Works contract and sales tax conditions upheld, but brick-kiln declaration ban struck down as inconsistent with the statutory scheme.
The Haryana General Sales Tax framework was upheld in part and struck down only in part. The proviso to section 6(1) was held valid because a sub-contractor formed part of the contractor's works contract, and the levy was intended to operate at one stage only, avoiding double taxation. The proviso to section 18 and rules 24(i) and 28A(4)(c) were also upheld because requiring prescribed declarations to prove prior tax payment or exempt-unit status was treated as a valid condition for claiming exemption or deduction. Rule 39A(11), however, was invalidated because it barred brick-kiln owners under lump sum composition from issuing form S.T. 14, contrary to the Act's scheme.
Issues: (i) Whether the proviso to section 6(1) of the Haryana General Sales Tax Act, 1973, excluding a sub-contractor from liability where the contractor is liable on the works contract, was unconstitutional or ultra vires; (ii) whether the proviso to section 18 of the Haryana General Sales Tax Act, 1973, and rule 24(i) and rule 28A(4)(c) of the Haryana General Sales Tax Rules, 1975, were invalid for requiring prescribed declarations to obtain exemption or deduction on tax-paid goods, including bricks and goods of exempted industrial units; and (iii) whether rule 39A(11) of the Haryana General Sales Tax Rules, 1975, prohibiting brick-kiln owners paying lump sum tax from issuing form S.T. 14, was arbitrary and contrary to the Act and the Rules.
Issue (i): Whether the proviso to section 6(1) of the Haryana General Sales Tax Act, 1973, excluding a sub-contractor from liability where the contractor is liable on the works contract, was unconstitutional or ultra vires.
Analysis: The definition of contractor included execution of a works contract either by the contractor himself or through a sub-contractor, and the definition of works contract expressly included a sub-contract. On that scheme, the sub-contractor was only executing part of the contractor's works contract and was not an independent contracting chain with the contractee. The proviso was read as excluding a sub-contractor from separate tax liability so as to avoid multiple incidence on the same works contract. The charging structure was held to operate at one stage only, on the contractor.
Conclusion: The proviso to section 6(1) was held valid and not unconstitutional; this issue was decided against the assessee.
Issue (ii): Whether the proviso to section 18 of the Haryana General Sales Tax Act, 1973, and rule 24(i) and rule 28A(4)(c) of the Haryana General Sales Tax Rules, 1975, were invalid for requiring prescribed declarations to obtain exemption or deduction on tax-paid goods, including bricks and goods of exempted industrial units.
Analysis: Section 18 was held to create a first-stage levy on notified goods and to permit exemption at a subsequent stage only on proof, in the prescribed form, that tax had already been paid at the first stage. Rule 24(i) was treated as a valid deduction rule tied to production of the prescribed certificate. Rule 28A(4)(c) likewise conditioned exemption on furnishing form S.T. 14-A from the exempted industrial unit. The Court found these requirements to be rational conditions for availing the statutory benefit and not a withdrawal of the substantive exemption scheme.
Conclusion: The proviso to section 18, rule 24(i), and rule 28A(4)(c) were upheld as valid; this issue was decided against the assessee.
Issue (iii): Whether rule 39A(11) of the Haryana General Sales Tax Rules, 1975, prohibiting brick-kiln owners paying lump sum tax from issuing form S.T. 14, was arbitrary and contrary to the Act and the Rules.
Analysis: The lump sum composition scheme for brick-kiln owners was found to be a statutory facility based on kiln capacity and category, with tax and default consequences showing that such owners remained dealers under the Act. Since bricks were notified goods taxed at the first stage, denying the purchasing dealer the prescribed certificate merely because the seller had opted for lump sum composition was held to defeat the scheme and to be inconsistent with the Act and the Rules. The rule was found to be unjust, unreasonable, and contrary to the legislative scheme.
Conclusion: Rule 39A(11) was struck down as arbitrary, unjust, unreasonable, and contrary to the Act and the Rules; this issue was decided in favour of the assessee.
Final Conclusion: The writ petitions succeeded only to the limited extent that the restrictive provision disabling brick-kiln owners from issuing the prescribed declaration was invalidated, while the other constitutional and statutory challenges were rejected and the remaining provisions were sustained.
Ratio Decidendi: A statutory condition requiring proof in the prescribed form for availing exemption on goods already taxed at the first stage is valid, but a subordinate rule that defeats the Act's scheme by denying a necessary certificate to bona fide purchasers from dealers who have discharged tax under a composition mechanism is invalid.
TaxTMI 
AI Drafter ✕
TaxTMI 
