Res judicata and tax deduction competence fail where a revised scheme still lacks workable exclusion of non-taxable components.

The challenge to the amended tax deduction scheme was not barred by res judicata because the later proviso and notification introduced a materially new legal regime not examined in the earlier decision. On merits, the scheme remained unconstitutional because it still operated on gross bill value without a workable mechanism to identify, even roughly, the deductible taxable components before deduction began, and it continued to reach transactions and components beyond the State's taxing power. The arrangement was therefore treated as speculative, arbitrary, unreasonable, and incapable of practical implementation, and the tax deduction provision read with the notification was invalidated.

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Issues: Whether the challenge to the amended section 25A(1) and the notification implementing it was barred by res judicata, and whether the provision and notification were unconstitutional for want of legislative competence, arbitrariness, unworkability, and absence of an effective machinery for determining deductible amounts.

Analysis: The prior Patna High Court decision did not strike down the provision in its entirety. It read the provision down and held it inapplicable to transactions beyond the State's taxing power, including inter-State sales, sales in the course of import, declared goods, and labour and service components in a works contract. Because the third proviso and the adapted notification introduced a new legal regime that had not been examined earlier, the fresh challenge was not barred by res judicata. On merits, the amended arrangement still lacked a workable mechanism for identifying, even on a rough basis, the deductible taxable components before payment commenced. The notification continued to operate on the gross value of bills and invoices, thereby bringing within its sweep transactions and components outside the State's taxing power. The scheme therefore remained speculative, arbitrary, unreasonable, and incapable of practical implementation.

Conclusion: The challenge was not barred by res judicata, and the amended section 25A(1) read with the notification was held unconstitutional.

Final Conclusion: The writ petition succeeded, the impugned tax deduction scheme was invalidated, and the authorities were restrained from collecting tax under the provision from the stated assessment year, with adjustment and refund of excess collections.

Ratio Decidendi: A tax deduction provision that extends to transactions beyond legislative competence and lacks a workable mechanism for excluding non-taxable components is arbitrary, unreasonable, and unconstitutional; a later amendment introducing a materially new challenge is not barred by res judicata.

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