Works contract tax deduction upheld where deduction operates only on taxable consideration and not on full contract value.

Section 12-A of the Himachal Pradesh General Sales Tax Act and rule 31-A were construed as machinery provisions for advance collection of tax on the transfer of property in goods involved in works contracts, not as charging provisions on the full contract value. The court read the rule harmoniously with the section so that deduction at source applied only to taxable consideration, and held that this construction did not offend article 265 or exceed State legislative competence. The deduction-at-source scheme for works contracts was therefore upheld as valid and intra vires, and the writ petitions failed.

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Issues: Whether section 12-A of the Himachal Pradesh General Sales Tax Act, 1968 and rule 31-A of the Himachal Pradesh General Sales Tax Rules, 1968, which provide for deduction of an amount from payments made to works contractors, are constitutionally valid and within legislative competence.

Analysis: The impugned section was construed as a machinery provision for collection of tax in advance and not as a charging provision. The deduction contemplated was held to be only an amount referable to the tax payable on the transfer of property in goods involved in the execution of a works contract, and not a levy on the entire contract value. The rule was read harmoniously with the section, so that the reference to all payments in works contracts was confined to payments representing consideration for transfer of property in goods. On that construction, the provision did not offend article 265 or exceed the State's legislative competence.

Conclusion: Section 12-A and rule 31-A were upheld as valid and intra vires.

Final Conclusion: The writ petitions failed, and the challenge to the deduction-at-source scheme for works contracts was rejected.

Ratio Decidendi: A provision requiring deduction at source in respect of works contracts is constitutionally valid if it operates only as a machinery for collection of tax otherwise lawfully leviable on the transfer of property in goods and is confined, on a fair construction, to taxable consideration alone.

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