TaxTMI 
TaxTMI 
2003 (11) TMI 565
X X X X Extracts X X X X
X X X X Extracts X X X X
....rate consideration for the same as well as another schedule relating to erection/installation including civil portion of work to be executed, as appended to the contract. After securing the contract the petitioners secured an exclusive registration on the file of the Deputy Commissioner of Commercial Taxes, Barauni, respondent No. 3. It is submitted by the petitioners that in response to the notice issued by respondent No. 3, they produced their books of accounts and other details to finalise the assessment for the period April 1, 2000 to March 31, 2001 under the Bihar Finance Act, 1981 and the Central Sales Tax Act, 1956. It is also submitted that in compliance to the notice issued by the respondent No. 3 they submitted various details and documents under their registered letter and thereafter also personally appeared before the said Deputy Commissioner on various dates and produced the required documents, and as alleged by the petitioners extended full co-operation to finalise the assessment for the period under reference. According to them they were served with a notice of demand dated January 28, 2002 which was received by the petitioners on January 31, 2002. According to the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ihar Finance Act is enacted, the said section 21(1) of the Act would not become workable and in the matter of works contract, the works contractor cannot be assessed. Number of other pleadings were raised by the petitioners in the writ applications, however, the argument was confined to the follow up legislation to section 21(1)(a)(i) of the Bihar Finance Act, 1981 prescribing the "manner and extent of deduction". The other questions raised in the writ applications were not pressed into service probably because this Court could direct that the petitioners may raise all the questions in a duly constituted appeal. 4. The respondents have filed their counter, inter alia, submitting that the assessing officer has assessed the petitioners on best judgment on sound principles of law. The order was passed after affording fullest opportunity to the petitioners, the taxable turnover was determined strictly in accordance with rule 13-A of the Bihar Sales Tax Rules, 1983 ("the Rules", for short) read with section 13 of the Bihar Sales Tax Act, 1981. 5. It is also submitted in the counter-affidavit that section 21(1)(a)(i) of the Act has been properly followed by enacting rule 13-A of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proceeded ex parte and passed the assessment order, contained in annexure 7 impugned in C.W.J.C. No. 2740 of 2003. 8. For proper appreciation of the disputes between the parties, it would be necessary to refer to the history of the legislation. In the matter of the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353, the Supreme Court held that a works contract was an individual indivisible contract and the turnover of the goods used in execution of the works contract could not, therefore, become exigible to sales tax. To overcome this difficulty and meet the judgment of the Supreme Court, the Parliament amended article 366 of the Constitution of India by introducing sub-clause (b) of clause (29A). The said clause reads as under: "(29A) 'tax on the sale or purchase of goods' includes,- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) 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; (c) a tax on the delivery of goods on hire-p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....article 368(2) of the Constitution of India, the Constitution (46th Amendment) Act, 1982 is valid. The Supreme Court also observed that when the law creates a legal fiction such fiction should be carried out to its logical end. There should not be any hesitation in giving full effect to it. According to the Supreme Court 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(29A) of the Constitution should also be subject to the same restrictions and conditions. Ordinarily unless there is a contract to the contrary in the case of a works contract the property in the goods used in the construction of a building passes to the owner of the land on which the building is constructed, when the goods or materials used are incorporated in the building. The contractor becomes liable to pay the sales tax ordinarily when the goods or materials are so used in the construction of the building and it is not necessary to wait till the final bill is prepared for the entire work. It was also observed by the Supreme Court that it would not be correct t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s also admit that they are dealers in accordance with section 2(e) of the Bihar Finance Act. The basic dispute is in relation to the gross turnover and applicability and workability of section 21(1) of the Bihar Finance Act. The words "gross turnover" has been defined under section 2(j) of the Bihar Finance Act, which reads as under: "2(j) 'Gross turnover' means- (i) for the purposes of levy of sales tax, in respect of sale of goods, aggregate of sale prices received and receivable by a dealer, including the gross amount received or receivable for execution of works contract or for the transfer of right to use any goods for any purpose (whether or not for a specified period) during any given period (and also including the sale of goods made outside the State and in the course of inter-State trade or commerce or export), but does not include sale prices of goods which have borne the incidence of purchase tax under section 4; (ii) for the purposes of levy of purchase tax, aggregate of purchase prices paid or payable by a dealer during any given period in respect of purchase of goods or class or description of goods which have borne the incidence of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the tax can be levied only on the value of the goods so involved and the value of the works contract cannot be made measure for levying the tax. The Supreme Court accepting the said argument observed that measures for levying of the tax contemplated by article 366(29A)(b) is the value of the goods involved in execution of a works contract. The Supreme Court further observed that the tax is imposed on the transfer of property in works 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. The Supreme Court, however, disagreed with the argument 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. According to the Supreme Court 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 incorporatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the executi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h 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." 13. From this judgment of the Supreme Court it would be crystal clear that particular amounts are deductible and apart from that it would be necessary to exclude from the value of the works contract, the value of those 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. 14. In the matter of Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204, the Supreme Court was considering the effect of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules as substituted by Notification dated 24th June, 1989. It reads as under: "(2) In case of works contract, tax shall be computed on the turnover of the contractor after deducting- (i) the value of the goods transferred in execution of works contract, whether as goods or in some ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....akes place in the course of inter-State trade or commerce, or which takes place outside the State or which takes place in the course of import and export within the meaning of sections 3, 4, and 5, respectively of the Central Sales Tax Act, etc. The Supreme Court also observed that clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules also suffers with the same infirmity and therefore section 5(3) of the Act and clause (i) of sub-rule (2) of rule 29 of the Rules must, therefore, be held to be unconstitutional and void. The Supreme Court observed that 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 before them were entitled to succeed. The Supreme Court quashed the assessment orders. 18. Section 21 of the Bihar Finance Act reads as under: "21. Taxable turnover.-(1) For the purpose of this part the taxable turnover of a dealer shall be that part of his gross turnover which remains after deduction therefrom- (a)(i) in case of the works contract the amount of labour and any other charges in the manner and to the extent prescribed; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the taxable turnover of the purchasing dealer." 19. "Gross turnover" is defined under clause (j) of section 2 of the Act while "taxable turnover" is described in section 21 of the Act. According to section 21(1), the taxable turnover of a dealer shall be that part of his gross turnover which remains after deduction therefrom (a)(i) in case of the works contract the amount of labour and any other charges in the manner and to the extent prescribed (emphasis supplied). 20. From a perusal of clause (a)(i) of section 21(1) it would appear that the deductions are to be given in case of the works contract of the amount of labour and any other charges. The said deductions are to be given in the manner and to the extent prescribed. 21. The word "prescribed" according to the clause (r) of section 2 of the Act means prescribed by Rules made under the Act. When the State Legislature says that something is to be done in accordance with law then that is to be done in that manner and as prescribed and not otherwise. When the State Legislature says that the word "prescribed" means prescribed by the Rules then whatever is to be prescribed for making each and every section....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Bihar Finance Act. 24. It is contended by the authorities and the learned counsel for the State that whatever deductions were claimed by the petitioner, if are given to him in relation to labour and other charges and if the judgment of the Supreme Court in Gannon Dunkerley Co. [1993] 88 STC 204, is observed in its full spirit while granting exemption then the petitioner would have no say. According to them, the assessing officer has given fullest deductions in favour of the petitioner and therefore if the manner and extent of deductions relating to any other charges even if is not provided or prescribed then too it would not help the case of the petitioner. This argument though appears to be impressive and lucrative but an identical argument was rejected by the Supreme Court in the matter of Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204. In the said matter it was submitted by the State of Rajasthan that the words "which have already suffered tax at the rates prescribed by 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. The Supreme Court observed that the said words onl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re is submission of the respondents that the benefit can be given to the petitioners even if there is no rule to prescribe the manner and the extent relating to the deductions in relation to the other charges. We are of the view that this argument should not detain us unnecessarily because if the law requires a thing to be done then the State cannot say that that it stands above law and would not provide/prescribe a particular thing in the Rules and would simply observe the directions issued by the Supreme Court. 27. In the matter of Gannon Dunkerley & Co. [1993] 88 STC 204, the Supreme Court has observed that particular deductions must be prescribed/provided. The State Legislature cannot say that it would simply prescribe one and without providing or prescribing the other deductions and the extent and manner would go on giving the benefits. The law is not the handmaid of the State Government. The law governs the State and its individuals/citizens equally. No State has the authority to go contrary to law enacted by it. No State/no Government can say that after providing a particular law it would not observe it but would do the things after following certain judgments o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....something happens; during the time of being.' (Emphasis supplied) In 'Words and Phrases Permanent Edition 4' 1969 Edition, in general amongst others, at page 514 its meaning has been indicated as follows: 'As' means 'to the extent,' 'in the manner' and 'when'; and may be employed to indicate a combination of time with extent or manner. Moore v. Coates, DC Mun App 40 A 2d68, 70.' (Emphasis supplied). It is further indicated to mean importing a contingency and at page 520, it is indicated as follows: 'When, importing a contingency, a devise to certain children "as" they arrive at the age of 21 means "when" they arrive at such age.' (Emphasis supplied). Further we find at page 549 the phrase 'as may be prescribed' has been indicated to mean as follows: 'The phrase "as may be prescribed", in constitutional amendment authorising certain cities to adopt or amend their charters, subject to such limitations as may be prescribed by Legislature, means that future legislation, as well as that existing when city first takes out or amends charter may limit its action'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... labour and any other charges in the manner and to the extent prescribed. In paragraph 12 of the judgment of the Supreme Court, the Supreme Court has found a distinction between the words/phrase "as may be prescribed" and the phrase "in the manner prescribed". Sub-clause (i) does not leave any lever or play in the working of the provision. It gives a mandate against the State to prescribe the manner and the extent of the deduction. The provision does not say "as may be prescribed" or "if prescribed". One could understand the inaction/non-action on the part of the State if the provisions say "as may be prescribed" or "if prescribed". The State when has undertaken a task to prescribe the manner and the extent of the deduction in relation to any other charges then it cannot simply provide the manner and the extent relating to labour charges and go in hibernation and say that the assessing officer would observe the judgment of the Supreme Court and proceed further in the matter. When the law requires a thing to be done in a particular manner then it must be so done. 30. In the matter of Surinder Singh v. Central Government (1986) 4 SCC 667, the Supreme Court observed that where a st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any coercive action can be taken against them. 33. It is, however, made clear that the liability of the dealer shall survive and continue and he would be liable to be taxed after the provisions are made workable. 34. Before parting with the case, we must also observe that the assessing officer in passing the order of assessment did not act fairly. In cases of turnover worth crores it is not expected of the assessing officer that he would act in a hot haste and just to earn the Revenue in favour of the State or to show to his senior officers that he is a competent officer, he would play fraud with the provisions of the Act. It appears from the records that the present petitioners were asking the officer to give some time to them to produce the records. The officer was giving short time, every time and thereafter observed that the present petitioners were involved in delaying tactics. Present was not a case of a small local dealer, who have the complete records available to him. The petitioners are contractor of national level, they do not have the complete records available with them. In case like present where liability would be in crores; it is not expected of an assessee....