JUDGMENT The judgment of the Court was delivered by P. SHANMUGAM, J. - The prayers in the original petitions are to declare that the provisions of sections 5(1)(iv) and 7(7), 7(7A), 7(7B), 7(8), 7(10) and 7(11) read with the Fourth Schedule to the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the KGST Act") as amendment by Act 23 of 1991 and Act 8 of 1992 read with rules 8(4), 22A, 30A, and 59A as amended by the Kerala General Sales Tax Rules, 1991 (hereinafter referred to as "the KGST Act and Rules") are illegal, ultra vires and unconstitutional. The Kerala General Sales Tax Act, 1963, was amended by Act 23 of 1991. The petitioners are challenging the provisions of the Act as amended which is extracted as follows : "5. Levy of tax on sale or purchase of goods. - (1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than one lakh rupees and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year, - (iv) (a) In the case of transfer of goods involved in the execution of works contract where transfer is in the form of goods at the rates and at the points specified against such goods in the First, Second or Fifth Schedule. (b) In the case of transfer of goods involved in the execution of works contract (where the transfer is not in the form of goods but in some other form) specified in the Fourth Schedule, at the rate specified against such contract in the said Schedule : Provided that no tax is payable in respect of the turnover of goods the transfer of which was effected without any processing or manufacture on which tax was levied under clause (i) on any earlier sale in the State or which are exempted from tax and for goods coming under the Fifth Schedule, no tax specified for the first sale is payable, on which tax was levied in any earlier sales in the State : Provided further that tax payable in respect of turnover of goods coming under the Second Schedule the transfer of which was effected without any processing or manufacture shall not exceed the rate and be only at the points specified against such goods in the said Schedule. 7. Payment of tax at compounded rates - (7) Notwithstanding anything contained in sub-section (1) of section 5 every contractor, in civil works of construction of buildings, bridges, roads, dams and canals including any repair or maintenance of such civil work may at his option instead of paying tax in accordance with clause (iv) of that sub-section pay tax at the rate of two per cent on the whole amount of contract and which shall be deducted from the payments made by the awarder at every time including advance payment and shall remit it to Government in such manner as may be prescribed. (7A) Notwithstanding anything contained in sub-section (1) of section 5 every contractor not covered by sub-section (7) may at his option, instead of paying tax in accordance with the said section, pay tax on the whole amount of contract at the rate of seventy per cent of the rates, shown in the Fourth Schedule against such contract, less any tax paid by him under this Act on the purchase of any goods used in such contract, the transfer of which to the works contract was effected without any processing or manufacture : Provided that any contractor whose total annual contract amount does not exceed rupees fifty lakhs and has not opted for payment of tax in accordance with this sub-section may opt to pay tax at five per cent on the whole contract amount irrespective of the nature of contract. (7B) The tax under clause (iv) of sub-section (1) of section 5, sub-sections (7) and (7A) of this section shall be deducted from the payment made by the awarder at every time including advance payment and remit it to Government within seven days in the prescribed manner. (8) The option referred to in sub-sections (7) and (7A) may be exercised either by an express provision in the agreement for the contract or by an application to the assessing authority to permit him to pay tax in accordance with any of these sub-sections. (10) If the awarder effects any payment without deduction of the tax payable or without the permission of the assessing authority in case application is presented before him, the whole amount of tax payable shall be recovered from the awarder and all provisions of this Act for the recovery of tax including those relating to levy of penal interest and penalty shall apply as if the awarder is the assessee for the purposes of this Act. (11) Any contractor who opts for the payment of tax in accordance with the provisions of sub-sections (7) and (7A) shall file the returns showing all the contracts he has undertaken along with certificates from the awarders, showing the whole amount of contract and the details of tax deducted and remitted to Government and if the particulars are correct and complete, the assessing authority may summarily make an assessment on that basis. (12) After the close of the year or at the completion of the works contract and on receipt of final statement of accounts and return, if the tax on purchases is found to be in excess of the tax payable under the compounded rates, no refund of such excess tax paid shall be made. Rule 8. Determination of total turnover - (4) For the purpose of sub-rule (1), the amount for which goods are sold by a dealer shall,- (a) in relation to a works contract in which the transfer of property takes place in the form of goods, the whole amount payable to the dealer for carrying out such contract; (b) in relation to a works contract in which the transfer of property takes place not as goods but in some other form in which the dealer transfers all the goods involved in the execution of such contract, the whole amount payable to the dealer for carrying out such contract less the labour charges not incurred in relation to the goods involved in the execution of the works contract, as established and proved by the contractor; (c) in relation to a works contract in which the transfer of property takes place not as goods but in some other form in which the goods supplied by the awarder are party involved, the proportionate amount of the whole contract amount less labour charges as explained in (b) above worked out in the proportion of the cost of goods supplied by such awarder and the cost of goods supplied by the contractor or other person, be deemed to be turnover of such contractor : 22A. Payment and recovery of tax in works contract. - (1) In the case of works contract on which tax is payable in accordance with the provisions of the Act whether an option under sub-section (8) of section 7 is made or not, the tax shall be paid either by the contractor in accordance with the rules or by the awarder. Payment and recovery of tax in works contract. - (1) In the case of works contract on which tax is payable in accordance with the provisions of the Act whether an option under sub-section (8) of section 7 is made or not, the tax shall be paid either by the contractor in accordance with the rules or by the awarder. (2) Wherever payment is made by the awarder to the contractor either in lump sum for the whole contract or in instalments, the awarder shall withhold an amount equal to the tax due in accordance with the provisions of the Act from such payment or payments and shall remit to the assessing authority with whom the contractor is registered as a dealer and if he is not so registered, to the assessing authority having jurisdiction over the place of works contract, within seven days of the amount so withheld along with a statement in form No. 21C. (3) Notwithstanding anything contained in sub-rule (2) above, any contractor who pays tax regularly in accordance with the rules, on production of a certificate issued to that behalf issued by the assessing authority shall be entitled to payment of the contract amount without deduction of sales tax due on the contract for the period and to the extent or for the works contract specified in the certificate." 2. After the introduction of the Constitution (Forty-sixth Amendment) Act, 1982, the definition of "sale" under article 366 and clause (29-A) enabled the State under entry 54, List II of the State List and entry 92-A of List I to levy tax on transfer of property in goods involved in the execution of works contract. Kerala Government introduced amendments to its General Sales Tax Act from April 1, 1984, enabling the levy of sales tax on works contract by enacting a separate charging section and Schedule classifying works contract. Amendments were also made in the Rules providing for reduction of fixed percentage of labour in determining total turnover. A batch of writ petitions had been filed against the said amendment. Amendments were also made in the Rules providing for reduction of fixed percentage of labour in determining total turnover. A batch of writ petitions had been filed against the said amendment. While so, the Supreme Court taking note of batch of writ petitions pending in the different High Courts challenging the constitutional validity of Forty-sixth Amendment considered the matter in the decision reported in Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371 and upheld the validity of the Constitution Forty-sixth Amendment. According to the petitioners while these batch of writ petitions were pending, the respondents have introduced the amendment by Act 23 of 1991 amending the KGST Act. 3. The main challenge of the petitioners in these batch of writ petitions relates to the imposition of the liability on the "awarder" who is not a registered dealer or a dealer for deducing the tax payable by way of composition from the whole amount. Though the challenge in the original petition related to sections 5 and 7(7), (7B), etc., the main argument of the learned counsel Mr. K. M. Vijayan was confined to the latter portion of sub-section (7) of section 7, (7A), (7E) and (10) of section 7. Sub-section (7) provides for a scheme of composition whereby a contractor in civil works construction may at his option instead of paying tax at the rates and points specified as per section 5(1)(iv), pay tax at the rate of 1 1/2 per cent (now 2 per cent) on the "whole amount" of contract and which shall be deducted from the payments made by the awarder at every time including advance payment and shall remit it to Government in such manner as may be prescribed. Sub-section (7A) permits a contractor other than a civil contractor to pay tax on the whole amount at the rate prescribed less any tax paid by him under the Act. Sub-section (7B) imposes an obligation on the part of the awarder to deduct from the payments made by him including the advance payment and remit it to the Government. Sub-sections (8) and (9) enable a contractor to apply to the assessing authority to permit him to pay the tax in accordance with the sub-section. Sub-section (10) provides a penal action against the failure on the part of the awarder to comply with the conditions. Sub-sections (8) and (9) enable a contractor to apply to the assessing authority to permit him to pay the tax in accordance with the sub-section. Sub-section (10) provides a penal action against the failure on the part of the awarder to comply with the conditions. Sub-section (11) obliges the contractor to file returns. Sub-section (12) says that even in cases where the tax on purchases is found to be in excess of the tax payable under the compounded rates, no refund is permissible. The petitioners are mainly aggrieved against these clauses. The sum and substance of the argument advanced by Mr. K. M. Vijayan on behalf of the petitions are as follows : (a) Unless and until the liability of the contractor is fixed and taxable levy is determined on the works contract, compulsory deduction of 2 per cent from the whole amount payable to the contractor including advance is wholly unjustifiable; (b) the goods which are involved in the works contract and which are declared goods or goods bought through inter-State trade for which taxes levied already have to be excluded before arriving their tax liability. Without such an exercise the advance deduction on the payments made to the contractor are illegal; (c) there is no proper machinery to fix tax liability of the contractor before directing the awarder to deduct 2 per cent as sales tax; (d) under the scheme of sales tax law except the dealer a third party awarder cannot collect sales tax; (e) the provisions which enables deduction at source even in the case where the dealer has not opted for composition as per rule 22A is inconsistent with the provisions of section 7. The provision relating to imposition of penalty against the awarder who is not a dealer for not deducting the tax at source without being so assessed and not for filing returns is inconsistent with the scheme of the Sales Tax Act. The learned single Judge held that it is well-established that a legislative entry is to be liberally construed as comprehending within it all the powers which are necessary, incidental or ancillary for the effective implementation of the power conferred by the said entry. According to the learned Judge in the case of a taxing statute, it is open to the Legislature to enact provisions which would check evasion of tax. According to the learned Judge in the case of a taxing statute, it is open to the Legislature to enact provisions which would check evasion of tax. The power to tax includes the power to provide the means to make the realisation of the tax effective. The learned single Judge is of the view that since the option is that of the contractor himself to be exercised at his will and since there is no compulsion on him to opt, there is no substance in the challenge to sub-sections (7) and (7A) and consequently to sub-sections (8), (10), (11) and (12) or rule 30A which provides only for the machinery for the effective implementation of the option. Similarly, the learned single Judge repelled the contention in reference to the payment of the contractor every time including advance, stating that it is related to a sale and not to any other event. The learned single Judge has also taken the view that the question of deduction without making allowance for sales taking place in the course of inter-State trade, for declared goods and for labour charges will not arise since it is only a question of arithmetical calculation with reference to the measure for the levy prescribed therein. The question of exclusion will arise only in regard to those contractors who have not opted for payment under sub-sections (7) and (7A). While dealing with the challenge with regard to clause (iv) of sub-section (1) of section 5, particularly sub-clause (b) is concerned, the learned single Judge took the view that the Legislature has outstepped the field carved out by article 366(29A)(b) of the Constitution for levy of tax by excluding such goods which have undergone processing or manufacture from the benefits which would otherwise have accrued to them on a normal sale as goods. By striking down the offending portions of the provisos, namely, "the transfer of which was effected without any processing or manufacture," the learned single Judge held that even though this will have an impact on subsection (7A) of section 7, he declined to interfere in reference to the payment of tax at compounded rate. Consequently while determining taxable turnover the concessions and exclusions mentioned in these provisos have been denied to those persons who have opted to compounded rate of tax. Consequently while determining taxable turnover the concessions and exclusions mentioned in these provisos have been denied to those persons who have opted to compounded rate of tax. The learned Judge held that what sub-section (7B) seeks to achieve is to facilitate the collection of revenue as also to avoid loss to the State by recoveries becoming impossible. Such provisions is incidental and necessary for the effective enforcement of the levy of tax on a deemed sale under sub-clause (b) of clause (29A) of article 366 read with entry 54 of the State List to the Constitution. The learned Judge is of the view that the deduction is only a machinery for collection of tax and hence valid. 4. Aggrieved by this judgment, the appellants have preferred these appeals contending, inter alia, that the learned Judge failed to understand that the deduction of tax by the awarder from the whole of the bill amount and advance payments has got no correlation with the taxable liability of the contractor. There is no machinery for the awarder to compute the tax liability of the contractor and that the awarder is not competent to decide the tax liability of the contractor, to deduct the percentage from the whole bill amount. If the major portion of the bill amount is labour charges or relates to tax suffered purchases then the deduction will affect the business carried on by the contractor. According to the learned counsel, the recovery will amount to extraction of the money for which there is no authority. Learned counsel relied on the following decisions in support of his contentions : In Builders Association of India v. State of Bihar [1992] 85 STC 362 (Pat) the Full Bench declared section 25A of the Bihar Finance Act, 1981, as amended by the Bihar Taxation Laws (Amendment and Validation) Act, 1990, which [similar to section 7(7) of the Act] provides that every person making any payment in discharge of any liability on account of valuable consideration payable for the transfer of property in goods involved in the execution of works contract shall deduct tax at the prescribed rates from the bills or invoices raised by the contractor, as invalid. As per Sinha, J., it was held so because it is unreasonable in so far as in terms thereof tax will compulsorily be deducted although in certain circumstances, no tax at all may be leviable. As per Sinha, J., it was held so because it is unreasonable in so far as in terms thereof tax will compulsorily be deducted although in certain circumstances, no tax at all may be leviable. In the same judgment it has been held that section 25A of that Act is in conflict with the restrictions imposed by section 15 of the Central Sales Tax Act, inasmuch as tax on declared goods is being realised at two points. The Full Bench further held that nothing has been provided in section 25A enabling the person making any payment to a works contractor not to make any deduction of sales tax from bills or invoices on the ground that payment of tax has been made at the first point. On the contrary, non-deduction of sales tax by the person making the payment has been made penal under section 25A. The result is that the works contractor has to pay sales tax again from his bills or invoices on declared goods on which tax has already been paid. 5. In A. V. Fernandez v. State of Kerala [1957] 8 STC 561, the Supreme Court held as follows : "....... If there is a liability to tax, imposed under the terms of the taxing statute, then follow the provisions in regard to the assessment of such liability. If there is no liability to tax there cannot be any assessment either. Sales or purchases in respect of which there is no liability to tax imposed by the statute cannot at all be included in the calculation of turnover for the purpose of assessment and the exact sum which the dealer is liable to pay must be ascertained without any reference whatever to the same." 6. In Construction & Construction v. Union of India [1990] 77 STC 405, a Division Bench of the Patna High Court dealing with section 25A of the Bihar Finance Act, 1981, which provides for deduction to be made from any payment held as follows : "Sub-rule (2) thereof enjoins persons making payment in respect of works contracts to deduct the tax referred to in section 25A at the rates notified, from 'all payments being made in respect of all works contracts executed, whether in part of full .......' if the total value of works contracts exceeds Rs. 25,000. 25,000. The words 'all payments being made in respect of all works contracts executed' used in sub-rule (2) of rule 26A has to be read to mean payment made for the transfer of property in goods whether as goods or in some other form, involved in the execution of a works contract. No deduction is to be made in respect of the amount spent over labour charges and other services in which no transfer of any property in goods is involved. This interpretation of the words 'all payments' is not only be consistent with section 25A of the Act but also with the judgment of the Supreme Court in the case of Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371 . Sub-rule (2) of rule 26A cannot cover a field beyond that prescribed by section 25A of the Act and article 366(29A)(b) of the Constitution." 7. In Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204, the Supreme Court held that sections 14 and 15 of the Central Sales Tax Act, 1956, would be applicable to transfers and the legislative power of the State Legislature to impose tax on such transfers under entry 54 of the State List will have to be exercised keeping in view the provisions contained in sections 3, 4 and 5 of the Central Sales Tax Act (74 of 1956). The Supreme Court further held that the value of the goods involved in the execution of a works contract will have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover various types like labour charges for execution of the works, amount paid to a sub-contractor for labour and service, charges for planning, designing and architect's fees, etc. 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. Learned counsel stressing the above judgment, submits that so long as the liability of the contractor is not determined, no tax can be compelled or extracted from him through the method of deduction. In the absence of a machinery the awarder will not be competent to ascertain the tax liability of the contractors. 8. Learned counsel stressing the above judgment, submits that so long as the liability of the contractor is not determined, no tax can be compelled or extracted from him through the method of deduction. In the absence of a machinery the awarder will not be competent to ascertain the tax liability of the contractors. 8. Learned Additional Advocate-General while opposing the contentions submitted that the impugned provision is only a machinery to collect tax. He also submitted that the amount deducted can always be adjusted at the final assessment. He further emphasised that there are enough machinery provided for calculating and deducting the amount by way of tax. He relied upon the decision reported in Federation of Hotel & Restaurant Association of India v. Union of India [1989] 74 STC 102; AIR 1990 SC 1637 wherein the Supreme Court held that the policy of tax, in its effectuation, might, of course, bring in some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and reflects the highest common factor. Every cause, it is said, has its martyrs. Then again, the mere excessiveness of a tax or even the circumstance that its imposition might tend towards the diminution of the earnings or profits of the persons of incidence does not per se, and without more, constitute violation of the rights under article 19(1)(g). The said decision may not be of much help to the State, since it is not the individual hardship that is mainly put across by the petitioners. It is the liability that is absent for which the State lacks authority to collect tax. 8A. In the judgment reported in Tirath Ram Ahuja Limited v. State of Haryana [1991] 83 STC 523, a Division Bench of the Punjab and Haryana High Court upheld the validity of section 26 of the Haryana General Sales Tax Act, 1973, dealing with payment of lump sum in lieu of sales tax. The Division Bench took the said view since there is a provision for refund of surplus if found that there was not transfer of goods. On the contrary in section 7(12) of the KGST Act there is a specific provision disentitling any refund, even if the tax is found to be in excess on final settlement of accounts. The Division Bench took the said view since there is a provision for refund of surplus if found that there was not transfer of goods. On the contrary in section 7(12) of the KGST Act there is a specific provision disentitling any refund, even if the tax is found to be in excess on final settlement of accounts. Further the Division Bench did not consider the question of the exemptions such as labour charges, using of declared goods in the works, goods of inter-State trade before deciding the tax on the "whole amount". Hence this decision is not of any help to us. The submission made by the learned Additional Advocate-General that the special leave petition filed against this decision was dismissed, does not improve the position. In the decision reported in Geeta Prasad Singh and Co. v. State [1986] 63 STC 337 (Pat) it was held that section 25A of the Bihar Finance Act, 1981, is intra vires since it is only a mode of recovery. In the above decision it was also noted that if tax is paid in excess, the assessee will be entitled to some interest as well. Therefore, in the light of the said provisions which enable the assessee to seek for a refund and interest as well, the provision for deduction was upheld. Further this decision cannot be accepted since it did not follow the Supreme Court decision in Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552 , wherein it was laid down that the tax proposed to be levied must be within the legislative competence of the Legislature. Hence even if the compounding is optional the submission on behalf of the Revenue that it cannot be challenged is not maintainable. Further the Division Bench decision was disapproved by the Full Bench of the Patna High Court in Builders Association of India v. State of Bihar [ 1992 85 STC 362 . The decision in Construction & Construction v. Union of India [1990] 77 STC 405 (Pat) cited by the learned Additional Advocate-General is in fact against him. Further the Division Bench decision was disapproved by the Full Bench of the Patna High Court in Builders Association of India v. State of Bihar [ 1992 85 STC 362 . The decision in Construction & Construction v. Union of India [1990] 77 STC 405 (Pat) cited by the learned Additional Advocate-General is in fact against him. In para 9 of the said judgment the Division Bench states that if the words "all payments" are to be read to mean all payments including the amount paid on account of labour charges and other services rendered by the contractor, then sub-rule (2) of rule 26A has to be held to be invalid and unconstitutional. However the Division Bench read down the provision holding that the words "all payments being made in respect of all works contracts executed" to mean that no deduction is to be made in respect of the amounts spent over labour charges and other services. Besides, this decision did not consider the question of exemptions in reference to the value of the declared goods, the value of the goods which already suffered tax and the value of the goods in inter-State trade before fixing the amount for deduction. Learned Additional Advocate-General also referred to an unreported decision of a single Judge of the Karnataka High Court in W.P. Nos. 16470 and 19493 of 1992 dated December 17, 1993, in KEC International Limited Company v. State of Karnataka. In the said decision also it was held that necessary adjustments will have to be made at the time of final assessment of tax. According to the learned single Judge, what components of a transaction will be included or excluded ultimately cannot be visualised at the stage of collection of advance tax. After collection of advance tax if the authorities find any component has been wrongly included or excluded, necessary adjustments have to be made either by refunding tax collected or demanding further tax. In that view of the matter the learned single Judge held that the collection of advance tax was within the jurisdiction of the State. In the absence of any such provision in the KGST Act for final adjustment of any tax collected without authority of law, the deduction of tax from the whole amount will, therefore, has to be held illegal. In the absence of any such provision in the KGST Act for final adjustment of any tax collected without authority of law, the deduction of tax from the whole amount will, therefore, has to be held illegal. This conclusion is to be made because the provisions of the KGST Act make it very clear that once deductions are made even when it is found to be not liable, there cannot be any refund of the tax. Therefore, none of these decisions cited on behalf of the Revenue are of any help in support of the State. A tax deduction or recovery at source even as an incidental power for speedy recovery or to prevent evasion has to be confined to matters within the State List. The impugned provision on the whole amount is, therefore, ultra vires article 286(1) in respect of outside State sales and import-export sales under sections 4 and 5 of the CST Act, 1956. The Supreme Court has specifically held in Builders Association of India [1989] 73 STC 370; AIR 1989 SC 1371 , that such a provision will be beyond the legislative power of the State. Similarly the provision under the Income-tax Act, viz., section 194C cannot be of any assistance to the Revenue since for the deduction made by the assessee in reference to the payment to the contractors a certificate can be obtained from the assessing officer to the effect that there can be a lower rate and no deduction of income-tax. In so far as there is no provision for such an assessment, the blanket deduction from the whole amount of the contract will be violative of article 286(1) and article 366(29A) of the Constitution of India. 9. In Gannon Dunkerley & Co. In so far as there is no provision for such an assessment, the blanket deduction from the whole amount of the contract will be violative of article 286(1) and article 366(29A) of the Constitution of India. 9. In Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204, the Supreme Court while reiterating its decision in Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371 concluded its findings as follows : "The aforesaid discussion leads to the following conclusions : (1) In exercise of its legislative power to impose tax on sale or purchase of goods under entry 54 of the State List read with article 366(29-A)(b), the State Legislature, while imposing 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 is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. (2) The provisions of sections 3, 4, 5 and sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by article 366(29-A)(b). (3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29-A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in the execution 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 tolls 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 cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the assessing authority the Legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. It would be permissible for the Legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract. It would be permissible for the Legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract. (8) While fixing the rate of tax it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article." On the grounds last stated, the Supreme Court upheld the validity of Schedule VI of the Karnataka Sales Tax Act, 1957 (which is akin to the Fourth Schedule of the Kerala Act). The Supreme Court in Builders' Association of India v. State of Karnataka [1993] 88 STC 248 held that certain provisions in the Karnataka Sales Tax Act, 1957, expressly exclude a sale in the course of inter-State trade or commerce and a sale in the course of import or export. So read, it cannot be said that in fixing the situs in respect of deemed sales resulting from the transfer of property in goods involved in the execution of a works contract the State Legislature has included a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. The Supreme Court also found that the tax is not levied on the value of the works contract and that the taxable turnover on which tax is leviable is arrived at after deducting from the value of the works contract the expenses which are incurred by the contractor towards labour charges and other expenses, including amounts paid to sub-contractors. According to the Supreme Court, the rate of tax is fixed on the basis of the nature of the works in which the goods are incorporated, i.e., on the basis of the user of the goods and while so prescribing different rates of tax for particular types of works contracts does not contravene article 14 of the Constitution of India. In the said decision, the appellant therein sought to challenge the validity of section 19A of the Karnataka Sales Tax Act which provides for deduction of tax at source. But the Supreme Court did not permit the appellant therein to raise that question, because the same was not challenged before the Karnataka High Court. 10. In the said decision, the appellant therein sought to challenge the validity of section 19A of the Karnataka Sales Tax Act which provides for deduction of tax at source. But the Supreme Court did not permit the appellant therein to raise that question, because the same was not challenged before the Karnataka High Court. 10. Relying on the above decisions, the learned Additional Advocate-General submitted that the grounds of challenge are not sustainable. We have heard the arguments of the learned counsel for the petitioners and gone through the relevant provisions. Section 7 of the Act provides for payment of tax at compounded rates. Sub-section (7A) deals with the other contractors not covered by sub-section (7). Sub-section (7B) imposes an obligation on the awarder to deduct tax as prescribed under this sub-section at every time including advance payments and remit it to the Government within seven days from the date of such deduction in the prescribed manner. Sub-section (10) provides for recovery of tax on failure of the awarder in effecting payments without deduction. Sub-section (12) disentitles the contractor from seeking any refund, if the tax on purchase is found to be in excess of the tax payable. The other relevant rule is rule 22A which deals with payment and recovery of tax in works contract. Sub-rule (3) provides for exemption to a contractor who pays tax regularly. The method of payment of tax at compounded rates is provided under rules 22A and 30 of the Rules. A contractor whether involved in civil work of construction or other contracts is given an option instead of payment tax in accordance with the provisions to pay tax at a compounded rate. The choice of the contractor to pay tax at the compounded rate exonerate him the onerous exercise of filing returns and assessment. Once the contractor voluntarily chooses a mode of payment of tax, he is bound to pay tax at the compounded rate. However, it is open to him to question the validity of the provisions as arbitrary. The contention of the learned counsel on behalf of the petitioners is that the compounded rate of tax is on the "whole amount" of the contract without taking into account the exempted goods from payment of tax, viz., tax on inter-State, declared goods, etc. However, it is open to him to question the validity of the provisions as arbitrary. The contention of the learned counsel on behalf of the petitioners is that the compounded rate of tax is on the "whole amount" of the contract without taking into account the exempted goods from payment of tax, viz., tax on inter-State, declared goods, etc. Learned counsel further submits that in the case of regular levy of tax on works contract the first proviso to sub-section (b) of clause (iv) of section 5 provides that no tax is payable in respect of the turnover of goods, which is as follows : "Provided that no tax is payable in respect of the turnover of goods the transfer of which was effected without any processing or manufacture on which tax was levied under clause (i) on any earlier sale in the State or which are exempted from tax and for goods coming under the Fifth Schedule, no tax specified for the first sale is payable, on which tax was levied in any earlier sale in the State : Provided further that tax payable in respect of turnover of goods coming under the Second Schedule the transfer of which was effected without any processing or manufacture shall not exceed the rate and only at the points specified against such goods in the said Schedule." But these exceptions are not taken into account and the "whole amount of contract" is the situs for imposing a compounded levy. This, according to the learned counsel, is arbitrary and unreasonable. While meeting this argument, the learned Additional Advocate-General submits that the dealer opts to pay tax at the compounded rate to avoid a complicated and prolonged procedure of assessment. It may be more or less those amounts that may be actually be payable by him if the assessment is made. But the said assessment is avoided and collection of tax is made easy by resorting to compounding. It is a matter of adjustment of rights and liabilities of both sides. As far as compounded levy is concerned, there is no question of making allowance for sales taking place in the course of inter-State trade, for declared goods and for labour charges. Once a person compounds to pay tax, then the whole amount has to be taken into account for the purpose of prescribing the rate of tax. As far as compounded levy is concerned, there is no question of making allowance for sales taking place in the course of inter-State trade, for declared goods and for labour charges. Once a person compounds to pay tax, then the whole amount has to be taken into account for the purpose of prescribing the rate of tax. As per the normal levy under section 5(1)(iv)(a) read with the Fourth Schedule, the rate of tax for civil works like construction of building, bridges, roads, etc., is 6 per cent. But this normal levy will exclude permitted and exempted goods in respect of turnover of goods including labour charges. But in the case of compounded levy, the tax exemption in respect of permitted and exempted goods will not be deducted and tax will be on the "whole amount" of contract as per sub-sections (7) and (7A) of the Act. 11. Section 5(1) imposes levy of tax on sale or purchase of goods on the "taxable turnover". "Taxable turnover" has been defined under section 2(xxv) meaning the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover of purchase or sale in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into territory of India. "Total turnover" and "turnover" have been defined under sub-clauses (xxvi) and (xxvii). In the case of execution of works contract coming under sub-clause (iv)(a) of section 5 tax is leviable on the basis of taxable turnover, whereas in the case of payment of tax at compounded rates under section 7 tax is to be paid on the "whole amount" of the contract. Thus it is clear that the imposition of tax on the whole amount without considering whether the turnover excludes non-taxable turnover, is clearly arbitrary and illegal. 12. The failure to allow exemption and the compulsion to pay tax on the whole amount of contract will be contrary to the decisions of the Supreme Court dealing with the works contract referred above. The Supreme Court has categorically held that the provisions of sections 3, 4, 5 and sections 14 and 15 of the Central Sales Tax Act are applicable to a transfer of property in goods involved in the execution of a works contract. The Supreme Court has categorically held that the provisions of sections 3, 4, 5 and sections 14 and 15 of the Central Sales Tax Act are applicable to a transfer of property in goods involved in the execution of a works contract. In the same judgment it is stated that it is not permissible for the State Legislature to define the expression "sale" in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export. It was further pointed out that in determining the value of the goods involved in the works contract, the labour and other service charges have to be excluded. Contrary to this principle the State in effect is imposing a tax on the transfer of property in goods without excluding transactions made in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import and export. Thus it is seen that sub-sections (7) and (7A) are violative of article 366(29-A)(b) and article 14 of the Constitution of India read with sections 3, 4, 5, 14 and 15 of the Central Sales Tax Act, 1956. 13. In so far as the challenge to section 5(1)(iv) is concerned, the learned single Judge's view has to be confirmed. Under sections 5(1)(iv) tax is leviable on the taxable turnover. The provisos to sections 5(1)(iv)(b) provide for exemptions. Under rule 8 clause (4) and rule 9 while determining the total turnover, the labour charges, the sale or purchase in the course of export or import of goods, the goods for which tax has been paid, etc., will have to be deducted from the total turnover of the dealer. Rule 22A(3) affords an opportunity to the contractor to avoid any deduction on production of certificate issued in that behalf. Therefore, in our view section 5(1)(iv)(a) and (b) is valid and the view of the learned single Judge in reference to the proviso to section 5(1)(iv)(b) read with rule 8(4)(b) is confirmed. In so far as sub-clauses (7), (7A), (7B), (11) and (12) of section 7 read with rules 22A and 30A are concerned which imposes a levy on the "whole amount", they are not in accordance with article 366(29A)(b) of the Constitution of India. In so far as sub-clauses (7), (7A), (7B), (11) and (12) of section 7 read with rules 22A and 30A are concerned which imposes a levy on the "whole amount", they are not in accordance with article 366(29A)(b) of the Constitution of India. Therefore, they are invalid. The writ appeals are allowed to this extent. No order as to costs. Writ appeals partly allowed.