Tax deduction at source in works contracts must be limited to taxable turnover, not non-taxable components or excluded transactions.

Section 19-A of the Karnataka Sales Tax Act, as re-enacted, was invalid because its tax-deduction-at-source mechanism did not stay confined to taxable turnover under section 5-B. The provision allowed deduction on gross works contract payments without fully excluding amounts relating to inter-State sales, outside sales, import sales, and other non-taxable components. The Court applied the settled principle that a machinery provision cannot widen the charge created by the taxing section, and held that partial exclusions for labour and a 25 per cent reduction were insufficient. The provision was therefore beyond the State Legislature's competence, and prior collections were to be adjusted in future assessments.

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Issues: Whether section 19-A of the Karnataka Sales Tax Act, 1957, which required deduction of tax at source on amounts payable under works contracts, was valid when it permitted deduction on gross contract payments without fully excluding components not exigible to sales tax.

Analysis: The provision was tested against the charging scheme under section 5-B, which levies tax only on taxable turnover. The Court held that a machinery provision for advance collection must conform to the charging provision and cannot authorise deduction on amounts representing inter-State sales, outside sales, import sales, or other non-taxable components. The so-called concessions in the re-enacted section, including partial exclusion for labour and a 25 per cent reduction, were found insufficient because they did not ensure that TDS was confined to taxable turnover. Relying on the settled constitutional limits on State taxing power and the principle that what is forbidden in the charging section cannot be recovered through the machinery section, the Court held that the re-enacted provision still suffered from the same vice as the earlier struck-down version.

Conclusion: Section 19-A, as re-enacted, was beyond the legislative competence of the State Legislature and was invalid.

Final Conclusion: The appeals succeeded, the impugned judgment was set aside, and the challenged provision was struck down, with prior collections directed to be adjusted in future assessments.

Ratio Decidendi: A tax-deduction-at-source mechanism in a sales tax statute is valid only if it is confined to taxable turnover and does not authorise collection on transactions or components outside the State's power to tax.

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