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1999 DIGILAW 871 (PAT)

Sharda Construction v. State Of Bihar

1999-09-07

B.N.AGRAWAL, S.K.CHATTOPADHYAYA

body1999
Judgment S.K.Chattopadhyaya, J. 1. The validity of section 25A of the Bihar Finance Act 1981 and subsequent amendment thereof in 1993 by Bihar Taxation (Amendment & Validation) Act, 1993 is again under challenge before this Court. 2. The petitioner firm is a contractor and executing works contract after receiving materials like bitumen, cement etc. from the Government of Bihar. Its main grievance is that inspite of strucking down the provision of section 25A by this Court in view of the aforesaid amendment of 1993, the authority has issued a direction for deduction of sales tax from the bills of the petitioner as well as from the arrear bills of which no deduction was made while issuing the same. 3. Mr. Pawan Kumar, learned senior counsel appearing for the petitioner relying on the latest decision of a Division Bench of this Court in the case of M/s. Larsen and Toubro Ltd. V/s. The State of Bihar and others (C.W.J.C. No. 878/97(R), 2501/96(R), 1390/94 (R) and C.W.J.C. No. 2407/96(R), disposed of on 19th July 1999 [1999(3) PLJR 960] has contended that the point involved in the instant case is fully covered by the said decision and the writ application is fit to be allowed on the ground that this court has struck down the amendment provision of 1993 in section 25A of the Act as ultra vires. 4. Mr. Alamdar Hussain, learned Standing Counsel no. VI, arguing on behalf of the respondent State, however, contends that the said Division Bench decision does not cover the case of the petitioner because this Court has only struck down the provision to the extent they provide for deduction from payment made on account of labour charge and other services towards sales tax only. 5. In my view, the argument of Mr. Alamdar Hussain is not sustainable for the reasons enumerated hereinbelow:- There is no denial of the fact that the vires of section 25 of the Bihar Finance Act 1981 as amended by the Bihar Taxation Laws (Amendment and Validation) Act, 1990 was earlier challenged before this Court in the case of Builders Association of India and others V/s. The State of Bihar and others and a Full Bench of this Court after detailed discussion of the provisions has struck down section 25A as ultra vires. This decision is reported in (1992)85 STC 362 : 1992(1) PLJR 1 . This decision is reported in (1992)85 STC 362 : 1992(1) PLJR 1 . Subsequently when 1993 amendment came into force the same was also challenged by M/s. Larsen and Toubro Ltd. and other contractor firm before this Court. Considering various decisions of the Apex Court and that of other High Courts including the aforesaid two decisions of this Court, the division Bench was of the opinion that even accepting that section 25A does not contain the charging provision rather it is only an ancillary provision intended to collect tax in advance but to confirm of even ancillary power must be within the legislative competence of the State. Their Lordships observed as follows:- "A provision intended to collect tax in advance can be sustained only if the State is competent to impose tax. The machinery provision has an inevitable nexus with the charging provision. If the charging provision cannot be sustained, the machinery provision also cannot be sustained. It the state does not have power to impose tax on the sale of goods which does not fall within the realm of its legislative competence, any provision regarding recovery of such tax on such sales of goods cannot be within its legislative power and has to be declared ultra vires." The Division Bench therefore placed reliance on the decision of the Supreme Court in the case of Gannon Dunkerlet & Co. V/s. State of Rajasthan, (1993)88 STC 204 and found that two things broadly emerge from the said decision: "first, the provisions of sections 3, 4 and 5 as well as sections 14 and 15 of the Central Sales Tax Act are applicable to transfer of property in goods involved in the execution of works contract falling within the ambit of Articles 366 (29A)(b) of the Constitution, and in exercise of its legislative power to impose tax on sale or purchase of goods in terms of Entry 54 of the State List read with Article 366 (29) (b), the State Legislature is not competent to impose tax on such a transfer which constitutes sales in course of inter-State trade or Commerce or sale outside the State or sale in course of import or export, nor it is competent to define the expression sale in a way as to bring within the ambit of its taking power such sales. Second, the measurement for the levy of the tax contemplated by entry 54 read with Article 366 (29A) (b) is the value of the goods involved in the execution of a works contract. In order to determine the value of the goods which are involved in the execution of a works contract for the purpose of levying the tax, it is permissible to take the value of the works contract as the basis; but after deducting therefrom expenses incurred by the contractor for providing labour and other services namely, labour charges, amount paid to a sub-contractor for labour and services, charges for obtaining on hire or otherwise machinery for execution of the works contract, charges for claiming design or architect etc. referred to above." In the back drop of said legal position this court considered the constitutional validity of section 25A of the Act and came to the following conclusion: "It would thus appear that the definition of the term sale price-which is the measure for making deduction from the contractors bills is wide enough to include whole amount payable as valuable consideration for the sale or supply of all goods. It does not exclude goods supplied in execution of work contract, the transfer of which took place in the course of inter-State trade or commerce or outside the State or in the course of import within the meaning of sections 3, 4 and 5 of the Central Sales Tax Act or are declared goods. As per the law laid down by the Supreme Court, the State Legislature is not competent to impose any tax on transfer of properly in goods (whether as goods or in some other form) involved in execution of works contract, which constitutes a sale in the course of inter-State trade or commerce or sale outside the State or a sale in course of the import or export, nor it is competent to impose tax on "declared goods" within the meaning of Sections 14 and 15 of the Central Sales Tax Act". Noticing other decisions of the Supreme Court namely Symon V/s. State of Kerala, (1995) 97 STC 283 , State of Kerala V/s. Builders Association of India, (1997)2 SCC 183 , Brajendra Mishra V/s. State of Orissa, (1994)92 STC 17 and KEC International Limited V/s. State of Karnataka, (1997) 105 STC 192 of the Karnataka High Court, the Division Bench proceeded to decide as to whether it is possible to read down the provisions of Section 25A so as to exclude the transfer of goods taking place in course of inter-State trade or commerce or outside the State or in the course of import of the declared goods, within the meaning of Central Sales Tax Act, or the transfer of goods in some other form such as labour charges etc. In answering this question, their Lordships have relied upon the decision in the case of Delhi Transport Corporation V/s. DTC Majdoor Congress, AIR 1991 Supreme Court 101, wherein it has been laid down that while the courts have no power to mend it by process of interpretation they do have power to mend so as to be in conformity with the legislative intendment by reading down the offending provisions, but not so when the provision unambiguously violates the provisions of the Constitution. The unconstitutionality may arise from either the incompetence of the legislature to enact the statute or from violation of any of the provisions of the Constitution. Apart from this, a practical difficulty which may arise in giving effect to the provision of section 25A in the aforesaid manner which would be that in absence of any mechanism or laid down guidelines in the section, the person required to make deduction may not be able to determine the amount. The Division Bench was however, conscious of the fact, when they observed that the question as to whether a particular transaction falls within the realm of inter State trade or commerce or outside State sales or a sales in course of import or export within the meaning of sections 3, 4 and 5 of the Central Sales Tax Act is more often than not a ticklish question which the courts find difficult to decide even where the facts have been determined in regular assessment proceedings. It may be more difficult to decide such a question at an early stage before assessment proceeding has not even commenced. It may be more difficult to decide such a question at an early stage before assessment proceeding has not even commenced. According to their Lordships: "Nonetheless, allowing, may, mandating deductions from payments even in respect of transfer of property in such goods which takes place in course of inter-State trade or commerce or outside the State or so on in violation of the constitutional provisions and keeping the proceeds for an indefinite period, upto four and half years or so cannot be approved." In order to sustain such a provision, according to their Lordships, some machanism has to be provided in the Statute for excluding such transactions on the basis of prima facie adjudication subject to the final determination of the right at the stage of assessment of the tax liabilty. Absence of any such machinery for education, the possible loss of the contract or during the intervening period when the contractor has to suffer double taxation, as on the basis of the same transaction, he has already paid tax at the time of submission of the return and also to part with the tax at the time of payment under section 25A, has been considered by this Court. The Division Bench noticing that although the mistakes have been pointed out and the provisions declared ultra vires, the amended provisions suffer from more or less the same mistakes and defects. The Court observed that the State has power to impose tax to augment its revenue within its permissible field and make provisions for its recovery; but at the same time development of the economy has also to be taken into account. If a tax statute contains provisions implementation of which is likely to obstruct the economic growth, that may not be in the interest of the State itself. 6. Ultimately allowing the writ applications their Lordships concluded as follows :- "To conclude, the provisions of section 25A of the Bihar Finance Act to the extent they relate to transfer of inter-State trade or commerce or import within the ambit of sections 3, 4 and 5 of the Central Sales Tax Act, or the declared goods within the meaning of sections 14 and 15 of the said Act, must be held to be ultra vires entry 54 of the State List read with entry 92A of the Union List and Article 286 of the Constitution. Further, to the extent they provide for deduction from payment made on account of labour charges and other services towards sales tax, the provisions must be held to be ultra vires entry 54 read with Article 366 (29A) (b) of the Constitution." 7. I have only reiterated the observations of their Lordships of the Division Bench in order to illustrate as to how the argument of Mr. Alamdar Hussain that the Division Bench decision has merely struck down the provision for deduction for payment in relation to labour charge and other services towards sales tax only is not correct. As noticed above, section 25A as amended in 1990 was struck down by the Full Bench of this Court and the State Legislature came with another amendment in section 25A, Bihar Taxation (Amendment and Validation) Act, 1993 giving it retrospective effect and the same was challenged before the Division Bench. Particularly in view of the decision of the Supreme Court in the case of Gannon Dunkerley & Co. vs. State of Rajasthan (supra) the Division Bench was of the opinion that the State Legislature was not competent to impose any tax from the transfer of property in goods, Thus in its concluding paragraph the Division Bench have held that the provision of section 25A of the Act so far as it relates to transfer of Inter-State Trade of Commerce or import within the ambit of sections 3, 4 and 5 of the Central Sales Tax Act, or the declared goods within the meaning of sections 14 and 15 of the said Act must be held to be ultra vires of entry 54 of the State list read with entry 92A of the Union list and Article 286 of the Constitution. The word to the extent used by their Lordships according to me is to specify the particular subject as ultra vires for which the State legislative has no competence for making provision for deduction of tax. 8. Having given my careful consideration to the facts and circumstances of the case, I am of the view that the points involved in the instant writ application is fully covered by the decision rendered by the Division Bench as noticed above. In the result, I allow this writ application and quash Annexure-1, the notice issued by the Chief Engineer dated 23rd of July 1996. However, there will be no order as to costs. In the result, I allow this writ application and quash Annexure-1, the notice issued by the Chief Engineer dated 23rd of July 1996. However, there will be no order as to costs. B.N.Agrawal, J. 9 I agree.