Deduction-at-source for works contracts upheld where safeguards exclude non-taxable turnover and final assessment provides adjustment.

A deduction-at-source mechanism for works contracts was treated as valid where it applied only to contractors liable to tax, provided certificate-based exemption, and allowed adjustment or refund on final assessment. On that basis, the Kerala scheme was considered intra vires and within the State's legislative competence because it operated as a provisional collection device and not as a levy on non-taxable inter-State, outside-State, or import transactions. Disputed questions whether particular transactions were inter-State sales or otherwise exempt were found unsuitable for writ adjudication, leaving the parties to statutory remedies.

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Issues: (i) Whether section 7(7B) of the Kerala General Sales Tax Act, 1963 and rules 22A(2) and 22A(5) of the Kerala General Sales Tax Rules, 1963, as amended, were ultra vires, confiscatory, or beyond the legislative competence of the State. (ii) Whether the challenge to exhibits P4, P6, P8 and P14 could be entertained in writ jurisdiction.

Issue (i): Whether section 7(7B) of the Kerala General Sales Tax Act, 1963 and rules 22A(2) and 22A(5) of the Kerala General Sales Tax Rules, 1963, as amended, were ultra vires, confiscatory, or beyond the legislative competence of the State.

Analysis: The amended provision required deduction only from contractors liable to tax under section 5, and the Rules provided for certificate-based exemption, adjustment against final assessment, and refund or set-off of excess collection. Read with the definition of taxable turnover and the final-assessment machinery, the deduction operated as a provisional collection mechanism and not as an impermissible levy on non-taxable inter-State, outside, or import transactions. The decision striking down the Orissa provision was distinguished because the Kerala scheme contained safeguards excluding transactions outside the State taxing power.

Conclusion: The provision and the allied rules were held to be intra vires and within the legislative competence of the State, and the constitutional challenge failed.

Issue (ii): Whether the challenge to exhibits P4, P6, P8 and P14 could be entertained in writ jurisdiction.

Analysis: The dispute underlying those proceedings turned on whether the relevant transactions were inter-State sales or otherwise exempt, which involved disputed questions of fact and law. Such issues were not suitable for adjudication in the writ petition, and the petitioner was left to pursue the statutory remedies.

Conclusion: The challenge to the proceedings was not entertained.

Final Conclusion: The writ petition failed in its entirety, as the statutory deduction mechanism was upheld and the factual disputes were left to the appropriate statutory forum.

Ratio Decidendi: A deduction-at-source mechanism for works contracts is valid if it is confined to persons liable to tax, contains safeguards for exclusion of non-taxable turnover, and provides for adjustment on final assessment.

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