Works-contract composition excludes dealers sourcing goods outside the State, while qualifying pre-amendment options remain protected from retrospective changes.
The State legislature may amend the works-contract composition scheme and exclude dealers purchasing goods outside the State or importing goods. The sourcing condition is a valid fiscal classification and does not restrict inter-State trade: it conditions a concession without imposing additional tax or restricting movement. Ineligible dealers' incorrect composition returns may be reassessed under Section 27 where turnover has escaped assessment or been assessed at a lower rate, with taxable turnover determined under Section 5. Split assessment and blanket exemptions for special economic zone developers and co-developers are unavailable under the scheme. The Central Sales Tax exemption does not extend to constructing and leasing residential units in a special economic zone; State exemptions depend on authorisation and prescribed conditions. The valid retrospective amendment does not apply to 2006-07 or to dealers who exercised their 2007-08 option before the amendment, but applies for 2007-08 to those who had not done so.
Issues: (i) Whether the State legislature was competent to amend the works-contract composition scheme. (ii) Whether excluding dealers who purchase goods outside the State or import goods from composition violates equality or freedom of business. (iii) Whether the exclusion infringes freedom of inter-State trade and commerce. (iv) Whether returns filed under the composition scheme by ineligible dealers may be reassessed under Section 27. (v) Whether the Central Sales Tax exemption extends to residential construction and leasing in a special economic zone. (vi) Whether Section 6 can be read down to allow split assessment or exempt special economic zone developers and co-developers. (vii) Whether the amendment's retrospective operation is valid and applies to composition options already exercised.
Issue (i): Whether the State legislature was competent to amend the works-contract composition scheme.
Analysis: Legislative competence derived from Article 246(3) and the then applicable Entry 54 of List II includes the power to amend a tax law and prescribe conditions for concessions. Delegation of exemption powers under Sections 15 and 30 of the Tamil Nadu Value Added Tax Act did not displace the legislature's authority.
Conclusion: The State legislature was competent to enact the amendment. Against the assessee.
Issue (ii): Whether excluding dealers who purchase goods outside the State or import goods from composition violates equality or freedom of business.
Analysis: Works contractors do not form an indivisible class for every fiscal purpose. The distinction between local procurement and procurement from outside the State has a rational nexus to protecting revenue and creating a level playing field. Fiscal legislative deference applies, and the composition scheme is an optional alternative to regular assessment.
Conclusion: The exclusion violates neither equality nor freedom of business. Against the assessee.
Issue (iii): Whether the exclusion infringes freedom of inter-State trade and commerce.
Analysis: The amendment sets a condition for a composition concession rather than imposing an additional tax on outside goods. It does not prohibit their purchase or movement, alter the applicable tax rate on goods, or give one State preference over another. No restriction requiring prior presidential sanction was identified.
Conclusion: The exclusion does not infringe freedom of inter-State trade and commerce. Against the assessee.
Issue (iv): Whether returns filed under the composition scheme by ineligible dealers may be reassessed under Section 27.
Analysis: Section 27 addresses escaped turnover and assessment at a lower rate. Turnover includes the value of goods transferred in works contracts. Where an ineligible dealer files an incorrect composition return, reassessment is available on the statutory conditions, with taxable turnover determined under Section 5; Section 28 separately addresses undisclosed turnover under composition provisions.
Conclusion: Yes. Section 27 may be invoked where its conditions are met. Against the assessee.
Issue (v): Whether the Central Sales Tax exemption extends to residential construction and leasing in a special economic zone.
Analysis: Section 8(6) of the Central Sales Tax Act was treated as extending to specified authorised operations connected with processing for export. An authorised co-developer may be treated on par with a developer under the special economic zone framework; exemption under the State enactment remains dependent on authorisation and prescribed conditions, requiring factual verification.
Conclusion: No. The Central Sales Tax exemption does not extend to putting up residential units and leasing them. Against the assessee on that exemption.
Issue (vi): Whether Section 6 can be read down to allow split assessment or exempt special economic zone developers and co-developers.
Analysis: The provision was upheld as constitutionally valid and its language did not contemplate dividing turnover between regular assessment and composition. Reading it down to create those benefits or a blanket exclusion for developers and co-developers would rewrite the statutory conditions.
Conclusion: No. Section 6 cannot be read down to create either exception. Against the assessee.
Issue (vii): Whether the amendment's retrospective operation is valid and applies to composition options already exercised.
Analysis: Retrospective fiscal legislation is permissible where expressly enacted and not irrational or unreasonable. The amendment was introduced shortly after the commencement of the Act, but an option already exercised under the earlier provision was final for the financial year and gave rise to a vested right.
Conclusion: The retrospective operation is valid, but the amendment does not apply to assessment year 2006-07 or to dealers who exercised the option for 2007-08 before the amendment. It applies for 2007-08 to dealers who had not exercised the option by that date. Partly in favour of the assessee and partly in favour of Revenue.
Final Conclusion: The composition concession remains subject to the statutory sourcing condition, while pre-amendment options retain protection for the identified assessment years.
Ratio Decidendi: A State may condition access to an optional works-contract composition scheme on the source of goods where the classification bears a rational nexus to legitimate fiscal objectives.