Works contract taxable turnover rules were held unworkable where deductions for other charges were not prescribed.

Section 21(1)(a)(i) of the Bihar Finance Act, read with rule 13A of the Bihar Sales Tax Rules, was found unworkable for assessing taxable turnover in a works contract because the statute required deductions for labour and other charges, but the rules provided only labour-related deductions and no prescribed manner or extent for other charges. In the context of Article 366(29A)(b), tax could apply only to the value of goods involved in execution of the contract, excluding labour and service elements. The incomplete deduction mechanism failed to meet the legislative mandate, and the ex parte assessment was also considered unfair. The assessment orders were quashed in favour of the assessee.

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Issues: Whether section 21(1)(a)(i) of the Bihar Finance Act, 1981, read with rule 13A of the Bihar Sales Tax Rules, 1983, was workable and valid for assessing the taxable turnover of a works contractor when the statute required deduction of labour and other charges in the manner and to the extent prescribed, but the rules prescribed only labour-related deductions and not deductions for other charges.

Analysis: The contract was a divisible turn-key works contract, and the assessment concerned determination of taxable turnover from gross turnover in the context of works contracts. Article 366(29A)(b) of the Constitution permits tax only on the value of goods involved in execution of the works contract, excluding labour and service elements and other non-taxable components. Section 21(1)(a)(i) required deductions in respect of labour and any other charges in the manner and to the extent prescribed, but the statutory scheme and rule 13A made provision only for labour deductions and did not prescribe the manner and extent of deduction for other charges. The omission left the provision incomplete and unworkable for determining taxable turnover in accordance with the legislative mandate. The ex parte manner of assessment was also found unfair, but the decisive ground was the absence of a complete workable deduction mechanism.

Conclusion: The assessment orders could not stand and were quashed. The challenge succeeded in favour of the assessee.

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