Tax deduction under works contract law requires an actual transfer of property in goods, not just a contractual deduction clause.

Tax deduction at source under section 27 of the Punjab Value Added Tax Act, 2005 applies only where the underlying transaction involves a transfer of property in goods in pursuance of a works contract. A contract for data-entry and allied computerized work, with no admitted sale or transfer of property in goods, does not attract any liability to deduct tax merely because it contains a deduction clause. In such circumstances, deduction cannot be compelled, and amounts already recovered may be challenged and sought back by the payer.

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Issues: Whether deduction of tax under section 27 of the Punjab Value Added Tax Act, 2005 was permissible from payments made under a contract where no transfer of property in goods was involved.

Analysis: The contract was for data-entry and allied computerized work, and the admitted position was that it did not involve any sale or transfer of property in goods. Section 27 of the Punjab Value Added Tax Act, 2005 permits deduction only in a contract for transfer of property in goods in pursuance of a works contract. In the absence of any taxable sale or transfer of property in goods, no liability to deduct tax could arise merely because the contract contained a deduction clause. The availability of the remedy under section 27(10) did not require the petitioner to be driven to that route in view of the admitted facts.

Conclusion: Deduction under section 27 was not permissible, and the petitioner was entitled to challenge the deduction and seek refund of amounts already recovered.

Ratio Decidendi: Tax deduction at source can be made only when the statute creates a liability to tax on the underlying transaction; in the absence of any transfer of property in goods in a works contract, no deduction can be compelled merely on the basis of the contract between the parties.

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