Composition tax on works contracts upheld where the rate is only a mode of computation, not a levy beyond legislative competence.

Section 26(2) of the Haryana General Sales Tax Act, 1973 was treated as a composition-style option for works contracts, not as a levy on the entire turnover of goods. The prescribed 2% rate operated only as a mode of computing tax payable in lieu of tax under the Act, with the contractor free to choose regular assessment instead. Under the regular mechanism, goods not taxable under sections 3, 4, 5, 14 and 15 of the Central Sales Tax Act, 1956, as well as labour and service components, remained excludable. On that basis, the provision and notification were held intra vires and the challenge to legislative competence failed.

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Issues: Whether section 26(2) of the Haryana General Sales Tax Act, 1973 and the notification fixing tax at 2% of the total value of the works contract were ultra vires on the ground that they amounted to a levy on goods beyond the State's legislative competence.

Analysis: The provision was construed as an optional method of computation under a composition-type arrangement, available at the contractor's choice, and not as a levy on the gross turnover of the works contract in its entirety. The Court distinguished the scheme from a tax on the total turnover of works contracts, and held that the rate prescribed was only the mode of calculating tax payable in lieu of tax under the Act. It further noted that the contractor remained free to opt for the regular assessment mechanism, under which the value of goods not taxable under sections 3, 4, 5, 14 and 15 of the Central Sales Tax Act, 1956 and labour/service components would stand excluded in accordance with the governing legal position.

Conclusion: Section 26(2) was held to be intra vires and the notification valid; the challenge to legislative competence failed.

Ratio Decidendi: A statutory option that fixes tax at a percentage of the total value of a works contract as a mode of calculation in lieu of tax under the Act does not, by itself, amount to an impermissible levy on inter-State, outside, import or export sales or exceed State legislative competence.

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