Tax deduction at source in works contracts applies only to taxable turnover, not to labour and other non-taxable bill components.

Tax deduction at source under section 27 of the Assam General Sales Tax Act, 1993 was treated as permissible only when confined to the taxable component of works contract bills. The provision was read down so that deduction could not be made from the entire gross bill amount and had to exclude labour, engineering and other service charges, declared goods, tax-paid goods and goods involved in inter-State trade. The provision was also construed with the charging and exemption provisions of the Act, and the contractor was entitled to the certificate contemplated by rule 35. The analysis further reflected equal treatment for similarly situated persons.

---

---

Issues: Whether deduction of tax at source under section 27 of the Assam General Sales Tax Act, 1993 from works contract bills was permissible in law, and if so, whether such deduction had to be confined to the taxable component after excluding labour, engineering and other service charges, declared goods, tax-paid goods, and inter-State goods.

Analysis: The earlier decision of the same Court on the validity of section 27 was treated as governing the controversy. That provision was upheld by reading it down so that only goods liable to tax or included in taxable turnover could be subjected to deduction at source. The provision was also required to be read with the charging and exemption provisions of the Act, and the contractor was entitled to the certificate contemplated by rule 35. On that basis, tax deduction at source was recognised as permissible, but not on the entire gross bill amount. The Court also relied on the principle that similarly situated persons must receive similar relief.

Conclusion: Deduction at source was held to be valid only to the limited extent of the taxable component, and the respondents were restrained from deducting tax from the entire bill amount. The petitioners were held entitled to exclusion of labour, service and other non-taxable components, as well as declared goods, tax-paid goods and goods covered by inter-State trade.

Ratio Decidendi: A taxing provision may be sustained by reading it down so that tax deduction at source applies only to the taxable turnover and not to non-taxable components of a works contract bill.

---