PUNJ LLOYD LTD. v. STATE OF M. P. — 1996 DIGILAW 506 (MP)

JUDGMENT A. K. MATHUR, C.J. - All the aforesaid writ petitions involve common question of law; therefore, they are disposed of by this common order. 2. For convenient disposal of all the aforesaid writ petitions, the facts given in Writ Petition No. 1141 of 1996 (Punj Lloyd Ltd. v. State of M.P. and others), are taken into consideration. 3. The petitioner by this writ petition has prayed that section 35 of the M.P. Commercial Tax Act, 1994, may be declared as ultra vires and unconstitutional and the same may be struck down. The petitioner has also prayed that the respondents may be restrained from making deductions of tax at source as per section 35 of the M.P. Commercial Tax Act, 1994, from the bills of the petitioner-company. 4. The petitioner-company is a registered company under the Companies Act, 1956, having its registered office at New Delhi and branch at Gwalior in the State of M.P. The petitioner-company amongst other activities undertakes works contract. The petitioner-company is a dealer registered under the M.P. General Sales Tax Act, 1958 (since repealed) and is consequently registered dealer under the M.P. Commercial Tax Act, 1994 (hereinafter referred to as "the Act of 1994"). The respondent No. 3 - Gas Authority of India Ltd. is a Government company and is the Government of India Undertaking. The respondent No. 3 awarded works contract to the petitioner-company for laying of pipeline system and other incidental works at Vijaypur, district Guna. The value of the contract is Rs. 57,05,80,500 approximately. The contract also provides for the material involved at Rs. 5,00,79,240 which works out to 9.83 per cent of the total value. The rest of the amount is for labour and service charges. The petitioner-company commenced the work and submitted its seventh running bill on March 15, 1996. Under this bill, the petitioner-company had to receive a sum of Rs. 5,62,75,940 approximately. It is alleged that the State Legislature has enacted the Commercial Tax Act, 1994, repealing the M.P. General Sales Tax Act, 1958, with effect from February 7, 1995. Section 35 of the Act provides for deduction at source of tax payable by contractor, inter alia, casting the duty on the person making payment to a contractor in the works contract. It is alleged that the State Legislature has enacted the Commercial Tax Act, 1994, repealing the M.P. General Sales Tax Act, 1958, with effect from February 7, 1995. Section 35 of the Act provides for deduction at source of tax payable by contractor, inter alia, casting the duty on the person making payment to a contractor in the works contract. It is further alleged that the petitioner-company having undertaken a works contract from the respondent No. 3, the provisions of section 35 of the Act are attracted and by virtue of this provision, the petitioner-company has to suffer the deduction of the tax at source and it is also alleged that the petitioner-company will suffer deduction of Rs. 56,39,449 from payment receivable by the petitioner-company. The petitioner-company has purchased goods in the course of inter-State trade and commerce and it has to purchase certain goods from the registered dealer also within the State which is entitled to be deducted while working out the turnover of the petitioner-company. It is alleged that the total value of the material works out only to 9.83 per cent and the rest is of labour charges. It is alleged that the petitioner is not liable to pay sales tax on certain sales but by virtue of section 35, still the tax will be deducted at source. Likewise, the petitioner has to pay tax on items mentioned in section 2(w)(ii) of the Act which are in the nature of tax-paid goods. This amounts to unreasonable restriction on the freedom of trade. Therefore, the petitioner-company has filed this petition challenging the validity of section 35 of the Act being ultra vires of article 19(1)(g) of the Constitution of India. 5. A reply has been filed by the respondents. It is contended that section 35 of the Act is intra vires as it is within the legislative competence of the State Legislature to enact the Act under entry 54, List II of the Seventh Schedule of the Constitution of India. It is also contended that somewhat similar provisions also existed in the earlier M.P. General Sales Tax Act under section 22-B. It is also submitted that similar provisions exist in the Bihar Finance Act, 1981, the Kerala General Sales Tax Act, 1963 and the Haryana General Sales Tax Act, 1973. It is also contended that somewhat similar provisions also existed in the earlier M.P. General Sales Tax Act under section 22-B. It is also submitted that similar provisions exist in the Bihar Finance Act, 1981, the Kerala General Sales Tax Act, 1963 and the Haryana General Sales Tax Act, 1973. It is also contended that similar provision exists under section 194-C(1) of the Income-tax Act, 1961; therefore, the submission on behalf of the State is that the Act is intra vires and not ultra vires of the provisions of the Constitution of India or any of the provisions of the Act of 1994. 6. Shri V. S. Dabir, learned counsel for the petitioner, has submitted that section 35 of the Act is beyond the competence of the State Legislature. It is submitted that the tax shall be on sale or purchase of goods not liable to tax and on labour charges or other items mentioned. It is contended that the provision is without guidelines. It is compulsory exaction of money under articles 19(1)(g), 301, 265, 366(29A) and 286(3) of the Constitution of India. It is also contended that this amounts to double taxation. 6-A. In order to appreciate the contentions raised by the learned counsel for the parties, it is necessary to refer to the relevant provisions of the Act bearing on subject. It is compulsory exaction of money under articles 19(1)(g), 301, 265, 366(29A) and 286(3) of the Constitution of India. It is also contended that this amounts to double taxation. 6-A. In order to appreciate the contentions raised by the learned counsel for the parties, it is necessary to refer to the relevant provisions of the Act bearing on subject. Section 2(w) of the Act defines "taxable turnover", which reads as under : "Section 2(w) : 'taxable turnover' in relation to any period means that part of a dealer's turnover for such period which remains after deducting therefrom - (i) the sale price of goods declared tax-free under section 15 or exempted in whole under section 17; (ii) the sale price of goods mentioned in Parts II to VII of Schedule II which are in the nature of tax-paid goods in the hands of such dealer; (iii) the sale price of unginned cotton as specified in Part I of Schedule II and such other goods in the said part as the State Government may from time to time, by notification, specify, sold to a registered dealer who has declared in the prescribed form that the goods are for resale or for use by him in the manufacture of goods for sale by him; (iv) the sale price of goods specified in Part I of Schedule II other than those referred to in sub-clause (iii), sold to a registered dealer who has declared in the prescribed form that the goods are for resale by him; (v) the amount arrived at by applying the following formula :- rate of tax X aggregate of sale prices ----------------------------------------- 100 + rate of tax Provided that no deductions on the basis of the above formula shall be made if the amount by way of tax collected by a registered dealer, in accordance with the provisions of this Act has been otherwise deducted from the aggregate of sale prices." Section 35 - the validity of the provisions which has been challenged, reads as under : "Section 35 : Deduction at source of tax payable by a contractor. - (1) Notwithstanding anything contained in any other provision of this Act, any person letting out a works contract of value exceeding one lakh rupees to a contractor involving sale of any goods in the course of execution thereof by the contractor shall before making the payment of any amount towards the value of such contract to him, deduct at the rate of two per cent an amount towards the tax payable by the contractor under this Act. The amount so deducted shall be adjusted towards the tax assessed on such contractor under section 27 and any amount that remains after such adjustment shall be refundable to the contractor. (2) On deduction of the amount at source under sub-section (1) the person making such deduction shall issue a certificate therefor to the contractor and shall deposit such amount into the Government treasury in such manner and within such time as may be prescribed. (3) Any person making a payment of the amount under sub-section (2) shall be deemed to have made the payment thereof on the authority and on behalf of the contractor and the treasury receipt for such payment shall constitute a good and sufficient discharge of the liability of the person to the contractor towards the value of the contract to the extent of the amount specified in the receipt. (4) Where any payment of any amount is made by a person under sub-section (2) on behalf of a contractor such payment shall constitute a good and sufficient discharge of the liability of the contractor to pay tax in respect of the sale of the goods in the course of execution of the works contract from the payment of the value whereof such amount has been deducted under sub-section (1) and such amount shall be adjusted towards the tax payable by the contractor on the sale of such goods. (5) Where a person contravenes the provisions of sub-section (1) or sub-section (2) the Commissioner shall impose upon such person by way of penalty an amount which shall be twenty five per cent of the amount required to be deducted under sub-section (1). (5) Where a person contravenes the provisions of sub-section (1) or sub-section (2) the Commissioner shall impose upon such person by way of penalty an amount which shall be twenty five per cent of the amount required to be deducted under sub-section (1). (6) Any amount, a person is required to deduct under sub-section (1) and to pay it into a Government treasury under sub-section (2) or the penalty payable under sub-section (5) remains unpaid shall be recoverable as an arrear of land revenue.' Section 79 of the Act which lays down that certain goods are not liable to tax, reads as under : "Section 79 : Sales not liable to tax. - (1) Notwithstanding anything contained in this Act a tax on the sale or purchase of goods shall not be imposed under this Act - (i) where such sale or purchase takes place outside the State of Madhya Pradesh; or (ii) where such sale or purchase takes place in the course of inter-State trade or commerce; or (iii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of the territories of India. (2) For the purpose of this section whether a sale or purchase takes place - (i) outside the State of Madhya Pradesh; or (ii) in the course of inter-State trade or commerce; or (iii) in the course of the import of goods into the territory of India or the export of goods out of such territory; shall be determined in accordance with the principles specified in sections 3, 4 and 5 of the Central Sales Tax Act, 1956." 7. The first and foremost question which the learned counsel has submitted was that the provisions of the Act are beyond the legislative competence of the State. This submission on the face of it appears to be misconceived. The entry 54 of List II of the Seventh Schedule of the Constitution of India empowers the State Legislature to enact the laws on sales tax, which reads as under : "Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I." Therefore, so far as the competence of the State Legislature is concerned, the State Legislature is competent to enact the Sales Tax Act which is beyond any dispute. The submission of the learned counsel is that in fact, by deducting the tax at source it would amount to taxing sales which are otherwise exempted, which are covered under section 2(w)(iii) and under section 79 as well as the labour charges where no sale and purchase is involved. It is submitted that on these items, the tax will be charged from the assessee whereas all these items are not liable to tax. It is true that section 35 provides for deduction at source of tax on taxable turnover is only a machinery provision and it is not a substantive provision for impost. In fact, the charging section is section 9, and the incidence of taxation is on sale and purchase of goods. Simply because, the mode has been provided for recovery of tax that does not mean that the State Legislature has exceeded its jurisdiction. It is a sort of advance tax so that the tax could be recovered right from the inception without waiting till the whole transaction of the works contract is completed. In the works contract, it is true that there is a component of the labour and there are certain sales and purchases made in the course of inter-State trade or commerce or from the registered dealer, but that are not being taxed. In fact, what is being taxed is sale and purchase of goods land that is only a mode provided in the beginning and it is subject to the final adjustment at the end of the whole works contract. It is a machinery provision and it could have been provided keeping in view the fact that certain sales and purchases which are exempted or which are not liable to tax under the Act should have been better advised to leave including the labour charges. But by this, it does not mean that the State Legislature is not competent to incorporate section 35 of the Act. In fact, primarily, it is a machinery provision for the purpose of collection of tax and incidentally, it may have a component of the labour charges or certain sales which are not liable to tax or certain purchases which are exempted, but it is ultimately subject to the final determination of the taxing liability. It may operate in one or two transactions harshly, but there was no justification for declaring such provision to be bad on that count. It may operate in one or two transactions harshly, but there was no justification for declaring such provision to be bad on that count. Similar provision exists under section 194-C of the Income-tax Act. Section 194-C reads as under : "Section 194-C : Payments to contractors and sub-contractors. - (1) Any person responsible for paying any sum to any resident (hereafter in this section referred to as the contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and - (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1980), or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any University established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956 (3 of 1956), or (j) any firm, shall, at the time of credit of such sum to the account of the contractor or at the time payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to - (i) one per cent in case of advertising; (ii) in any other case two per cent of such sum as income-tax on income comprised therein. (2) Any person (being a contractor and not being an individual or a Hindu undivided family), responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the sub-contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein. (3) No deduction shall be made under sub-section (1) or sub-section (2) from - (i) any sum credited or paid in pursuance of any contract the consideration for which does not exceed twenty thousand rupees; or (ii) any sum credited or paid before the 1st day of June, 1972; or (iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society. (4) Where the assessing officer is satisfied that the total income of the contractor or the sub-contractor justifies the deduction of income-tax at any lower rate or no deduction of income tax, as the case may be, the assessing officer shall, on an application made by the contractor or the sub-contractor in this behalf, give to him such certificate as may be appropriate. (5) Where any such certificate is given, the person responsible for paying the sum referred to in sub-section (1) or sub-section (2) shall, until such certificate is cancelled by the assessing officer, deduct income-tax at the rates specified in such certificate or deduct no tax, as the case may be." Therefore, under the Income-tax Act, a redeeming feature is that the assessee can satisfy the authority that the incidence of tax is less at the beginning, no deduction is required in case the amount of tax already deposited, exceeded the tax payable, in that case, a certificate to this respect can be issued and on production of such certificate, the person who is entrusted to deduct the tax at source, may not deduct the same. Though similar provisions could have been provided under this Act also then perhaps the arguments would not have been open to the assessee. Similar provision on the line exists in so many other enactments of the States like section 6-D of the U.P. Trade Tax Act, section 6-E of the Bengal Finance (Sales Tax) Act, 1941, section 25-A of the Bihar Finance Act, 1981, section 25-B of the Haryana General Sales Tax Act, 1973, section 12-A of the Himachal Pradesh General Sales Tax Act, section 16-C of the Jammu and Kashmir General Sales Tax Act, section 19-A of the Karnataka Sales Tax Act and section 13-AA of the Orissa Sales Tax Act. Therefore, this provision is not peculiar to the State of M.P. Similar provisions across the country in various Sales Tax Acts exist and this machinery provision has also come up for challenge in various High Courts and most of the High Courts have affirmed the validity of such provisions which will be discussed hereinafter. 8. However, at present, it may be suffice to show that section 35 is only a machinery provision and it is not a taxing event. The charging section is section 9 of the Act and only the sale and purchase of the goods will be subject to tax and not other items which are not liable to tax or the labour charges, as the case may be. The charging section is section 9 of the Act and only the sale and purchase of the goods will be subject to tax and not other items which are not liable to tax or the labour charges, as the case may be. It is only that both these items, i.e., labour charges and other items, which are not liable to tax, are clubbed together in a works contract while executing a works contract which is not bifurcated that creates problem and if it had been provided in the works contract separately perhaps this situation would not have arisen. In a composite works contract, such kind of segregation is not possible. Therefore, for overall purpose for recovering of the tax at source, the total turnover is taken into consideration. But, at the time of final determination of the liability of tax, the amount which is not liable to tax, shall not be taxed. It is misconceived to contend that under section 35 certain items which are not subject to tax, are being taxed like labour charges or other items which are not liable to tax. It is only an approximate amount of tax which is worked out on the basis of overall turnover that being the composite amount of total works contract at the rate of 2 per cent. If the provisions similar to sub-sections (4) and (5) of section 194-C of the Income-tax Act had been provided, perhaps this argument would not have been available, though a notification dated April 12, 1996, has been issued by the State Government under section 17 of the Act of 1994, which will be referred to at the relevant time, mitigating the hardship. 9. Shri V. S. Dabir, learned counsel for the petitioner has invited our attention to Builders Association of India v. State of Karnataka [1993] 88 STC 248 (SC); AIR 1993 SC 991 . 9. Shri V. S. Dabir, learned counsel for the petitioner has invited our attention to Builders Association of India v. State of Karnataka [1993] 88 STC 248 (SC); AIR 1993 SC 991 . This was a famous case in which the provisions of the Karnataka Sales Tax Act came up for challenge and the definition of "sale" under article 366(29-A)(b) came up for consideration and their Lordships after considering the provisions of the Karnataka Sales Tax Act and amended definition of "sale", observed : "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. The expression 'labour charges' and the expression 'labour charges and other like charges' under rule 6 are wide enough to include the charges for labour and services. It cannot, therefore, be said that section 5-B provides for levy of tax not on the value of the goods involved in the execution of a works contract but also on something which is not part of that value." Their Lordships have further observed : "The words 'other than the sale in the course of inter-State trade or commerce or in course of import or export' in section 2(t), Explanation 3(a) means that a sale or purchase of goods in the course of inter-State trade or commerce or in the course of import or export is excluded." It was also observed by their Lordships of the honourable Supreme Court : "The contention in the instant case was that clause (c) of Explanation 3, which fixes the situs of the sale, has the effect of converting a transfer which is an inter-State sale or sale outside the State within the meaning of sections 3 and 4 of the Central Sales Tax Act into an 'inside sale' and thereby subjecting the same to levy of tax under the Act which is beyond the legislative competence of the State Legislature under entry 54 of the State List read with article 366(29-A)(b). Held, construing clause (c) in the light of clauses (a) and (b) of Explanation 3 of section 2, it cannot be said that in fixing the situs in respect of deemed sales resulting from transfer of property in goods involved in execution of a works contract, the 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." 10. The gist of the matter is that section 35 is only a machinery provision and it is not a charging section. The charging section is section 9 of the Act. This machinery provision is for the purpose of securing sales tax and for that purpose a general principle has been adopted that 2 per cent of the total amount of works contract should be deducted subject to final determination, but that does not mean that the State is going to tax the labour charges or sale which is not liable to tax, under the provisions of the Act of 1994. This is only a simple yardstick adopted by the State on a broad basis as an advance deduction at source, but that does not mean that the incidence of tax will be on the items which are not liable to tax. This is only a broad assessment for securing the advance tax at source and subject to final determination by the assessing authority at the appropriate time. At that time, it is open for the assessee to show that certain items which are not liable to tax then there is no reason why the authority shall deny the benefit which the assessee is legitimately entitled to. Simply because, section 35 does not make any distinction of the items like labour charges or the sale or purchase which is not liable to tax under the Act, therefore it should be struck down, there is no justification for this submission whatsoever. Section 35 is purely a machinery provision and it is not a charging section. 11. The Builders Association's case [1989] 73 STC 370 (SC) further come up for consideration in Gannon Dunkerley & Co. Section 35 is purely a machinery provision and it is not a charging section. 11. The Builders Association's case [1989] 73 STC 370 (SC) further come up for consideration in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 (SC); (1993) 1 SCC 364 and their Lordships have affirmed the ratio laid down in the Builders Association's case [1989] 73 STC 370 (SC) and it was observed : "The expression 'tax on the sale or purchase of goods' in entry 54 of the State List includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The question whether the power to impose tax on the transfer of property in goods involved in the execution of a works contract is to be found in entry 54 in List II or it is an independent taxing power squarely arose for consideration in Builders Association's case [1989] 73 STC 370 (SC) and has been answered categorically and the observations of the court in that regard are not merely incidental or casual in nature. Further, the tax leviable by virtue of sub-clause (b) of clause (29-A) of article 366 is subject to the discipline to which any levy under entry 54 of the State List is made subject to under the Constitution as held in that case. Further, the tax leviable by virtue of sub-clause (b) of clause (29-A) of article 366 is subject to the discipline to which any levy under entry 54 of the State List is made subject to under the Constitution as held in that case. Therefore, it is not appropriate to reopen the issues which are covered by the decision in Builders Association's case [1989] 73 STC 370 (SC)." In that case, the validity of section 5(3) and rule 29(2)(ii) of the Rajasthan Sales Tax Act and Rules came up for consideration and in that context, their Lordships observed : "Sub-section (3) of section 5 transgresses the limits of the legislative power conferred on the State Legislature under entry 54 of the State List inasmuch as it enables tax being imposed on deemed sales resulting from transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract which take place in course of inter-State trade or commerce, or which take place outside the State or which take place in the course of import and export within the meaning of sections 3, 4 and 5 respectively of the Central Sales Tax Act and it does not take into account the conditions and restrictions imposed by section 15 on goods declared to be of special importance in inter-State trade or commerce under section 14 of the Central Sales Tax Act. In view of the non obstante clause in sub-section (3) of section 5, the provisions of sub-section (1) are not applicable to works contracts and sub-section (3) alone is applicable. A comparison of sub-section (3) of section 5 read with section 2(t) and sub-section (1) of section 5 read with section 2(s) would indicate that in relation to works contracts the Legislature has made a departure in the matter of chargeability of the tax and by using the expression 'turnover' instead of 'taxable turnover' in section 5(3) it has enlarged the field of taxability. The proviso to section 5(3) does not oblige the rule-making authority to frame a rule allowing deductions for the turnover of the amount of proceeds of sale of goods on which no tax is leviable under the Act so as to exclude the abovementioned sales from levy of tax. The proviso to section 5(3) does not oblige the rule-making authority to frame a rule allowing deductions for the turnover of the amount of proceeds of sale of goods on which no tax is leviable under the Act so as to exclude the abovementioned sales from levy of tax. The rule-making authority would not be contravening the mandate of the statute if it does not allow deduction of the amount of proceeds for sale of goods on which no tax is leviable under the Act from the turnover. 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); Section 5(3) of the Rajasthan Sales Tax Act and clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules must, therefore, be held to be unconstitutional and void. 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); Section 5(3) of the Rajasthan Sales Tax Act and clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules must, therefore, be held to be unconstitutional and void. The constitutional validity of a statute has to be determined on the basis of its provisions and on the ambit of the operation as reasonably construed and if, so judged, it does not 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." In Rajasthan's case - Gannon Dunkerley [1993] 88 STC 204 (SC); (1993) 1 SCC 364 , as a matter of fact, the charging section was amended and sub-section (3) of section 5 was inserted, which reads as under : "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." The expression "turnover" is defined in clause (t) as under : "'turnover' means the aggregate amount of sale prices received or receivable for a sale, transfer, delivery or supply by a dealer in any of the ways referred to in clause (o); and" The "taxable turnover" was defined in section 2(s) means that part of turnover which remains after deducting therefrom the aggregate amount of the proceeds of sale of goods - (i) on which no tax is leviable under this Act, (ii) which have already been subjected to tax under this Act, (iii) which have been sold to persons outside the State for consumption outside the State; and (iv) which are taxable at a point of sale within the State subsequent to the sale by the dealer and such sale is covered by a declaration as may be required under any provision of this Act or the rules made thereunder." Therefore, in the aforesaid case Gannon Dunkerley [1993] 88 STC 204 (SC); (1993) 1 SCC 364 , the Legislature tried to include in the taxable net of the goods which are not liable to tax in the case of works contract. Therefore, their Lordships observed that this is beyond the competence of the State Legislature, but that is not the case here. Here the charging section is section 9 of the Act, which reads as under : "Section 9. Levy of tax. - (1) Subject to provisions of sub-section (2) and sub-section (3), the tax payable by a dealer under this Act shall be levied on the taxable turnover relating to goods specified in Schedule II at the rate mentioned in corresponding entry in column (3) of the said Schedule. (2) Subject to such restrictions and conditions as may be prescribed and to the provisions of sub-clause (iii) of clause (w) of section (2), - (a) the tax payable by a registered dealer on the sales of any goods specified in Schedule II except the goods specified in Schedule III, to another registered dealer for use by him inside the State - (i) as raw material or as incidental goods, in the manufacture or in the processing of goods or in the mining of goods, declared tax-free under section 15 or exempted in whole under section 17 and sold by him - (a) in the State of Madhya Pradesh, or (b) in the course of inter-State trade or commerce, or (c) in the course of export out of the territory of India, or (ii) in the generation or distribution of electrical energy or and other form of power; shall be levied at the concessional rate of four per cent. (b)(i) the tax payable by a registered dealer on the sale of any goods specified in Schedule II except the goods specified in Schedule III, to another registered dealer holding a recognition certificate under section 25 for use by him as raw material or as incidental goods in the manufacture or processing or mining of taxable goods other than coal; or (ii) the tax payable by registered dealer on the sale of any goods specified in Schedule II to another registered dealer holding a recognition certificate under section 25 for use by him as raw material or incidental goods in the mining of coal, for sale by him in the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export out of the territory of India, shall be levied at the concessional rate of four per cent : Provided that when the tax on the sale of such raw material or incidental goods is payable under sub-section (1) at a rate lower than four per cent, the tax payable under clause (a) or clause (b) shall be calculated at such lower rate or at such other lower rate as may be notified by the State Government. (3) Where any goods purchased by a registered dealer under clause (a) or clause (b) of sub-section (2) are used by him contrary to the purpose specified therein or in violation of the restrictions and conditions prescribed under the said sub-section such registered dealer shall be liable to pay in such manner as may be prescribed, tax or penalty, as the case may be, at the rate equal to the difference of the full rate of tax under sub-section (1) and the concessional rate of tax under sub-section (2), in respect of such goods : Provided that no tax or penalty shall be imposed on a registered dealer where any goods purchased for use by him as raw material or incidental goods under clause (a) or clause (b) of sub-section (2), are sold by him subject to such restrictions or conditions as may be prescribed, to another registered dealer who is a manufacturer of goods declared tax-free under section 15 or goods exempted in whole under section 17, who holds a recognition certificate under section 25 for the purpose specified in the said clauses. Explanation. Explanation. - In this section, - (i) the expression 'taxable goods' shall mean the goods liable to tax under this Act; (ii) the amount payable for violation of restrictions and conditions shall be by way of tax in respect of goods other than declared goods and by way of penalty in respect of declared goods." This section has not been amended and no provision has been made for the works contract; therefore, the incidence of taxation under the charging section remains as it is and it has been clearly mentioned that what is taxable is the taxable turnover as defined in section 2(w). Therefore, the charging section has not been touched under this Act for works contract. The other provisions of the Act have not been in any manner affected and it is only section 35 which is purely a machinery provision which has been amended just to secure the tax at source. Therefore, it cannot be said that section 35 of the Act is in any way ultra vires of the provisions of the Act or the Constitution of India. In fact, in the case of Gannon Dunkerley [1993] 88 STC 204 (SC); (1993) 1 SCC 364 , the charging section was sought to be amended in the matter of works contract; therefore, their Lordships found that it was invalid and it was accordingly declared ultra vires. But, in the present case, the core provisions, i.e., incidence of taxation is concerned, which has not been touched and only the machinery provision has been amended so as to secure the sales tax at source. Therefore, Gannon Dunkerley's case [1993] 88 STC 204 (SC); (1993) 1 SCC 364 , does not provide any assistance to the petitioner for declaring the section 35 of the Act as ultra vires. 12. Similar provision under section 194-C of the Income-tax Act came up for consideration before the honourable Supreme Court in Associated Cement Co. Ltd. v. Commissioner of Income-tax [1993] 201 ITR 435; AIR 1993 SC 2281 and in that context, their Lordships observed : "......... 12. Similar provision under section 194-C of the Income-tax Act came up for consideration before the honourable Supreme Court in Associated Cement Co. Ltd. v. Commissioner of Income-tax [1993] 201 ITR 435; AIR 1993 SC 2281 and in that context, their Lordships observed : "......... The words in the sub-section 'on income comprised therein' appearing immediately after the words 'deduct an amount equal to two per cent of such sum as income-tax' from their purport, cannot be understood as the percentage amount deductible from the income of the contractor out of the sum credited to his account or paid to him in pursuance of the contract. Moreover, the concluding part of the sub-section requiring deduction of an amount equal to two per cent of such sum as income-tax, by use of the words 'on income comprised therein' makes it obvious that the amount equal to two per cent of the sum required to be deducted is a deduction at source. Indeed, it is neither possible nor permissible for the payer to determine what part of the amount paid by him to the contractor constitutes the income of the latter. It is not also possible to think that Parliament could have intended to cast such impossible burden upon the payer nor could it be attributed with the intention of enacting such an impractical and unworkable provision. Hence, on the express language employed in the sub-section, it is impossible to hold that the amount of two per cent required to be deducted by the payer out of the sum credited to the account of or paid to the contractor has to be confined to his income component out of that sum. There is also nothing in the language of the sub-section which permits exclusion of an amount paid on behalf of the organisation to the contractor according to clause 13 of the terms and conditions of the contract in reimbursement of the amount paid by him to workers........" Therefore, similar provision has already been affirmed by their Lordships of honourable Supreme Court under the Income-tax Act. As such this lends a great support to the validity of the provisions of the Act. 13. As such this lends a great support to the validity of the provisions of the Act. 13. Shri Anoop Choudhary, learned Advocate-General appearing on behalf of the State, has invited our attention to various decisions of the honourable High Courts in which similar provisions have been upheld in Tirath Ram Ahuja Limited v. State of Haryana [1991] 83 STC 523 (P&H); Geeta Prasad Singh and Co. v. State [1986] 63 STC 337 (Pat); Builders Association of India v. State of Bihar [1992] 85 STC 362 (Pat) [FB] and Builders Association of India v. State of Kerala [1995] 98 STC 490 (Ker). 14. In Brajendra Mishra v. State of Orissa [1994] 92 STC 17 (Orissa) and V. K. Singhal v. State of U.P. [1995] 97 STC 355 (All.), the Orissa/Allahabad High Courts have taken a different view in the matter. The Orissa High Court has, of course, taken the view that section 13-AA of the Orissa Sales Tax Act, 1947, which provides for deductions at source, has to be struck down, and it was observed : "........ If section 13AA is examined from the aforesaid standpoint, there cannot be two opinions that it does not provide any mechanism to exclude a transaction from its purview, even if ultimately the transaction is not at all liable to levy of sales tax. In other words, even in case of a pure and simple labour contract or service contract where question of sale will not arise, yet the person responsible for making any payment to the contractor has no other option than to deduct two per cent of such sum towards sales tax. Thus, though a transaction which may not be 'sale' at all is liable for levy of sales tax, yet in respect of the said transaction power has been conferred to make deduction of two per cent from the amount which should be paid. In the absence of any discretion with the authority or in the absence of any mechanism by which the contractor can approach any authority and obtain a certificate to the effect that the transaction does not amount to sale, deduction of two per cent from the amount due cannot but be held to be grossly discriminatory and confiscatory in nature and, therefore, the same must be struck down." The reason given by the honourable court was because of lack of machinery provisions. Therefore, their Lordships have struck down the provisions of the Act. 15. In the present case, as mentioned above, the machinery provision has now been provided by issuing a notification, which will redeem the grievance of the assessee and they can obtain a certificate from taxing authorities that if the works contract does not involve any sale and purchase of the goods, then on issue of such certificate, the deductions at source can be dispensed with. Therefore, so far as Brajendra Mishra's case [1994] 92 STC 17 (Orissa) is concerned, the provision has been struck down because of lack of machinery, but in the present case, the same has now been provided by notification dated April 12, 1996. 16. In the Allahabad High Court's case V. K. Singhal [1995] 97 STC 355 the provisions of section 3-F and rule 44-B came up for consideration and their Lordships have struck down the provisions because it did not provide any guidelines. But that situation has now been considerably mitigated by issue of notification by State dated April 12, 1996. Shri Anoop Choudhary, learned Advocate-General, has submitted that if the provisions of the Act are otherwise within the competence of the State Legislature then it should not be struck down because it might operate harshly to some person or the Legislature could have provided a better provision for that matter. The learned Advocate-General has also submitted that these are the machinery provisions. It is true the court will be very slow to strike down the provisions of the Act unless there are compelling reasons to come to the conclusion that the provisions lack statutory competence, but not on the ground that it may operate harshly to individual or that some provisions could have been framed in better way. It is not necessary to examine all the cases cited by the learned counsel as there is no such challenge before us. The challenge before us is competence of the State Legislature to enact section 35 and we have held that it is within the competence of the State Legislature and that being a machinery provision, it is not in conflict with any of the charging section of the Act; therefore, it does not transgress the limit. 17. The challenge before us is competence of the State Legislature to enact section 35 and we have held that it is within the competence of the State Legislature and that being a machinery provision, it is not in conflict with any of the charging section of the Act; therefore, it does not transgress the limit. 17. Before parting with the case, we may mention that the State Government has issued a notification under section 17 of the Act and has provided a machinery, which reads as under : "GOVERNMENT OF MADHYA PRADESH Commercial Taxes Department Notification No. A-5-4-96/ST/V(14) Bhopal, dated 12-4-1996. In exercise of the powers conferred by section 17 of the Madhya Pradesh Vanijyik Kar Adhiniyam, 1994 (No. 5 of 1995), the State Government hereby exempts the class of dealers specified in column (1) of the Schedule below from the operation of the provisions of sub-section (1) of section 34 of sub-section (1) of section 35, as the case may be, of the said Adhiniyam to the extent specified in column (2) subject to the restrictions and conditions specified in column (3) of the said Schedule. SCHEDULE ------------------------------------------------------------------------ Class of dealers Extent of exemption Restrictions and conditions subject to which exemption is granted. ------------------------------------------------------------------------ (1) (2) (3) ----------------------------------------------------------------------- Such dealers, from For deduction of the When a certificate whom any person is amount towards the in the appended form responsible for tax payable at a issued in the manner making deduction lesser rate or of a specified is furnished from the payment of lumpsum amount as to the person any sum as a specified in the responsible for consideration for certificate making the deduction sale or supply of prescribed for the in case of a dealer goods or letting purpose. or contractor. out a works contract involving sale of any goods in the course of execution thereof, as the..... ----------------------------------------------------------------------- ANNEXURE 1. For obtaining a certificate specified in column (2) and column (3), the dealer or the contractor, as the case may be, shall make an application to the appropriate Commercial Tax Officer in the following pro forma within thirty days from the date of supply of goods or commencement of the execution of works contract. FORM Application for obtaining a certificate as per C.T.D. Notification No................. dated............. To, The Commercial Tax Officer .......................... .......................... I,......................... of......................... FORM Application for obtaining a certificate as per C.T.D. Notification No................. dated............. To, The Commercial Tax Officer .......................... .......................... I,......................... of......................... (name and address of the firm) do hereby request that a certificate may be issued to the person responsible for paying me the amount towards the supply of goods/execution of works contract authorising him not to deduct the amount/to deduct the amount at the rate of.............. per cent/to deduct Rs.............. as lump sum towards the tax payable, at the time of such payment to me. The particulars are as follows : 1. Status (whether individual/firm/HUF/company, etc.) ............... 2. Registration No. under the M.P. Commercial .................. Tax Act, 1994, (if any). .................. 3. Accounting year (give period) .................. 4. Purchase order/contract order No. and date .................. (copy enclosed). 5. Name and address of the purchaser/contractor. .................. 6. Value of the purchase order contract .................. 7. Name and designation of the person to .................. whom the certificate is to be issued. 8. Reasons for making the application for .................. deduction of the amount at lesser rate/zero rate. I hereby declare that the above statements are true to my knowledge and belief. Signature............... Date............ Name in block letters Place........... with status............. 2. The Deputy Commissioner of Commercial Tax may, for reasons to be recorded in writing condone the delay in submission of the application. 3. On receipt of the application the Commercial Tax Officer, shall verify the particulars mentioned in the application and send his report to the Deputy Commissioner of Commercial Tax within 15 days of the receipt of application. 4. The Deputy Commissioner, Commercial Tax after satisfying himself with the correctness of the application within 15 days of the receipt of the report from Commercial Tax Officer, grant a certificate. CERTIFICATE (Under C.T.D. Notification No..................... date....... certificate No...................... date.................) To, ................. ................. I,................ of..................... (name and address of the dealer/contractor) holding registration certificate No....... (if any) under the M.P. Commercial Tax Act, 1994, on account of the sale or supply/contract order No............. dated.......... for Rs.......... (in figure).......................... (in words) : (1) Without deduction of any amount towards tax payable; or (2) After deduction at the rate of............ per cent towards tax payable; (3) After deduction of a lump sum amount of Rs. (in figure)........ (in words).............................. towards tax payable. 2. This certificate shall remain in force until it is cancelled by me under intimation to you. Seal Signature.................. Place............ per cent towards tax payable; (3) After deduction of a lump sum amount of Rs. (in figure)........ (in words).............................. towards tax payable. 2. This certificate shall remain in force until it is cancelled by me under intimation to you. Seal Signature.................. Place............ Deputy Commissioner of Date ............ Commercial Tax.....Division. Copy to Shri.............. of.............. (name and address of the dealer/contractor) with reference to his application dated....... for information. Seal Signature.................. Place............ Deputy Commissioner of Date ............ Commercial Tax. By order and in the name of the Governor, M.P. (CHANDRAHAS BEHAR) Deputy Secretary." 18. It is true that if the section itself would have made a provision which is now sought to be supplemented by notification, it would have been better as it exists in other States like Punjab and Haryana, Bihar, Kerala, or under section 194-C of the Income-tax Act, the arguments would not have arisen at all. Since we have upheld the provision on its own merit, therefore, this notification has nothing to do with its validity or otherwise. But, it would have been much better if this provision had been inserted in the Act itself rather than issuing a notification under section 17 of the Act. It is for the Legislature to consider that whether it is proper to insert this provision in the Act or Rules so as to mitigate the hardship which may be caused to the assessee. However, this notification will greatly reduce the hardship to the assessees. 19. In the result, we do not find any merit in this petition and connected petitions. Hence, this petition and connected petitions (W.P. No. 529 of 1996, W.P. No. 3989 of 1995 and W.P. No. 1165 of 1996) are dismissed. No order as to costs. Writ petitions dismissed.