TaxTMI 
TaxTMI 
2007 (8) TMI 692
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....amount of each bill, for execution of works contract other than RCC bridge and so far as the RCC bridges are concerned, deduction at 1.57 per cent of the total gross amount of each bill was directed to be made. By these memoranda, deductions were also directed to be made at two per cent for all road works and some permanent bridge works and at 7.5 per cent on the gross amount of the running bill in respect of building RCC and other bridge work. (ii) The present respondents, who are all contractors and execute works contracts awarded to them, from time to time, by different authorities, including the North Eastern Electric Power Corporation (NEEPCO), Oil and Natural Gas Commission (ONGC), Gas Authority of India Ltd. (GAIL) and other Government Departments, put to challenge not only the legality and validity of the said two memoranda, but also the vires of sections 3A and 3AA of the Tripura Sales Tax Act, 1976 (in short, "the TST Act"). The vires of sections 3A and 3AA were challenged on the ground that the contractors involved were not liable to pay any sales tax as they had not been dealing with sale of taxable goods and, as such, they were not "dealers" within the meaning of sect....
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....hether deduction, at source, can, at all, be directed to be made by the sales tax authorities, in the State of Tripura, by taking recourse to the provisions of the TST Act and the Rules framed thereunder. We have heard Mr. S. Choudhury, learned Government Counsel, appearing on behalf of the appellants, and Mr. B. Das, learned Senior Counsel, appearing on behalf of the respondents. While considering the question posed above, what needs to be noted is that though sections 3A and 3AA of the TST Act have been upheld, the fact remains that since the subject-matter of the impugned memoranda is deduction at source, the provisions, contained in the TST Act and the Rules made thereunder, relating to taxable liability of a person, who executes works contract, need to be taken note of. With this object in view, we reproduce section 3A of the TST Act herein below: "3A. Tax on the transfer of property in goods involved in the execution of works contract.-Notwithstanding anything contained elsewhere in this Act, any transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be deemed to be sale of those goods by the person making....
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....ecution of works contract, to deduct, at the time of making payment, in cash or by issue of cheque or draft or in any other mode, such amount towards sales tax as may be "prescribed". A careful reading of section 3AA, thus, makes it clear that every person, responsible for making payment of the bills of a contractor, who has executed a works contract, has the duty cast upon him to deduct such amount towards sales tax as may be "prescribed". The word "prescribed" has been defined, in section 2(e) of the TST Act, to mean "prescribed by Rules under this Act". In the light of section 2(e), which defines as to what the word "prescribed" means, when one reads section 3AA, there remains no room for doubt that a deduction, at source, towards payment of sales tax, can be made from the bill of an executor of works contract, of only such an amount, which may have been prescribed by the Rules. The question, therefore, is as to what amount(s) have been "prescribed" by the Tripura Sales Tax Rules, 1976 (in short, "the TST Rules") for the purpose of making deduction at source? Our quest for an answer to this question brings us to rule 3A, which, we find, reads as under: "3A. (1) Every person re....
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.... making such deduction under sub-rules (1) and (2) shall at the time of payment or discharge, furnish to the person from whose bill(s) and invoice(s) such deduction is made a certificate specifying the amount deducted and the rate(s) at which it has been deducted. (5) A copy of the challan showing the deposit of the amount referred to in sub-rule (3) shall be made over by the person making the deduction to the person from whom the deduction is made within 7 (seven) days of such deposit. (6) The person making such deduction shall furnish to the Superintendent of Taxes, having jurisdiction over the area, a report of such deduction within 15 (fifteen) days from the date of deposit of such amount in form VIA. (7) The person from whose bill(s) or invoice(s) the deduction was made shall furnish the returns along with the challan to the Superintendent of Taxes having jurisdiction over the area, in accordance with the provisions of the rules. (8) All such deductions and deposits into the Government Treasury shall be deemed to be provisional payment of tax which shall be adjusted at the time of assessment under section 9 of the Act. (9) Any deduction made in accordance with the provisi....
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....ase, discretion is not exercised, where exercisable, then, the omission to exercise the discretion will also be bad in law. When a person has been given the discretion, under the second proviso to sub-rule (1) of rule 3A, to refer to the Superintendent of Sales Tax for obtaining "provisional computation" of the net turnover and also for the amount, which is payable as sales tax, by the contractor for the transfer of goods involved in the execution of works contract, the person, who may have been made responsible for making such deduction, cannot make deduction at a flat rate from the total bill of a contract for execution of the works contract. The deduction shall be made of an amount, which is approximately same as the amount liable to be paid by such a contractor, or an amount, which is nearer the amount, which, as sales tax, such a contractor is liable to pay. It is therefore, imperative for the person, who is responsible for making payment of the bills of a contractor, who has executed a works contract, to make a rough assessment of the sales tax, which, in a given case, the contractor is liable to pay. If the person, responsible for making payment, is unable to make such asses....
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....re indicative of the fact that the tax deducted, at source, may, at times, be a little more than what may be due from a contractor. This does not, however, mean that the deduction shall be made in such a manner that the contractor is made to pay much more than what is due from him or made to pay, when he is not, otherwise, liable to pay. Thus, deduction of sales tax, at source, has to be as near the amount, as the contractor may, otherwise, be liable to pay. Viewed thus, it is clear that the impugned memoranda, which oblige every person, who is responsible for making payment of bills of a works contract, to deduct, at source, sales tax at a flat rate of four per cent go far beyond the scope of the provisions of section 3AA read with section 3A and rule 3A. Coupled with the above, it is also worth noticing that when rule 3A does not "prescribe" deduction at source at the flat rate of four per cent, a direction to deduct sales tax at the flat rate of four per cent from the bills of the contractors is clearly beyond the scope of section 3AA read with rule 3A, for, deduction, at source, is permissible only as prescribed by the Tripura Sales Tax Rules, 1976. (See Santosh Kumar ....