Prospective TDS rate enhancement for works contracts applies only from Gazette publication, with rates varying by nature of work.

Works contract TDS rates were linked to the nature of work: pure earthwork attracted no deduction on its value, erection or construction of structures attracted 4 per cent, and road, canal digging, canal lining, or repair work attracted 2 per cent. The amended rule increasing deduction rates was prospective only, taking effect from the date of Gazette publication. Works executed before that date continued to be governed by the rates then in force, and the enhanced rates could not be applied retrospectively. The writ petition was disposed of with these clarifications on the applicable deduction rates.

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Issues: (i) whether tax deducted at source on works contracts was payable at different rates depending upon the nature of work; (ii) whether the amended rule enhancing the rates could be applied to works executed before the amendment took effect.

Issue (i): whether tax deducted at source on works contracts was payable at different rates depending upon the nature of work.

Analysis: The rate of deduction was held to depend on the nature of the contract. Pure earthwork did not attract deduction on its value. Where the contract involved erection or construction of structures, deduction at 4 per cent was permissible. Where the contract involved laying of roads, repairs to roads, canal digging, canal lining, or repairs to canals, deduction at 2 per cent was permissible.

Conclusion: The rates of tax deduction at source were upheld in a differentiated manner according to the type of work involved, and the petitioner succeeded only to the extent of pure earthwork being excluded.

Issue (ii): whether the amended rule enhancing the rates could be applied to works executed before the amendment took effect.

Analysis: The amended rule was directed to operate only from the date on which it was published in the Gazette. Works executed before that date were required to be governed by the rates then prevailing, and the enhanced deduction could not be applied retrospectively.

Conclusion: The amendment was held to be prospective only, and prior works were protected by the earlier rates.

Final Conclusion: The writ petition was disposed of with clarifications on the applicable rates of tax deduction at source and with a prospective application of the amended rule from the date of Gazette publication.

Ratio Decidendi: A rate enhancement for tax deduction at source under works contract rules operates prospectively from its effective date and cannot be applied to completed or pre-existing works unless the amendment expressly provides otherwise.

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