TaxTMI 
TaxTMI 
1992 (11) TMI 254
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....Jain, Vijay Hansaria and U.S. Prasad, Advocates, with them), for the respondetns. -------------------------------------------------- S.C. AGRAWAL, J.-Having heard learned counsel in S.L.P. (C) Nos. 3365 to 3368 of 1992 we hereby grant special leave to appeal and proceed to dispose of the appeals. These appeals arising from the judgment of the Rajasthan High Court dated September 3, 1991 Reported as Best & Crompton Engineering India v. State of Rajasthan in [1993] 88 STC 189 supra and the connected writ petition filed under article 32 of the Constitution raise questions relating to imposition of tax on the transfer of property in goods involved in the execution of works contracts. The power to impose this tax become available to the State Legislatures as a result of the amendments introduced in the Constitution by the Constitution (Forty-sixth Amendment) Act, 1982 (hereinafter referred to as the "Forty-sixth Amendment'). The validity of the said amendment has been upheld by this Court in Builders Association of India v. Union of India [1989] 73 STC 370; [1989] 2 SCR 320 wherein this Court has also considered the scope and ambit of the legislative power to impo....
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....ncial Legislature. The same view was taken by the Hyderabad High Court in Jubilee Engineering Co. Ltd. v. Sales Tax Officer [1956] 7 STC 423; AIR 1956 Hyd. 79. The Kerala High Court in Gannon Dunkerley and Co., Madras (Private) Ltd. v. Sales Tax Officer [1957] 8 STC 347; AIR 1957 Ker 146 and the Mysore High Court in Mohamed Khasim v. State of Mysore [1955] 6 STC 211, took the contrary view and upheld the power of the State to impose sales tax on the turnover relating to construction works. The Nagpur High Court in Pandit Banarsi Das v. State of Madhya Pradesh [1955] 6 STC 93 while declining to follow the decision of the Madras High Court expressed the view that the State Legislature could pick out a sale from the composite transaction of a building contract which included transfer of property in materials and could make the portion attributable to the cost of such materials subject to payment of sales tax in exercise of its undoubted and plenary powers. The Rajasthan High Court in Bhuramal v. State of Rajasthan [1957] 8 STC 463; AIR 1957 Raj 104, took a similar view. This conflict was resolved by this Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958]....
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....ation to Part C States under article 246(4) of the Constitution, has held that Parliament could impose a tax on the supply of materials in building contracts and to impose it under the name of sales tax because the said power of Parliament was plenary and absolute and was untrammelled by the limitations prescribed by article 246, clauses (2) and (3) and entry 54 in List II and that the decision in Gannon Dunkerley case [1958] 9 STC 353; [1959] SCR 379 which was given on a statute passed by the Provincial Legislature under the Government of India Act, 1935, had no application to such a case. (Page 423 of STC; 451 of SCR) After the decision in Gannon Dunkerley case [1958] 9 STC 353 (SC); [1959] SCR 379, the matter with regard to taxability of goods involved in the execution of works contracts was examined by the Law Commission. In its 61st Report the Law Commission, after considering the legal position, including the decision in Gannon Dunkerley case [1958] 9 STC 353 (SC); [1959] SCR 379, expressed the view: "Before the judgments of the Supreme Court, however, sale was usually regarded as including a works contract. The question is ultimately one of policy, but the Commission w....
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....is made;" Clause (3) of article 286 provides as under: "(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of,- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." After the Forty-sixth Amendment, various State Legislatures amended their sales tax legislation to make provision for imposition of sales tax in relation to works contracts. The constitutional validity of the Forty- sixth Amendment as well as the amendments made in the State legislations on that basis were challenged before this Court in appeals as well as writ petitions filed under article 32 of the Constitution. The said matters were disposed of by this Court by its judgment in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320. In that case, two points were raise....
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.... in some other form) involved in the execution of a works contract. The emphasis is on the transfer of property in goods (whether as goods or in some other form). The latter part of clause (29-A) of article 366 of the Constitution makes the position very clear. While referring to the transfer, delivery or supply of any goods that takes place as per sub-clauses (a) to (f) of clause (29-A), the latter part of clause (29-A) says that 'such transfer, delivery or supply of any goods' shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Hence, a transfer of property in goods under sub-clause (b) of clause (29-A) is deemed to be a sale of the goods involved in the execution of works contract by the person making the transfer and a purchase of those goods by the person to whom such transfer is made. The object of the new definition introduced in clause (29-A) of article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution so that it may include within its scope the tran....
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.... and conditions incorporated in article 286 of the Constitution. If that was the position can the States contend after the 46th Amendment under which by a legal fiction the transfer of property in goods involved in a works contract was made liable to payment of sales tax that they are not governed by article 286 while levying sales tax on sale of goods involved in a works contract? They cannot do so. When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. If the power to tax a sale in an ordinary sense is subject to certain conditions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under article 366(29-A) of the Constitution should also be subject to the same restrictions and conditions." (Page 400 of STC; pages 351 and 352 of SCR) After referring to the provisions of clause (1) of article 286 where the expression "a tax on the sale or purchase of goods" is used, this Court has observed: "Here again we have to read the expression 'a tax on the sale or purchase of goods' found in article 286 as including the transfer of goods....
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....nstitution, this Court has observed: "It may be that by virtue of sub-clause (b) of clause (3) of article 286 it is open to Parliament to impose some other restrictions or conditions which are not generally applicable to all kinds of sales. That however cannot make the other parts of article 286 inapplicable to the transactions which are deemed to be sales under article 366(29-A) of the Constitution. We are of the view that all transfers, deliveries and supplies of goods referred to in sub- clauses (a) to (f) of clause (29-A) of article 366 of the Constitution are subject to the restrictions and conditions mentioned in clause (1), clause (2) and sub-clause (a) of clause (3) of article 286 of the Constitution and the transfers and deliveries that take place under sub-clauses (b), (c) and (d) of clause (29-A) of article 366 of the Constitution are subject to an additional restriction mentioned in sub-clause (b) of article 286(3) of the Constitution. " (Page 398 of STC; 349 of SCR) The contention urged on behalf of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contrac....
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....ection and installation of equipment, etc. In the writ petition, the validity of the provisions relating to imposition of tax on the transfer of property in goods involved in the execution of a works contract contained in the sales tax laws of the States of Tamil Nadu, Andhra Pradesh and Rajasthan have been challenged. The reason for approaching this Court under article 32 of the Constitution, as stated in the writ petition, is that in spite of the decision of this Court in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320, the petitioner is being subjected to demands for tax in relation to works contracts by the various States and each State is wanting to tax the same transaction on the basis that it constitutes a sale under its sales tax law. In the said writ petition, the petitioner has impleaded all the States as respondents. We propose to consider this writ petition with reference to the provisions contained in the Rajasthan Sales Tax Act, 1954 and the Rajasthan Sales Tax Rules, 1955. During the course of arguments, Shri F.S. Nariman and Shri Harish Salve, learned counsel appearing for the appellants in the appeals, and Shri K. Parasaran, learned counsel appeari....
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....in the execution of a works contract and since no law has been enacted by the Parliament under articles 269(3), 286(2) and 286(3)(b) in relation to imposition of tax on transfer of property in goods involved in the execution of a works contract, it was not open to the State Legislatures to exercise the power to impose such tax. In this regard, it was contended that the Central Sales Tax Act, 1956, having not been amended after the Forty-sixth Amendment to include within its ambit a transfer of property in goods involved in the execution of a works contract, is not applicable to such a transfer and it cannot be treated to be a law made under article 269(3) and article 286(2) in relation to sales arising out of such transfers. It was further submitted that it is not permissible for the State Legislature to define the expression "sale" in a manner as to include within its ambit an inter-State sale as well as sale outside the State or sale in the course of import and thereby assume power to impose tax on the same. It has been contended that since the tax leviable by virtue of sub-clause (b) of clause (29-A) of article 366 is on goods which are involved in the execution of a works contr....
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.... to the constitutional limitations contained in article 286 of the Constitution. In this regard, Shri Narasimhamoorthy has urged that this question did not directly arise for consideration in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320 and the observations with regard to location of the power to impose this tax in the said judgment are in the nature of incidental or casual observations only and they do not preclude this Bench from considering this question. We find it difficult to accept this contention. The question whether as a result of the Forty-sixth Amendment, an independent taxing power has been conferred on the States had arisen for consideration before this Court in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320 since it was specifically raised in the contentions urged on behalf of the States. While summarising the said contentions this Court has thus mentioned this contention: "Sub-clause (b) of clause (29-A) of article 366 of the Constitution has conferred on the Legislatures of States, the power to levy tax on works contract which is independent of the power conferred on the Legislatures of the States under entry 54 of the State Li....
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....restrictions on the levy of sales tax by the States are intended to deal with different topics, and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under entry 54 of the State List." (Pages 402 and 403 of STC; 354 of SCR) These observations clearly indicate that the question whether the power to impose tax on the transfer of property in goods involved in the execution of a works contract is to be found in entry 54 in List II or is an independent taxing power squarely arose for consideration in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320 and has been answered categorically. It cannot, therefore, be said that the said question did not arise for consideration in that case and the observations of this Court in that regard are incidental or casual in nature only which do not preclude us from going into this question. Shri Narasimhamoorthy has then contended that the view of this Court in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320 that power conferred on the State Legislatures to impose tax on the transfer of property in goods involved in the execution of a works contract ....
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....regard to the observations referred to above and the stand of the parties during the course of arguments before us, we do not consider it appropriate to reopen the issues which are covered by the decision in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320 and we will, therefore, deal with the matter in accordance with the law as laid down in that case that the expression "tax on the sale or purchase of goods" in entry 54 of the State List includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also and the tax leviable by virtue of sub-clause (b) of clause (29-A) of article 366 of the Constitution is subject to the discipline to which any levy under entry 54 of the State List is made subject to under the Constitution. The legislative power of the States under entry 54 of the State List is subject to two limitations-one flowing from the entry itself which makes the said power "subject to the provisions of entry 92-A of List I", and the other flowing from the prohibition contained in article 286. Under entry 92-A of List I Parliament has the power to make a law in respect of taxes on s....
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.... of the nature referred to in sub-clauses (b), (c) and (d) of clause (29-A) of article 366. When such a law is enacted by the Parliament the legislative power of the States under entry 54 in the State List has to be exercised subject to the restrictions and conditions specified in that law. In exercise of the power conferred by article 286(3)(a) the Parliament has enacted sections 14 and 15 of the Central Sales Tax Act, 1956. No law has, however, been made by the Parliament in exercise of its power under article 286(3)(b). On behalf of the contractors, it has been contended that the legislative power conferred on the States under entry 54 of the State List can be exercised only after the Parliament has enacted a law under article 269(3) formulating principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce and a law under article 286(2) formulating principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1) of article 286. The submission is that no law as envisaged by article 269(3) and 286(2) has been enacted in respect of imposition of tax on transfer of pr....
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....ommerce or outside a State or in the course of import or export". Section 3 lays down the conditions when a sale or purchase of goods can be said to take place in the course of inter- State trade or commerce and it is referable to clause (3) of article 269. Section 4 prescribes the conditions when a sale or purchase of goods is said to take place outside a State and section 5 prescribes the condition when a sale or purchase of goods is said to take place in the course of import or export. Sections 4 and 5 are thus referable to clause (2) of article 286. Chapter III (sections 6 to 13) bears the heading "inter-State sales tax" and the said provisions are referable to entry 92-A of List I and sub-clause (g) of clause (1) of article, 269. Chapter IV (sections 14 and 15) bears the heading "goods of special importance in inter-State trade or commerce" and the said provisions are referable to sub-clause (a) of clause (3) of article 286. The question is whether in the absence of an amendment in the Central Sales Tax Act specifically applying its provisions to a transfer of property in goods involved in the execution of a works contract, the provisions of sections 3, 4 and 5 contained....
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....tion introduced by the Forty-sixth Amendment, has been altered into a contract which is divisible into one for sale of goods and other for labour and services. Reference may be made in this context to the oft-quoted observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 (HL): "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it...... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." If the legal fiction introduced by article 366(29-A)(b) is carried to its logical end it follows that even in a single and indivisible works contract there is a deemed sale of the goods which are involved in the execution of a works contract. Such a deemed sale has all the incidents of a sale of goods involved in the execution of a works contract where t....
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....egislatures to impose a tax on the transfers referred to in sub-clause (b) of clause (29-A) of article 366. In support of this submission, reliance has been placed on the decision of this Court in Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 STC 446; [1955] 2 SCR 603, wherein it was held that until the Parliament by law made in exercise of the powers vested in it by clause (2) provides, no State could impose or authorise the imposition of any tax on sales or purchase of goods when such sales or purchases take place in the course of inter-State trade or commerce. The aforesaid observations made in the context of clause (2) of article 286, as it stood at that time, can have no bearing on sub-clause (b) of clause (3) of article 286. Under clause (2) of article 286, as it stood at the time when Bengal Immunity case [1955] 6 STC 446 (SC); [1955] 2 SCR 603 was decided, the States were precluded from imposing or authorising imposition of tax on the sale or purchase of any goods in the course of inter- State trade or commerce except in so far as the Parliament may by law or otherwise provide. In the absence of a law by the Parliament so providing, it was not permissible for the Stat....
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.... only in the State where the work is required to be executed. On behalf of the contractors, on the other hand, it has been urged that a works contract can involve transactions constituting a sale in the course of inter-State trade and commerce as well as an outside sale or a sale in the course of import and that is a matter which will have to be considered in accordance with the principles contained in sections 3, 4 and 5 of the Central Sales Tax Act keeping in view the terms and conditions of the particular contract. In this regard, the learned counsel have placed reliance on a number of decisions of this Court wherein the provisions of sections 3 and 4 of the Central Sales Tax Act, 1956, have been considered. We do not propose to go into this controversy because the question whether a deemed sale resulting from transfer of property in goods involved in the execution of a particular works contract amounts to a sale in the course of inter-State trade or commerce under section 3 of the Central Sales Tax Act or an outside sale under section 4 of the Central Sales Tax Act or a sale in the course of import under section 5 of the Central Sales Tax Act has to be decided in the light of t....
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....n the course of inter-State trade or commerce or outside sales or sales in the course of import and export. In this regard, it may be stated that so far as sales in the course of inter-State trade or commerce are concerned, the position is well- settled that the situs of the sale or purchase is wholly irrelevant as regards its inter-State character. (See: Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 STC 446 (SC) at 481; [1955] 2 SCR 603 at 650). In Onkarlal Nandlal v. State of Rajasthan [1985] 60 STC 314 (SC); [1985] Suppl 3 SCR 1075, it has been observed: "There is, in our opinion, no antithesis between a sale in the course of inter-State trade or commerce and a sale inside the State. Even an inter- State sale must have a situs and the situs may be in one State or another. It does not involve any contradiction in saying that an inter-State sale or purchase is inside a State or outside it." (Page 321 of STC; 1086 of SCR). The location of the situs of the sale in sales tax legislation of the State would, therefore, have no bearing on the chargeability of tax on sales in the course of inter-State trade or commerce since they fall outside the field of legislative competen....
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.... the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. We are, however, unable to agree with the contention urged on behalf of the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods involved in the execution of the works contract the cost of incorporation of the goods in the works can be included in the measure for levy of tax. Incorporation of the goods in the works forms part of the contrac....
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....used in the execution of a works contract [item No. (iv)], and the cost of consumables such as water, electricity, fuel, etc., which are consumed in the process of execution of a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in [item No. (vi)] cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is inc....
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....to the extent it is relatable to supply of labour and services. The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. We may, however, make it clear that apart from the deductions referred to above, it will be necessary to exclude from the value of the works contract the value of the goods which are not taxable in view of sections 3, 4 and 5 of the Central Sales Tax Act and goods covered by sections 14 and 15 of the Central Sales Tax Act as well as goods which are exempt from tax under the sales tax legislation of the State. The value of goods involved in the execution of a works contract will have to be determined after making these deductions and exclusions from the value of the works contract. Normally, the contractor will be in a position to furnish the necessary material to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authorit....
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....mitted that it is permissible for the State to impose a particular rate of tax on all goods involved in the execution of a works contract which may be different from the rates of tax applicable to those goods when sold separately. In the field of taxation the decisions of this Court have permitted the Legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes. (See: East India Tobacco Company v. State of Andhra Pradesh [1962] 13 STC 529 (SC) at page 534; [1963] 1 SCR 404 at page 411, P.M. Ashwathanarayan Shetty v. State of Karnataka [1988] Supp 3 SCR 155 at page 188, Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC) at page 126; [1989] 2 SCR 918 at page 949 and Kerala Hotel & Restaurant Association v. State of Kerala [1990] 77 STC 253 (SC) at page 264; [1990] 1 SCR 516 at page 530). Imposition of sales tax at different rates depending on the value of the annual turnover was upheld in Kodar v. State of Kerala [1974] 34 STC 73 (SC); [1975] 1 SCR 121. Similarly, imposition of purchase tax at different rates for s....
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....ution of a works contract for the purpose of levying the tax referred to in article 366(29-A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract. (6) The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works, (ii) amount paid to a sub-contractor for labour and services, (iii) charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract, (iv) charges for planning, designing and architect's fees, and (v) cost of consumables used in the execution of the works contract, (vi) cost of establishment of the contractor to the extent it is relatable to supply of labour and services, (vii) other similar expenses relatable to supply of labour and services, and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services. (7) To deal with ....
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....yable to the dealer for the transfer of property in goods (whether as goods or in some other form) made in the course of execution of a contract or works contract. By Rajasthan Sales Tax (Amendment) Act, 1988 (9 of 1988), certain further amendments were made in the definition of "sale" contained in clause (o) and definition of "turnover" contained in clause (t) of section 2. Clause (u) was introduced in section 2 to define "works contract". Sub-section (3) was added in section 5 and sub- section (2-C) was inserted in section 7. By Rajasthan Sales Tax (Second Amendment) Act, 1988 (13 of 1988), the definition of "works contract" contained in clause M of section 2 was substituted. After the decision of this Court in Builders Association case [1989] 73 STC 370; [1989] 2 SCR 320, Rajasthan Sales Tax (Amendment) Act, 1990 (3 of 1990) was enacted whereby some minor changes were made in the definition of "sale" contained in clause (o) and the last proviso, which was inserted in the definition of "sale price" contained in clause (p) by Rajasthan Act No. 7 of 1987, was deleted. In the Rajasthan Sales Tax Rules, 1955, by Notification dated May 28, 1987, sub-rule (2) was inserted in rule 29....
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....volved in the execution of a works contract shall be deemed to take place within the State of Rajasthan if the goods are within the State at the time of their appropriation or application or use for the execution of the works contract irrespective of the place where the agreement for such works is made or from where the goods are transferred or delivered for use in the works contract. Explanation II.-Where the work under a works contract is spread over many States including the State of Rajasthan, the proportionate work done within the State of Rajasthan shall be deemed to be the sale under this clause irrespective of the place of agreement for works or the point of movement of goods involved in the execution of that works contract;" The main part of the said definition incorporates the provisions contained in clause (29-A) of article 366. Explanations I and II seek to fix the situs of the deemed sale in respect of goods involved in the execution of a works contract. The objection of the learned counsel for the appellants is that explanation I widens the amplitude of the expression "sale" so as to include deemed sales which are in the course of inter-State trade and commerce ....
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....rectly correlated with the goods, property in which has passed in the execution of works contract, whether as goods or in some other form: Provided that where the labour charges are not determinable from the accounts of the contractors, or are considered unreasonably high considering the nature of the contract, the deduction towards labour charges shall be allowed by the assessing authority according to the limits prescribed in column 3 for the type of contract specified in column 2 of the Table given below:" (Table-omitted) Sub-section (2-C) of section 7 lays down- "(2-C) Notwithstanding anything contained in this Act, in the case of a works contract, the tax may be deducted in such manner and under such circumstances as may be prescribed, from every bill of payment to a contractor. " Sub-rule (2) of rule 46 of the Rajasthan Sales Tax Rules provides as under: "46(2)(a). In a works contract, the awarder in case of its being a department of any Government, a Corporation, a Government under- taking, a co-operative society, a local body, a trust or a private or public limited company, responsible for paying any sum to a contractor for carrying out any works, shal....
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....t, be deemed to be the amount payable to the dealer for carrying out such contract less the cost of labour up to such extent as may be prescribed. Section 5(3) read with clause (t) of section 2 of the Rajasthan Sales Tax Act, thus, provides that in relation to a works contract, tax would be leviable on the value of the works contract after deducting (i) the cost of labour up to such extent as may be prescribed in the rules framed under the Act in view of the explanation (i) to clause 2(1)(t); and (ii) such deductions as may be prescribed under the rules in view of the proviso to section 5(3). The Legislature has not made any express provision for exclusion of transactions constituting deemed sales which take place in the course of inter-State trade or commerce or outside the State or in the course of import and export in relation to which the State Legislature lacks the competence to impose a tax under entry 54 of the State List. Nor has any provision been made with regard to sales of goods which are declared to be of special importance in inter-State trade or commerce and are governed by sections 14 and 15 of the Central Sales Tax Act. The matter has been left to the discretion of....
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....ax Act and it has been directed that in respect of such goods the tax shall not exceed the limits laid down in clause (a) of section 15 of the Central Sales Tax Act, and that tax shall not be payable on such goods if the sale takes place outside the State within the meaning of section 4 of the Central Sales Tax Act and further that the tax shall not be leviable in the State at more than one stage. In view of non obstante clause in sub-section (3) of section 5, the said provisions contained in sub-section (1) are not applicable to works contracts and sub- section (3) of section 5 alone is applicable. A comparison of the provisions contained in sub-section (3) of section 5 read with section 2(t) and sub-section (1) of section 5 read with section 2(s) would indicate that in relation to works contracts the Legislature has made a departure in the matter of chargeability of the tax and by using the expression "turnover" instead of "taxable turnover" in section 5(3) it has enlarged the field of taxability to permit tax being levied on sales in the course of inter-State trade or commerce, sales outside the State and sales in the course of import and export and to ignore the conditions a....
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....he words "which have already suffered tax at the rates prescribed under section 5" are wide enough to permit deduction in respect of goods on which no tax is leviable under sub- section (1) of section 5 of the Act, namely, sales in the course of inter-State trade or commerce or sales outside the State or in the course of import and export as well as sales of goods which have declared to be of special importance in the course of inter-State trade or commerce under section 14 of the Central Sales Tax Act and are governed by section 15 of the said Act. We find it difficult to accept this contention. The words "which have already suffered at the rates prescribed under section 5" only refer to the goods which have already been subjected to tax under the Act at the rates specified under section 5, and their value is to be excluded from the turnover. The goods on which no tax is leviable under sub-section (1) of section 5 are not subject to any tax under the Act and there is no question of such goods having suffered tax at the rates prescribed under section 5. In this context we may again refer to the definition of "taxable turnover" contained in section 2(s) of the Rajasthan Sales Tax....
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....ot take into account the conditions and restrictions imposed by section 15 of the Central Sales Tax Act on goods declared to be of special- importance in inter-State trade or commerce under section 14 of the Central Sales Tax Act. Clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules also suffers from the same infirmity. Section 5(3) of the Rajasthan Sales Tax Act and clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules must, therefore, be held to be unconstitutional and void. Since the invalidity of section 5(3) goes to the root of the imposition of tax and in the absence of the said provision the tax cannot be levied, the appellants in the appeals are entitled to succeed. In the circumstances, it is not necessary to examine the other questions relating to the validity of explanation I to clause (o) of section 2 of the Rajasthan Sales Tax Act, explanation (i) to clause (t) of section 2, sub-section (2-C) of section 7, clause (ii) of sub-rule (2) of rule 29 and sub-rule (2) of rule 46 of the Rajasthan Sales Tax Rules. The appeals are, therefore, allowed. The judgment and order of the High Court is set aside, and it is declared that sub-secti....