1993 (1) TMI 263 - HC - VAT and Sales Tax

Court clarifies sales tax on works contracts; textiles and lottery exempt, transfer of goods taxable. Retrospective provisions upheld.

East India Cotton Manufacturing Company Limited Versus State of Haryana

The Court upheld the constitutional validity of the amendments to the Haryana General Sales Tax Act, 1973, and clarified the interpretation of 'works ... - Issues Involved:1. Constitutional validity of the Haryana General Sales Tax (Amendment) Act, 1989.2. Interpretation of 'works contract' and its implications.3. Exemption of textiles and lottery tickets from sales tax.4. Retrospective effect of certain provisions.5. Classification of transactions as inter-State or intra-State sales.Summary:1. Constitutional Validity of the Haryana General Sales Tax (Amendment) Act, 1989:The main challenge was to the amendments made in section 2 of the Haryana General Sales Tax Act, 1973 (HGST Act) by the Haryana General Sales Tax (Amendment) Act, 1989. The petitioners argued that the amendments were ultra vires the Constitution. The Court held that clauses (j) and (1) of section 2 of the HGST Act, including proviso to note 2 and note 3, are intra vires the Constitution and the principles formulated in the Central Sales Tax Act, 1956, in pursuance of articles 269(3) and 286(2) of the Constitution.2. Interpretation of 'Works Contract':The petitioners contended that the definition of 'works contract' in section 2(pa) of the HGST Act was too broad and included transactions that were purely job-work. The Court held that the taxable event is the transfer, delivery, or supply of goods within the meaning of the relevant sub-clause of clause (1) of section 2, and not the wide definition of 'works contract.' The definition was not rendered ultra vires simply because it was in wide terms.3. Exemption of Textiles and Lottery Tickets from Sales Tax:The petitioners argued that textiles and lottery tickets, being exempt from sales tax under entries 14 and 52 of Schedule 'B' to the HGST Act, should not be taxed. The Court held that the exemption applies to the sale or purchase of such goods as such goods. However, in the course of execution of works contracts, the transfer of goods could still be taxed.4. Retrospective Effect of Certain Provisions:The petitioners challenged the retrospective effect given to sub-clause (ii) and certain parts of sub-clause (iv) by the Haryana Amending Act of 1989. The Court held that the Legislature has ample powers to give retrospective effect to legislation and upheld the retrospective effect given by the proviso under note 2 to clauses (j) and (1).5. Classification of Transactions as Inter-State or Intra-State Sales:The petitioners argued that certain transactions were inter-State sales and thus not exigible to State sales tax. The Court held that it must be left to the taxing authorities to determine whether a transaction amounted to an inter-State sale. The particular activity of processing grey cloth into finished cloth by East India Cotton Manufacturing Company Limited was held to be an inter-State sale.Conclusions:1. Clauses (j) and (1) of section 2 of the HGST Act, 1973, including proviso to note 2, note 3, are intra vires the Constitution.2. The value of goods falling within the purview of various sub-clauses of clauses (j) and (1) of section 2 of the HGST Act, 1973, is exigible to tax.3. Inter-State sale is outside the scope of the HGST Act, 1973, for purposes of levying tax.4. The particular activity of processing grey cloth into finished cloth amounts to inter-State sale.5. Taxing authorities can split a composite works contract and levy tax on the component covered by one or the other sub-clauses of clause (j) or clause (1) of section 2 of the HGST Act, 1973.6. Tax can be levied only on the basis of the existing provisions of the Central Sales Tax Act, 1956, and not on the basis of various sub-clauses of clause (29-A) of article 366 as far as Central sales tax is concerned.7. Taxing authorities shall determine in respect of which goods the property passes to the contractee in terms of sub-clause (ii) of clause (j) or clause (1) of section 2 of the HGST Act, 1973.8. Taxing authorities have to determine whether the transaction is an intra-State sale or an inter-State sale.9. Exemption from sales tax under sections 6 and 15 read with Schedule 'B' to HGST Act, 1973, is with reference to goods as such goods. The exemption does not apply if any case falls in any of the sub-clauses of clause (1).The writ petitions were disposed of in these terms, with parties bearing their own costs.