Tax deduction at source under sales tax law upheld when confined to the taxable net and statutory exemptions

Section 27 of the Assam General Sales Tax Act, 1993 is treated as a tax-collection machinery provision, not an independent charging section. It is valid only if applied within the taxable field created by the Act and read harmoniously with the charging, turnover and exemption provisions. The provision was construed to operate subject to statutory deductions and exemptions, including inter-State sales, declared goods, exempt goods and transactions outside the State or barred by article 286. The certificate mechanism under rule 35(5) was also held available in works contract cases. On that construction, the source-deduction scheme was upheld as constitutionally valid and not confiscatory.

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Issues: Whether section 27 of the Assam General Sales Tax Act, 1993, providing for deduction of tax at source from payments made in respect of works contracts and other taxable supplies, was ultra vires the Constitution or confiscatory in nature, and whether it had to be read subject to the charging and exemption provisions of the Act so as to preserve deductions for inter-State sales, exempt goods and declared goods.

Analysis: The legal position after the forty-sixth constitutional amendment permits the State to levy sales tax on the value of goods involved in execution of a works contract, but only within the limits of entry 54 of List II and subject to the restrictions in article 286. The provision under challenge was treated as a machinery provision for collection of tax and not as an independent charging provision. The Court distinguished the impugned scheme from provisions struck down in other State enactments because the Assam Act contains charging provisions, a defined taxable turnover scheme, and express exclusions for transactions outside the State, inter-State trade and commerce, and import or export. The Court also held that the certificate mechanism under rule 35(5) was available even in works contract cases. Relying on the principle that a taxing provision should be upheld if it can be preserved by reading it harmoniously with the statute as a whole, the Court read section 27 as applying only to goods liable to tax under the Act and as subject to the deductions and exemptions available under sections 7 and 8, including the treatment of inter-State sales, declared goods and other exempt items.

Conclusion: Section 27 was upheld as constitutionally valid and not confiscatory, but it was required to be read down so that tax deduction at source applies only to goods liable to tax under the Act and remains subject to the statutory exemptions and deductions.

Final Conclusion: The writ petitions failed on the constitutional challenge, while the impugned provisions were preserved with limiting construction to ensure that source deduction operated only within the taxable field created by the Act.

Ratio Decidendi: A tax-deduction-at-source provision in a sales tax statute is valid if it operates as a machinery for recovery of tax otherwise lawfully leviable, and it must be construed in harmony with the charging and exemption provisions so that it does not extend to transactions or goods outside the taxable net.

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