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Issues: (i) Whether the contract for laying underground cables with allied trenching, digging and installation work was a works contract or merely job work / supply of labour and service; (ii) Whether penalty under Section 8D(6) could be sustained for failure to deduct tax where no bifurcation of the taxable value was furnished.
Issue (i): Whether the contract for laying underground cables with allied trenching, digging and installation work was a works contract or merely job work / supply of labour and service.
Analysis: The agreement required the contractor to carry out trenching, road cutting, laying and commissioning of cables, restoration work and related civil works, while also using materials and performing installation-related activities. The statutory definition of works contract under Section 2(m) of the U.P. Trade Tax Act, 1948 is wide and includes building, construction, installation, fitting out and commissioning. In light of Article 366(29A) of the Constitution of India, the dominant intention test is not applicable where the contract otherwise contains the elements of a works contract. The contract was therefore a composite contract and not one confined to labour or service.
Conclusion: The contract was a works contract and not mere job work or labour supply.
Issue (ii): Whether penalty under Section 8D(6) could be sustained for failure to deduct tax where no bifurcation of the taxable value was furnished.
Analysis: Section 8D(1) obliges the payer to deduct tax from payment made to a contractor in respect of works contract liability, and Section 8D(6) authorises penalty on failure to make such deduction. The penalty provision is attracted on the failure to deduct and does not depend on proof of intent to evade. The revisionist did not furnish material before the authorities or the Court to enable bifurcation of the contract value or identification of the taxable component under Section 3F(2)(b). In the absence of such material, no basis existed to restrict the penalty to any lesser amount.
Conclusion: The levy of penalty under Section 8D(6) was upheld and no reduction on the ground of unproven bifurcation was warranted.
Final Conclusion: The revisions failed, as the contract fell within the statutory concept of a works contract and the statutory consequence of non-deduction of tax was attracted.
Ratio Decidendi: A composite contract involving laying, installation and allied civil work for underground cables is a works contract under the trade tax law, and failure to deduct tax from payments made thereunder attracts penalty under Section 8D(6) without the need to prove mens rea; in the absence of material enabling bifurcation, the penalty cannot be curtailed on conjectural valuation.
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