Works contract tax deduction provisions cannot expand state taxing power beyond taxable goods value and permissible deductions.

Section 19-A of the Karnataka Sales Tax Act authorised deduction of tax at source from the full amount payable under works contracts, but it was constitutionally invalid because the taxable base in such contracts must be confined to the value of goods involved after permissible deductions for labour and service elements. The provision could not extend the State's taxing power under entry 54 of List II or override the limits in article 286 by reaching inter-State, outside-State, import, export, or non-taxable components. A machinery provision cannot enlarge substantive tax liability or permit collection outside the State's legislative field.

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Issues: Whether section 19-A of the Karnataka Sales Tax Act, which required deduction of tax at source from the total amount payable under works contracts, was constitutionally valid and within the legislative competence of the State.

Analysis: The provision authorised deduction at a flat percentage on the entire contract amount, without any mechanism for excluding labour, service charges, or other components not exigible to tax. In light of article 366(29A) and the restrictions under article 286, the taxable value in a works contract must be confined to the value of goods involved in the execution of the contract, after permissible deductions. The State's power under entry 54 of List II does not extend to taxing or collecting advance tax on amounts outside its taxing field, including inter-State, outside-State, import and export elements, or non-taxable labour and service components. A machinery provision cannot enlarge the substantive tax power or authorise collection of amounts not otherwise taxable.

Conclusion: Section 19-A was held to be beyond the legislative competence of the State and constitutionally invalid.

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