay in assessment can be addressed by a direction for expeditious completion.

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