Y K SINGHAL v. STATE OF U P — 1995 DIGILAW 56 (ALL)

A. N. GUPTA, J. In this batch of writ petitions, the valid, "type of the provisions contained in the U. P. Trade Tax Act, formerly known as the U. P. Sales Tax Act, 1948 (hereinafter REFERRED TO as "the U. P. Act"), relating to imposition of sales tax on works contracts has been challenged. Since these petitions involve common questions, they are being disposed of by a common judgment. Before the, Constitution (Forty-sixth Amendment) Act, 1982, indivisible works contracts were not eligible to sales tax due to judicial pronouncements. To overcome this difficulty, the Constitution was amended and the Constitution (Forty-sixth Amendment) Act came into force with effect from February 3, 1983. It introduced clause (29a) to article 366, clause (b) of which is material which runs as follows : " 366. Definitions.- In this Constitution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say - (29a) tax on the sale or purchase of goods includes - (a ). . . . . . . . . . . . . . . . . (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) to (f ). . . . . . . . . . . . . . . . . and such transfer,. . . . . . . . . . . . . . . . of any goods shall be deemed to be a sale of those goods by the person making the transfer. . . . . . . . . . . . . . . . . . . and a purchase of those goods by the person to whom such transfer. . . . . . . . . . . . is made;" Article 286 of the Constitution puts restrictions on the imposition of tax by the States on the sale or purchase of goods, which runs as follows : " 286. . . . . . and a purchase of those goods by the person to whom such transfer. . . . . . . . . . . . is made;" Article 286 of the Constitution puts restrictions on the imposition of tax by the States on the sale or purchase of goods, which runs as follows : " 286. Restrictions as to imposition of tax on the sale or purchase of goods.- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place - (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1 ). (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 (29a) 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. " Sub-clause (b) of clause (3) of article 286 provides that 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, shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents as Parliament may by law specify. It is not disputed that so far Parliament has not made any law under this provision. In fact the Central Sales Tax Act, 1956 (hereinafter REFERRED TO as "the Central Act"), has not yet been amended so as to tax transfer of property in goods involved in the execution of a works contract relating to the Central sales. It is not disputed that so far Parliament has not made any law under this provision. In fact the Central Sales Tax Act, 1956 (hereinafter REFERRED TO as "the Central Act"), has not yet been amended so as to tax transfer of property in goods involved in the execution of a works contract relating to the Central sales. However, provisions have been made in the Central Sales Tax Act relating to article 286 (1) (a) (b), (2) and (3) (a ). These provisions are contained in sections 3, 4, 5, 14 and 15 of the Central Act. Section 3 defines when a sale or purchase of goods is said to take place in the course of inter-State trade or commerce. Section 4 lays down when a sale or purchase of goods is said to take place outside the State. Section 5 provides when a sale or purchase of goods is said to take place in the course of import or export. Section 14 gives a list of those goods which have been declared to be goods of special importance in inter-State trade or commerce. Section 15 lays down restrictions and conditions in regard to tax on sale or purchase of declared goods within a State. It provides that the sales tax laws of a State for the imposition of a tax on the sale or purchase of declared goods shall be subject to two main conditions. Firstly, rate of tax shall not exceed 4 per cent and, secondly, it shall not be levied at more than one stage. As mentioned above, the Constitution (Forty-sixth Amendment) enabled the State Governments to levy sales tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. In pursuance of this enabling provision, the U. P. Sales Tax Act was amended providing for imposition of sales tax on the transfer of property in goods involved in the execution of a works contract. Section 2 (h) defines sale, sub-clause (ii) of which includes transfer of property in goods involved in the execution of a works contract. It runs as follows : " 2 (h ). Section 2 (h) defines sale, sub-clause (ii) of which includes transfer of property in goods involved in the execution of a works contract. It runs as follows : " 2 (h ). sale with its grammatical variations and cognate expressions, means any transfer of property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) for cash or deferred payment or other valuable consideration and includes - (i ). . . . . . . . . . . . . . . . . (ii) a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract : (iii) to (vi ). . . . . . . . . . . . . . . " The following two Explanations were inserted by the U. P. Sales Tax (Amendment) (Second) Ordinance, 1994 (21 of 1994) : " Explanation I.- A sale or purchase shall be deemed to take place in the State - (i) in a case falling under sub-clause (ii), if the goods are in the State at the time of their use, application or appropriation for the execution of the works contract notwithstanding that the agreement for the works contract has been wholly or in part entered into outside the State or that the goods have been wholly or in part moved from outside the State : (ii) in a case falling under sub-clause (iv), if the goods are used by the lessee within the State during any period, notwithstanding that the agreement for the lease has been made outside the State or that the goods have been delivered to the lessee outside the State. Explanation II.- Notwithstanding anything contained in this Act, two independent sales or purchases shall, for the purposes of this Act, be deemed to have taken place - (a) when the goods are transferred from a principal to his selling agent and from the selling agent to his purchaser; (b) when the goods are transferred from the seller to a buying agent and from the buying agent to his principal, if the agent is found in either of the cases aforesaid - (i) to have sold the goods at one rate and passed on the sale proceeds to his principal at another rate; or (ii) to have purchased the goods at one rate and passed them on to his principal at another rate; or (iii) not to have accounted to his principal for the entire collection or deductions made by him, in the sales or purchases effected by him on behalf of his principal; or (iv) to have acted for a fictitious or non-existent principal. " Explanation I comes into retrospective effect from September 13, 1985 and Explanation II is operative with effect from September 28, 1994. However, we are not concerned with these Explanations in these cases because they came to be filed before the promulgation of the said Ordinance and have not been challenged before us. Section 2 (i) defines "turnover" as follows : " 2 (i ). turnover means the aggregate amount for which goods are supplied or distributed by way of sale or are sold, by a dealer, either directly or through another, on his account or on account of others, whether for cash or deferred payment or other valuable consideration. " " Works contract" has been defined in section 2 (m) as below : " 2 (m ). works contract includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. " After the Constitution (Forty-sixth Amendment), section 3-F was introduced which is the charging section for the works contract. works contract includes any agreement for carrying out for cash, deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. " After the Constitution (Forty-sixth Amendment), section 3-F was introduced which is the charging section for the works contract. It runs as follows : " 3-F. Rate of tax on the right to use any goods or goods involved in the execution of a works contract.- Notwithstanding anything contained in section 3-A, or section 3-AAA or section 3-D, the turnover relating to the business of transfer of the right to use any goods for any purpose or of transfer of the property in goods whether as goods or in some other form involved in the execution of a works contract shall be determined in the manner prescribed and shall be liable to tax at such rate not exceeding fifteen per cent, as the State Government may, by notification, declare, and different rates may be declared for different goods or different classes of dealers. " Rule 44-B prescribes the manner in which the sales tax relating to works contract shall be levied. It reads as under - " 44-B. Determination of turnover of goods involved in the execution of works contracts.- The tax under section 3-F on the turnover relating to the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract shall be computed on the net turnover relating to works contracts. In determining the net turnover, the amounts specified below shall be deducted if they are included in the gross turnover - (a) the amounts representing the purchase price of such goods, involved in the execution of such works contract, on the sale or purchase whereof the tax under the Act is shown to the satisfaction of the assessing authority to have been paid; (b) the amounts representing the purchase price of such goods involved in the execution of such works contract, as are exempt from tax under section 4 or have been purchased from an industrial unit which is exempt from tax under section 4-A; (c) the amounts representing the value of such of the goods, involved in the execution of such works contract, as were supplied to the contractor by the contract himself, provided the property in such goods remains under the terms of the contract throughout with the contractee and the contractor is bound to return the unused goods to the contract. Explanation.- For the purposes of this rule, gross turnover shall mean the aggregate of the amounts received or receivable by a dealer in an assessment year as valuable consideration for the transfer of property in goods used in the execution of a works contract after the commencement of this rule, whether or not the amount receivable as valuable consideration for such transfer is separately shown in the works contract and whether the execution of such works contract commenced during the year or earlier, and includes any advance received by the dealer towards valuable consideration for the works contract. " The Notification No. ST-II-2399/x-9 (195)/85 - U. P. Act XV/48 - Order-87, dated April 27, 1987 issued under section 3-F runs as follows : " In exercise of the powers under section 3-F of the U. P. Sales Tax Act, 1948 (U. P. Act No. 15 of 1948), the Governor is pleased to declare that, with effect from May 1, 1987, every dealer to whom subsection (3) of section 3 applies and every other dealer, liable to tax under the aforesaid Act, the aggregate of whose turnover in a year relating to the business of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contracts specified in column 2 of the Schedule hereunder exceeds one lakh rupees, shall in respect of such turnover, which shall be determined in the manner specified in rule 44-B of the Uttar Pradesh Sales Tax Rules, 1948, be liable to tax at the rate specified in the relevant notification relating to the said goods issued under section 3-A or section 3-D of the aforesaid Act. SCHEDULe ----------------------------------------------------------------------- Sl. No. Description of works contract.----------------------------------------------------------------------- 1. Fabrication and installation of plant and machinery. 2. Fabrication and erection of structural works including fabrication, supply and erection of iron trusses purloins, etc. 3. Fabrication and installation of cranes and hoists. 4. Fabrication and installation of elevator (lifts) and escalators. 5. Fabrication and installation of rolling shutters and collapsible gates. 6. Civil works like construction of buildings, bridges, roads, dams, barrages, seaways, spillways and diversions. 7. Installation of doors, door frames, windows, window frames and grills. 8. Supplying and fixing of tiles, slabs, stones and sheets. 9. Supply and installation of air-conditioning equipments including deep - freezers, cold storage plants, humidification plants and dehumidifiers. 10. Supply and installation of air-conditioners and air-coolers. 11. Supplying and fitting of electrical goods, supply and installation of electrical equipments including transformers. 12. Supplying and fixing of furnitures and fixture, partitions, including contracts for interior decorations. 13. Construction of railway coaches and wagons on undercarriages supplied by railways. 14. Sanitary fittings for plumbing, for drainage or sewerage. 15. Construction of bodies of motor vehicles and construction of trailers. Supplying and fitting of electrical goods, supply and installation of electrical equipments including transformers. 12. Supplying and fixing of furnitures and fixture, partitions, including contracts for interior decorations. 13. Construction of railway coaches and wagons on undercarriages supplied by railways. 14. Sanitary fittings for plumbing, for drainage or sewerage. 15. Construction of bodies of motor vehicles and construction of trailers. " ----------------------------------------------------------------------- The chief features of this notification are that no tax on the transfer of property in goods involved in the execution of a works contract shall be levied if the aggregate of turnover is up to one lakh rupees. It specifies 15 items of works contract which are taxable in Uttar Pradesh. It also lays down that the turnover shall be determined in the manner specified in rule 44-B. Lastly, it lays down that the rate of tax on the goods (whether as goods or in some other form) involved in the execution of a works contract, shall be the same which is specified in the relevant notification relating to the said goods issued under section 3-A or section 3-D of the U. P. Act which means that the commodities going into a works contract shall be charged as if that commodity as such was being sold or purchased in the open market. Section 8-D of the U. P. Act provides for advance payment of tax or deduction of tax at source relating to works contract which is quoted below : " 8-D. Tax deduction from the amount payable to works contractor.- (1) Notwithstanding anything contained in sub-section (2) of section 8-A, every person responsible for making payment to any dealer (hereinafter in this section REFERRED TO as the contractor) for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether as goods or in any other form) in pursuance of a works contract, not being a building contract of such class or value as may be notified by the State Government in public interest in this behalf, shall, at the time of making such payment to the contractor, either in cash or in any other manner, deduct an amount equal to four per cent, of such sum towards part or, as the case may be, full satisfaction of the tax payable under this Act on account of such works contract : Provided that the Commissioner may, if satisfied, that it is expedient in the public interest so to do and for reasons to be recorded in writing, order that in any case or class of cases no such deduction shall be made or, as the case may be, such deduction shall be made at a lesser rate. (2) Any contractor responsible for making any payment or discharge of any liability to any sub-contractor, in pursuance of a contract with the sub-contractor, for the transfer of property in goods, whether as goods or in some other form, involved in the execution whether wholly or in part, of the work undertaken by the contractor, shall, at the time of such payment or discharge in cash or by cheque or draft or by any other mode, deduct an amount equal to four per cent of such payment or discharge, purporting to be a part or full amount of the tax payable under this Act on such transfer from the bills or invoices raised by the sub-contractor as payable by the contractor. (3) The amount deducted under sub-section (1) or sub-section (2) shall be deposited into the Government Treasury by the person making such deduction before the expiry of the month following that in which deduction is made. (3) The amount deducted under sub-section (1) or sub-section (2) shall be deposited into the Government Treasury by the person making such deduction before the expiry of the month following that in which deduction is made. (4) The person making such deduction under sub-section (1) or sub-section (2) shall, at the time of payment or discharge, furnish to the person from whose bills or invoices such deduction is made, a certificate specifying the amount deducted and the rate at which it has been deducted. (5) Any deduction made in accordance with the provisions of this section and credited into the Government Treasury shall be treated as a payment of tax on behalf of the person from whose bills or invoices the deduction has been made, and credit shall be given to him for the amount so deducted on the production of the certificate, REFERRED TO in sub-section (4), in the assessment made for the relevant assessment year. (6) If any such person as is REFERRED TO in sub-section (1) or sub-section (2) fails to make the deduction or, after deducting, fails to deposit the amount so deducted as required by sub-section (3), the assessing authority may, after giving to such person an opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty, a sum not exceeding twice the amount deductible under this section but not so deducted and, if deducted, not so deposited into the Government Treasury. (7) Without prejudice to the provisions of sub-section (6), if any such person fails to make the deduction or, after deducting, fails to deposit the amount so deducted, he shall be liable to pay simple interest at the rate of eighteen per cent per annum on the amount deductible under this section but not so deducted and, if deducted, not so deposited from, the date on which such amount was deductible to the date on which such amount is actually deposited. (8) Where the amount has not been deposited after deduction, such amount together with interest REFERRED TO in sub-section (7) shall be a charge upon all the assets of the person concerned. (9) Payment by way of deduction in accordance with sub-section (1) or sub-section (2) shall be without prejudice to any other mode of recovery of tax due under this Act from the contractor or sub-contractor, as the case may be. (9) Payment by way of deduction in accordance with sub-section (1) or sub-section (2) shall be without prejudice to any other mode of recovery of tax due under this Act from the contractor or sub-contractor, as the case may be. Explanation.- For the purposes of this section, assessing authority means the officer having jurisdiction over the place where the place of business or residence of the person is located. " It may also be mentioned that in Uttar Pradesh the contractors engaged in executing building contracts and electrification contractors have been given an option to pay tax on compounded basis. The validity of Constitution (Forty-sixth Amendment) which introduced clause (29a) to article 366 enabling the State Governments to impose sales tax on the transfer of property involved in the execution of a works contract, came to be considered by a Constitution Bench of the honourable Supreme Court in the case of Builders Association of India v. Union of India [1989] 73 STC 370 (1989) 2 SCC 645 . The Supreme Court declared as follows : " We, therefore, declare that the sales tax laws passed by the Legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of article 286 of the Constitution. " It was further observed by the Supreme Court as follows : " Having interpreted the relevant provisions of the Constitution, as stated above, we feel that it is unnecessary to take up each and every writ petition REFERRED TO above to express our opinion on the validity of the statutory provisions and rules which are questioned before us. The petitioners concerned are at liberty to approach the authorities under the Sales Tax Act or the High Court concerned for necessary relief. It is open to them to question the validity of the statutory provisions and the rules made thereunder before the High Courts concerned. When such petitions are filed the High Courts will proceed to dispose of the cases in the light of this judgment. With these observations all the writ petitions are disposed of. It is open to them to question the validity of the statutory provisions and the rules made thereunder before the High Courts concerned. When such petitions are filed the High Courts will proceed to dispose of the cases in the light of this judgment. With these observations all the writ petitions are disposed of. " Now this batch of writ petitions has been filed to question the validity of the provisions contained in the U. P. Trade Tax Act relating to imposition of sales tax on the transfer of property involved in the execution of a works contract. As and when these petitions were filed, interim orders were granted by different Benches of this Court providing for deduction of tax at source at the rate of 2 per cent only as against 4 per cent provided for under sub-sections (1) and (2) of section 8-D. Sri Bharatji Agrawal, learned counsel for the petitioners first tried to challenge the validity of section 2 (b) of the U. P. Act which defines "sale". Clause (ii) of section 2 (h) provides that sale also includes a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. We find no invalidity in it because section 2 (h) (ii) does nothing more than to reproduce clause (29a) (b) of article 366. Moreover, it contains definition only and is not a charging section. The definition of "sale" includes almost all types of sales of goods but only those sales are taxed which are covered by the charging section. The petitioners cannot be permitted to challenge the definition of "sale" which includes transfer of property in goods involved in the execution of a works contract because no injury is caused to them by it. They have every right to challenge the charging section, but not the section which defines "sale" which includes a transfer of property involved in execution of a works contract. In fact, at the later stage of arguments, this challenge was given up. The validity of sub-section (1) of section 8-D which provides for advance payment of tax or deduction of tax at source relating to a works contract, was challenged before us on two counts. Firstly, it was urged that the State Legislature has no power or competence to make provision for advance payment of tax or deduction of tax at source. The validity of sub-section (1) of section 8-D which provides for advance payment of tax or deduction of tax at source relating to a works contract, was challenged before us on two counts. Firstly, it was urged that the State Legislature has no power or competence to make provision for advance payment of tax or deduction of tax at source. The State Legislatures have powers to impose taxes on the sale or purchase of goods under entry 54 of List II - State List contained in the Seventh Schedule of the Constitution which reads as follows : " 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I. " The Parliament under entry 82 of List I of the Seventh Schedule to the Constitution has the power to impose taxes on income. The said entry reads as follows : " 82. Taxes on income other than agricultural income" A perusal of entry 82 of List I and entry 54 of List II would show that the language used in the aforesaid two entries is almost identical. While entry 54 of List II makes a provision for taxes on sale or purchase of goods, entry 82 of List I provides for taxes on income. The Income-tax Act, 1961, contains provisions for deduction of income-tax at source and for advance payment of income- tax. If Parliament has the power, as it has, to provide for deduction of income-tax at source and advance payment of income-tax, the State Legislature under entry 54 of List II has similar powers in respect of imposition of sales tax or purchase tax. Apart from this, the Legislatures always have ancillary or incidental powers as has been held by the Constitution Bench of the Supreme Court in the case of Orient Paper Mills Ltd. v. State of Orissa [1961] 12 STC 357. A similar view has been taken by the High Court of Madhya Pradesh in the case of Chhotabhai Jethabhai Patel & Co. v. State of Madhya Pradesh [1972] 30 STC 1. In that case it was held that where main provision of taxation is constitutional provision for imposition of penalty being in the nature of ancillary or incidental power, cannot be assailed as being unconstitutional. v. State of Madhya Pradesh [1972] 30 STC 1. In that case it was held that where main provision of taxation is constitutional provision for imposition of penalty being in the nature of ancillary or incidental power, cannot be assailed as being unconstitutional. Similarly, the power to impose tax also includes the power of collection by means of advance payment of tax or deduction of tax at source to be finally adjusted at the time of filing of return or its assessment. Apart from this, deduction of tax at source is eminently just and proper and reasonable too. It is in the interest of both the tax-payer as well as the Revenue. Many of the works contracts are spread over the years and intermediate payments are made by the contractee to the contractor. It involves huge sums of money. Many of these contractors belong to outside the State in which works contracts are being executed. They have neither any regular office in that State nor are they registered under the sales tax laws of that State. They shift to another State to start execution of another works contract after completing the works contract of the first State. It is more convenient and easy for such contractors to get the tax deducted at source as and when they receive payments from the contractee otherwise they may be saddled with a huge tax liability in lump sum in one go. On the other hand, so far as the Revenue is concerned, it is able to collect the tax at source and has not to undertake the formalities of issuing notices, etc. , to the contractor. It was next urged that sub-section (1) of section B-D of the U. P. Act is also ultra vires inasmuch as while making provision for deduction of tax at source at 4 per cent of the entire sum paid by a contractee to the contractor, it does not make any allowance for legal deductions such as labour charges, service charges, etc. For this purpose, reliance was placed on the decision of the honourable Supreme Court in the case of Gannon Dunkerley & Co. For this purpose, reliance was placed on the decision of the honourable Supreme Court in the case of Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 in which it has been held that the sales tax on the transfer of property in goods involved in the execution of a works contract can be imposed on the total amount received by a contractor from the contractee but after deduction of labour charges, service charges, charges for planning, designing and architects fees, etc. , and after deducting the sums in respect of the sales covered by sections 3, 4 and 5 of the Central Act and after giving allowance to sales covered by sections 14 and 15 of the said Act. It is no doubt true that section S-D (1) of the U. P. Act while fixing rate of 4 per cent for deduction of sales tax at source, does not specifically in so many words provide for legal deductions as mentioned above but it does take into account the said deductions. The Notification dated April 27, 1987, contains those 15 items of works contract which have been made taxable in Uttar Pradesh. The average rate of tax on all the 15 items when such items are sold as such in the open market and which is payable under U. P. Sales Tax Act, comes to about 10 per cent including the surcharge. When the Legislature fixed the rate of 4 per cent for deductions of sales tax at source in respect of works contract, it must be presumed that the Legislature has taken into consideration the various legal deductions which have to be made while taking into account the entire sum received by a contractor from the contractee. It is a cardinal rule of interpretation that the courts always lean towards the validity of a legislation. We must ascribe this wisdom to the Legislature that it took into account the deductions which have to be made while calculating tax on the works contract on the entire sum received by a contractor from the contractee. It is a cardinal rule of interpretation that the courts always lean towards the validity of a legislation. We must ascribe this wisdom to the Legislature that it took into account the deductions which have to be made while calculating tax on the works contract on the entire sum received by a contractor from the contractee. In the second case filed by the Builders Association of India, a Constitution Bench of the Supreme Court in Builders Association of India v. State of Karnataka [1993] 88 STC 248, has held that when the amount actually incurred towards "labour charges and other like charges" are not ascertainable from the books of account maintained and produced by a dealer before the assessing authority, it is permissible for the rule-making authority to categorise and prescribe a fixed and different percentage of the value of the contract for the purpose of deduction of amounts towards labour charges and other charges. In Gannon Dunkerley & Co. [1993] 88 STC 204 a Constitution Bench of the Supreme Court has held that it is always permissible for the State Legislature to tax the entire sum received by a contractor from the contractee but some compulsory deductions from that sum have to he made. When a State Legislature is competent to fix labour, service and other charges in lump sum, to fix different rates for different works contracts and to take the entire sum received by a contractor from the contractee as the starting point for calculating tax in respect of transfer of property in goods involved in the execution of a works contract, likewise it is permissible for the State Legislature to fix a lump sum percentage of tax for the purposes of deductions at source after taking into consideration the legal deductions required to be made from that entire sum but without specifying in so many words the said legal deductions. There is yet another aspect of the matter. In case argument of the petitioners is act, the entire provision relating to deductions of tax at source incorporated in section 8-D of the Act would become unworkable. According to the honourable Supreme Court, as has been held by them in Gannon Dunkerley & Co. There is yet another aspect of the matter. In case argument of the petitioners is act, the entire provision relating to deductions of tax at source incorporated in section 8-D of the Act would become unworkable. According to the honourable Supreme Court, as has been held by them in Gannon Dunkerley & Co. case [1993] 88 STC 204, eight types of deductions have to be made from a total sum received by a contractor from the contractee, while arriving at the figure of transfer of property in goods involved in the execution of a works contract. Apart from this, the deductions in respect of sales covered by sections 3, 4 and 5 of the Central Act have also to be made. Provisions of sections 14 and 15 of the Central Act have also to be taken into consideration. Apart from this, the deductions in respect of tax-paid goods, those generally exempted, those goods which are produced by the new industrial units enjoying sales tax holiday for a fixed period and value of those goods which are supplied by the contractor to the contractee have also to be deducted. Thus, total number of deductions comes to about 17. Neither the contractor nor the contractee are the assessing authorities. It would be very difficult for a contractee to examine and for the contractor to specify all these deductions at the stage of intermediate bills. In fact, it is the duty of the assessing authority. It will, therefore, be not possible to take into account all the legal deductions from the total sum received by a contractor from a contractee. It appears to be in the interest of all concerned that the Legislature has fixed a percentage for deduction of tax at source. So far as rate of deduction of tax at source is concerned, it is very difficult for this Court to hold that it is excessive because this Court neither has expertise nor any material has been placed before us to substantiate it. It is for the State Legislature to consider this aspect of the matter including the prevalent rates in other States and to lower this rate. It is for the State Legislature to consider this aspect of the matter including the prevalent rates in other States and to lower this rate. In fact, proviso to sub-section (1) of section 8-D lays down that the Commissioner of Trade Tax may, if satisfied, that it is expedient in the public interest so to do, order that in any case or class of cases no such deduction shall be made or, as the case may be, such deduction shall be made at a lesser rate. This takes care of excessive deductions. An individual or a class of tax-payers can approach the Commissioner of Trade Tax to pass an appropriate order either for not deducting any tax at source or for deduction at a lesser rate. In view of what has been discussed above, the challenge to the validity of sub-section (1) of section 8-D of the U. P. Act falls through. Now coming to sub-section (2) of section 8-D, we find that while a contractee has to deduct 4 per cent at source from the entire sum received from the former by the latter, sub-section (2) provides that similar deductions at the same rate have to be made by a contractor from the amount payable by him to his sub-contractor. There is no private of contract between the sub-contractor and the principal and it is confined between the contractor and the sub-contractor. It means that the value of the works contract executed by a sub-contractor will have to be included in the bill which the contractor submits to the contractee. In that case, the contractee will again deduct 4 per cent from the total sum paid by it to the contractor. It follows that in respect of the works contract executed by the sub-contractor there would be double deduction of tax at source each at 4 per cent - once, when the contractor makes payment to the sub-contractor and again, when the contractor receives payment from the contractee in respect of the works contract executed by his sub-contractor. Sub-section (1) of section 8-D provides that this deduction at source shall be towards part or as the case may be, full satisfaction of the tax payable under the U. P. Act on account of such works contract. Sub-section (1) of section 8-D provides that this deduction at source shall be towards part or as the case may be, full satisfaction of the tax payable under the U. P. Act on account of such works contract. Sub-section (3) of section 8-D provides that the deductions made by a contractee from the bills of the contractor or the deductions made by a contractor from the payments made to the sub-contractor, have to be deposited by both of them into a Government Treasury and according to sub-section (5) such credit into Government Treasury shall be treated as payment of tax on behalf of the persons from whose bills or invoices the deductions have been made. Sub-section (6) lays down that in case the person deducting the aforesaid amount fails to deposit the same into the Government Treasury, the assessing authority may direct that such person shall pay by way of penalty a sum not exceeding twice of the amount deductible under the said section but not so deducted and if deducted, not so deposited into the Government Treasury. Sub-section (7) provides for payment of interest if deducted amount is not deposited in the Government Treasury. Sub-section (8) lays down that deducted amount if not deposited, shall be a charge upon all the assets of the persons who had deducted the amount and had failed to deposit into the Government Treasury. Thus, section 8-D makes penal provisions also and at the pain of these penal provisions, one is obliged not only to deduct tax at source but has also to deposit the same into Government Treasury. There is no option with the contractor not to deduct the amount from the bills of a sub-contractor. Similarly, he is bound to deposit the amount so deducted into Government Treasury. Thus, it is a case of double taxation which is not permissible under law. Apart from this, this provision is unreasonable and arbitrary. In view of this, sub-section (2) of section 8-D of the U. P. Act is declared ultra vires and bad in law. Sub-sections (3) to (9) are also declared ultra vires in so far as they provide deductions by the contractor from payments made by him to his sub-contractor, the deposit into the Government Treasury of the deduction made by a contractor from his sub-contractor and the penal provisions including levy of interest relating thereto. Sub-sections (3) to (9) are also declared ultra vires in so far as they provide deductions by the contractor from payments made by him to his sub-contractor, the deposit into the Government Treasury of the deduction made by a contractor from his sub-contractor and the penal provisions including levy of interest relating thereto. The validity of section 3-F and rule 44-B framed thereunder was vehemently challenged. It was urged that these provisions are ultra vires because they do not provide for deduction of the value of those goods which are covered by sections 3, 4 and 5 of the Central Act. Similarly, these provisions do not take into account the sale of goods covered by sections 14 and 15 of the Central Act. It was also contended that deduction of labour charges and service charges, etc. , have also not been provided for. This matter was considered by a Constitution Bench of the Supreme Court in the case of Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204. In that case, the Supreme Court had considered the provisions of the Rajasthan Sales Tax Act relating to imposition of tax on works contract. Sub-section (3) of section 5 of the Rajasthan Sales Tax Act provided as under : " (3) Notwithstanding anything contained in this Act, in the case of a works contract, the turnover of such contract shall be subjected to tax : Provided that such deductions, as may be prescribed, may be allowed to a contractor while determining his tax liability. Sub-section (3) of section 5 of the Rajasthan Sales Tax Act provided as under : " (3) Notwithstanding anything contained in this Act, in the case of a works contract, the turnover of such contract shall be subjected to tax : Provided that such deductions, as may be prescribed, may be allowed to a contractor while determining his tax liability. " Its corresponding rule was sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules which was as under : " (2) In case of a works contract, tax shall be computer 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 other form, which have already suffered tax at the rate prescribed under section 5 or which are exempted from tax under section 4 of the Act; (ii) all sums towards labour charges, which are directly 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 deductions 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. " Sub-section (3) of section 5 of the Rajasthan Sales Tax Act contains almost identical provisions and appears to be in pari materia with the provisions of section 3-F of the U. P. Sales Tax Act. Almost similar is the case with rule 44-B of the U. P. Sales Tax Rules and rule 29 (2) of the Rajasthan Sales Tax Rules. In the case of Gannon Dunkerley & Co. Almost similar is the case with rule 44-B of the U. P. Sales Tax Rules and rule 29 (2) of the Rajasthan Sales Tax Rules. In the case of Gannon Dunkerley & Co. [1993] 88 STC 204, the Supreme Court has held that since the tax leviable by virtue of sub-clause (b) of clause (29a) of article 366 of the Constitution, is subject to the same discipline to which any levy under entry 54 of the State List is made, it is imperative that the laws of the State providing for tax on the transfer of property in goods involved in the execution of a works contract have to make a provision for deduction of the value of those goods which are covered by sections 3, 4 and 5 of the Central Act and an allowance has to be given in respect of those goods which are covered by sections 14 and 15 of the Central Act. In other words, the sales in the course of inter-State trade or commerce, the sales outside the State, the sales in the course of export and import had to be deducted from the total amount received by a contractor from the contractee because the State Legislature is not competent to impose sales tax on these aforesaid sales. Similar is the case of sales covered by sections 14 and 15 of the Central Act. The sales of goods involved in the execution of a works contract are deemed sales and they are subject to the provisions of article 286 of the Constitution. Apart from this, the Supreme Court has further held as follows : ". . . . . . The value of the goods involved in the execution of a works contract will, therefore, 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 : (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architects fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc. , used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services (h) profit earned by the contractor 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. " The Supreme Court declared section 5 (3) of the Rajasthan Sales Tax Act and rule 29 (2) framed thereunder as ultra vires on the ground that it did not permit deduction of the sales covered by sections 3, 4 and 5 of the Central Act and no allowance was given in respect of those goods sale of which is covered by sections 14 and 15 of the Central Act. It also did not permit other deductions. A bare perusal of section 3-F and rule 44-B of the U. P. Sales Tax Rules shows that the Legislature has not made any express provision for exclusion of the above items. Thus, the controversy before us is squarely covered by the decision of Supreme Court given in the case of Gannon Dunkerley & Co. [1993] 88 STC 204. It was urged by learned Standing Counsel that the Notification dated April 27, 1987 and rule 44-B make provision for these deductions. This is not fully true. While rule 44-B permits some deductions it does not permit other deductions indicated above. [1993] 88 STC 204. It was urged by learned Standing Counsel that the Notification dated April 27, 1987 and rule 44-B make provision for these deductions. This is not fully true. While rule 44-B permits some deductions it does not permit other deductions indicated above. In fact, similar contention raised before the Supreme Court on behalf of Rajasthan Government in Gannon Dunkerley & Co. [1993] 88 STC 204 was repelled by it in the following words : " The constitutional validity of a statute has to be determined on the basis of its provisions and on the ambit of its operation as reasonably construed and if, so judged, it does no pass the test of constitutionality it cannot be pronounced valid merely because it is administered in a manner which might not conflict with the constitutional requirements. (See : Collector of Customs v. Nathella Sampathu Chetty [1962] 3 SCR 786 at pages 825 and 826 ). The Rules framed under the Rajasthan Sales Tax Act would not, therefore, be of any assistance in resolving the question regarding the validity of section 5 (3 ). We have, however, examined the rules that have been framed and we find that they do not improve the position. The relevant provisions in this regard are contained in sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules which makes provision for deductions from the turnover in the case of a works contract. The said sub-rule (2) contains two clauses. Clause (i), which is referable to the proviso to sub-section (3) of section 5, provides for deduction of the value of the goods transferred in execution of works contract, whether as goods or in some other form, which have already suffered tax at the rates prescribed by section 5 or which are exempted from tax under section 4. Clause (ii) is referable to Explanation (i) of section 2 (t) and it provides for deduction of all sums towards labour charges, which are directly correlated with the goods, property in which has passed in the execution of works contract, whether as goods or in some other form. Clause (ii) is referable to Explanation (i) of section 2 (t) and it provides for deduction of all sums towards labour charges, which are directly correlated with the goods, property in which has passed in the execution of works contract, whether as goods or in some other form. " It was next urged by learned Standing Counsel that section 3-F which is the charging section, makes a provision for taxing the transfer of property only involved in the execution of a works contract and therefore, all deductions will be made at the time of assessment in order to arrive at the value of transfer of property in goods involved in the execution of a works contract. This submission has no substance because section 3-F read with rule 44-B does not lay down any guidelines for all the legal deductions. They also do not specify all the deductions. A tax-payer cannot be permitted to suffer at the hands of a tax-man who is left to permit deductions at his whim and caprice. Both, the tax-payer as well as the tax-man, are left in the lurch. In fact, since rule 44-B provides for only three or four deductions, it follows that other deductions will not be permitted. That is the effect of the conjoint reading of section 3-F and rule 44-B. As has been held by the honourable Supreme Court in the case of Gaztton Dunkerley & Co. [1993] 88 STC 204, all the deductions (a) to (h) quoted above, deductions in respect of sales covered by sections 3, 4 and 5 of the Central Act, and allowance for the sales covered by sections 14 and 15 of the Central Act have to be provided for in State statute relating to tax on deemed sales, i. e. , the works contract. Similarly, the deductions which have been made permissible under rule 44-B have to remain. Since section 3-F read with rule 44-B do not provide guideline for, nor permit all the deductions, they are declared ultra vires. In the result, all the writ petitions are allowed to the extent that section 3-F of the U. P. Trade Tax Act and rule 44-B framed thereunder are declared ultra vires. Sub-section (2) of section 8-D is also declared ultra vires. In the result, all the writ petitions are allowed to the extent that section 3-F of the U. P. Trade Tax Act and rule 44-B framed thereunder are declared ultra vires. Sub-section (2) of section 8-D is also declared ultra vires. Similarly, sub-section (3) to sub-section (9) of section 8-D are also declared ultra vires in so far as they provide for deposit of deduction of tax at source into Government Treasury by a contractor from the payments made by him to his sub-contractor and the penalty provision including the provision for levy of interest relating thereto. However, there will be no order as to costs. Immediately after pronouncement of the judgment learned Standing Counsel orally prayed for grant of certificate of fitness to file an appeal before the honourable Supreme Court. In our view, the questions involved are concluded by the judgments of the honourable Supreme Court. Therefore, there is no ground to grant certificate of fitness to file an appeal before the honourable Supreme Court. The prayer made is, therefore, refused. Writ petitions allowed. .