Works contract taxation limits prevent Bihar from treating inter-State goods as a separate local sale or taxing declared goods again.

Goods manufactured at Pondicherry and moved to Bihar for execution of a works contract could not be treated as a separate local sale in Bihar where the transaction was governed by the Central Sales Tax Act and article 366(29A)(b). Declared goods such as iron and steel, having already suffered tax at Pondicherry, could not be subjected to further levy in Bihar because sections 14 and 15 restrict taxation of declared goods to one stage and within statutory limits. The assessment for the relevant year also failed because the levy was attempted without a proper statutory mechanism for determining taxable value and deductions in works contracts. The assessment order was therefore set aside.

---

---

Issues: (i) whether goods manufactured at Pondicherry and moved to Bihar for use in execution of a works contract could be included in the taxable turnover in Bihar as a separate local sale; (ii) whether iron and steel, being declared goods, could be subjected to further tax in Bihar after having already suffered tax at Pondicherry; and (iii) whether, for the relevant assessment year, the assessment in respect of the works contract could be sustained in the absence of a proper statutory mechanism.

Issue (i): whether goods manufactured at Pondicherry and moved to Bihar for use in execution of a works contract could be included in the taxable turnover in Bihar as a separate local sale.

Analysis: The governing principles under the Central Sales Tax Act, 1956 and article 366(29A)(b) of the Constitution of India require the assessing authority to determine whether the transaction is an inter-State sale, an outside sale, or a sale exigible only to the State where the transfer of property in goods is legally located. In a works contract, the value of goods involved can be taxed, but the State cannot tax a transaction that is in substance an inter-State movement already governed by the central law. On the facts found, the goods were manufactured at Pondicherry and dispatched for execution of the contract, and the Court accepted that the transaction could not be split so as to create a further taxable sale in Bihar in the manner attempted by the assessing authority.

Conclusion: The inclusion of the goods in Bihar turnover as a separate taxable local sale was not sustainable.

Issue (ii): whether iron and steel, being declared goods, could be subjected to further tax in Bihar after having already suffered tax at Pondicherry.

Analysis: Sections 14 and 15 of the Central Sales Tax Act, 1956 place restrictions on taxation of declared goods, including the ceiling rate and the requirement that such goods not be taxed at more than one stage. The Court accepted that the goods in question were declared goods and that tax had already been paid at Pondicherry. In such circumstances, further levy in Bihar would offend the statutory restrictions governing declared goods and amount to impermissible additional taxation.

Conclusion: No further sales tax could be levied on the declared goods in Bihar.

Issue (iii): whether, for the relevant assessment year, the assessment in respect of the works contract could be sustained in the absence of a proper statutory mechanism.

Analysis: Applying the earlier binding approach on works contracts and the requirement that the taxable value and deductible elements be ascertained under a workable statutory framework, the Court found that, for the relevant period, the assessment machinery was not properly evolved to support the levy in the manner adopted by the department. The assessment, therefore, lacked a sustainable legal basis and could not be upheld.

Conclusion: The assessment could not be sustained in the absence of a proper mechanism.

Final Conclusion: The assessment order was set aside and the petitioner was held not liable to any further sales tax on the goods used in the works contract.

Ratio Decidendi: A State cannot levy further tax on goods involved in a works contract when the transaction is governed by the Central Sales Tax Act and the goods are declared goods already subjected to tax, and the levy must also rest on a legally workable assessment mechanism consistent with constitutional and statutory limits.

---