Court upholds DVAT Act and Rules validity, dismisses challenge. Natural justice argument rejected. Writ petitions dismissed.

The court upheld the validity of Section 5(2) of the DVAT Act, 2004 and Rule 3(2) of the DVAT Rules, 2005, dismissing the challenge to their constitutionality. It also rejected the argument that the impugned orders were passed in violation of principles of natural justice, suggesting this could be raised in the petitioners' appeals. The writ petitions were dismissed, with no order as to costs.

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Issues Involved:
1. Vires of Section 5(2) of the DVAT Act, 2004 and Rule 3(2) of the DVAT Rules, 2005.
2. Validity of the impugned orders passed by the respondent no.3 in violation of principles of natural justice.

Issue-wise Detailed Analysis:

1. Vires of Section 5(2) of the DVAT Act, 2004 and Rule 3(2) of the DVAT Rules, 2005:

The petitioner challenged the constitutionality of Section 5(2) of the DVAT Act, 2004 and Rule 3(2) of the DVAT Rules, 2005, arguing that these provisions do not provide a proper mechanism to compute taxable turnover after deducting 'turnover of sub-contractors.' This challenge was based on the assertion that the provisions do not conform to the law laid down by the Supreme Court in the judgment titled State of Andhra Pradesh v. Larsen & Toubro Ltd. [2008] 16 STT 501.

The petitioner's counsel argued that the omission in the provisions was against the spirit of the Constitutional provisions relating to works contract legislation. They highlighted the historical background of the works contract legislation, referencing the 46th Constitutional Amendment and subsequent Supreme Court judgments, which mandated proper deductions in the computation of taxable turnover, including sub-contract turnover.

The respondent's counsel countered that VAT being a State subject, each State has its own laws, and the validity of DVAT and DVAT Rules cannot be tested by contrasting these provisions with those of other States. They argued that the grant of deduction or exemption is a legislative prerogative and that the current mechanism under the DVAT Act does not lead to multiple taxation. The court agreed with the respondent, noting that the net tax liability remains the same and that the legislative prerogative cannot be questioned.

2. Validity of the Impugned Orders Passed by Respondent No. 3 in Violation of Principles of Natural Justice:

The petitioner contended that the impugned orders were passed in gross violation of the principles of natural justice, as respondent no.3 neither issued notice nor afforded an opportunity of hearing in deciding the exemption and exclusion on labor and service charges incurred by the petitioner in the execution of the works contract.

The court observed that the petitioner had failed to produce the necessary documents despite multiple opportunities and show cause notices issued by the respondent. The court noted that the petitioner had not provided copies of contracts with sub-contractors or other relevant records, which led to the assessment orders being passed based on the available information.

The court concluded that there was no basis for the apprehension that the mechanism provided under the DVAT Act and Rules could lead to double taxation. The court upheld the validity of the provisions, stating that the manner in which deductions and exemptions are to be granted is a legislative prerogative. The court dismissed the writ petitions, noting that the petitioners could raise the argument of violation of natural justice in their appeals against the impugned orders.

Conclusion:

The court upheld the validity of Section 5(2) of the DVAT Act, 2004 and Rule 3(2) of the DVAT Rules, 2005, dismissing the challenge to their constitutionality. The court also dismissed the contention that the impugned orders were passed in violation of principles of natural justice, suggesting that this argument could be raised in the petitioners' appeals. The writ petitions were accordingly dismissed, with no order as to costs.

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