Deduction at source for works contracts upheld when confined to taxable turnover and preserving exemptions and certificates.

Section 27 of the Assam General Sales Tax Act, 1993 was treated as a tax recovery mechanism, not an independent charging provision, and was upheld on a reading that confines deduction at source to sales or supplies actually liable to tax, including goods involved in works contracts to the extent permitted by the charging provisions. The Court held that statutory exemptions, deductions, and the certificate mechanism under Rule 35(5) must remain available for contractors, so the provision is neither arbitrary nor confiscatory and does not offend Articles 265, 286, or 300A. The validity challenge therefore failed, subject to these limiting constructions.

---

---

Issues: Whether Section 27 of the Assam General Sales Tax Act, 1993, providing for deduction of tax at source in respect of works contracts and sales or supply of goods, was ultra vires, confiscatory, or violative of Articles 265, 286 and 300A of the Constitution of India, and whether the provision had to be read with the charging and exemption provisions and the certificate mechanism under the Rules.

Analysis: The challenge was considered against the background of the constitutional position on works contracts after the forty-sixth amendment and the settled principle that the State can levy tax only within the limits of Entry 54 and Article 286. The provision was treated as a recovery mechanism and not as an independent charging section. Section 27 was read along with Sections 7 and 8 of the Act so that only taxable sales or supplies, including goods involved in works contracts to the extent legally liable to tax, could be subjected to deduction at source. The Court further held that the benefit of exemptions and deductions available under the charging provisions would apply to deductions under Section 27 as well, and that the certificate mechanism under Rule 35(5) would also be available to contractors executing works contracts. On that construction, the provision was not arbitrary, confiscatory, or beyond legislative competence.

Conclusion: The challenge failed. Section 27 was upheld by reading it down, and the allied complaint against the deduction mechanism and the related rule was rejected.

Final Conclusion: The batch of writ petitions was disposed of after sustaining the validity of the impugned tax deduction provision with clarifying limitations and application of the statutory exemptions and deductions.

Ratio Decidendi: A tax deduction at source provision relating to works contracts is valid as a machinery provision if it is confined to amounts actually liable to tax under the charging provisions and is construed so as to preserve the statutory exemptions, deductions, and certificate safeguards.

---