Works contract turnover deductions must rest on valid rules; administrative circulars cannot replace the statutory basis for assessment.

Taxable turnover from works contracts must be determined under the statute or valid rules framed for deductions; administrative circulars cannot supply the missing legal basis. Where the Orissa Sales Tax Act contemplated rules for the manner and extent of deduction for labour, service charges, and sub-contractor payments, but no effective rules existed, assessments based solely on circulars fixing deduction rates were unsustainable. The court held that an incomplete or unworkable statutory deduction scheme cannot be completed by executive instructions, so the circulars lacked valid statutory footing and the assessment orders failed.

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Issues: Whether the impugned circulars and assessment orders relating to works contract turnover were valid in the absence of statutory rules prescribing the manner and extent of deduction for labour and service charges and payments to sub-contractors.

Analysis: The deduction scheme for works contract turnover under the Orissa Sales Tax Act contemplated prescription by rules, but no effective rules had been framed to provide the manner and extent of deductions. The assessment had been made by relying on administrative circulars that fixed deduction rates and directed the assessing authorities to follow them scrupulously. In matters of taxation, the charging and measuring provisions must be found in the statute or valid rules framed under it; administrative instructions cannot supply the missing legal basis. The court applied the principle that where the statutory framework for determining taxable turnover is incomplete and unworkable, the gap cannot be filled by circulars, and assessments founded solely on such circulars cannot stand.

Conclusion: The circulars had no valid statutory footing and the assessment orders based on them were unsustainable. The challenge succeeded in favour of the assessee, while leaving the tax liability to be reassessed in accordance with properly framed rules.

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