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Gauhati High Court · body

2007 DIGILAW 581 (GAU)

State of Tripura v. Larsen and Toubro Ltd.

2007-08-29

A.B.PAL, I.A.ANSARI

body2007
JUDGMENT I.A. Ansari, J. 1. By this common judgment and order, we propose to dispose of these four writ appeals, which have arisen out of the judgment and order, dated 03.08.2001, whereby the Civil Rule Nos. 73/1996, 256/1997, 520/1997 and 77/1998 have been disposed of by quashing the impugned memoranda, dated 24.01.1994 and 20.05.1995, both the memoranda having been issued by the Department of Revenue, Government of Tripura. 2. Let us, first, take note of the material facts and circumstances, which led to the quashing of the memoranda aforementioned: (i) By the two memoranda, dated 24.01.94 and 20.05.1995, aforementioned, all the Heads of Departments were directed to continue to deduct, at source, while making payments of bills, an amount equivalent to 4% of the total gross amount of each bill, for execution of works contract other than RCC bridge and so far as the RCC bridges are concerned, deduction @ 1.57% of the total gross amount of each bill was directed to be made. By these memoranda, deductions were also directed to be made @ 2% for all road works and some permanent bridge works and @7.5% on the gross amount of the running bill in respect of building RCC and other bridge work. (ii) The present respondents, who are all contractors and execute works contracts awarded to them, from to time, by different authorities, including the North Eastern Electric Power Corporation (NEEPCO), Oil and Natural Gas Commission (ONGC), Gas Authority of India Ltd. (GAIL) and other Government Departments, put to challenge not only the legality and validity of the said two memoranda, but also the vires of Section 3A and 3AA of the Tripura Sales Tax Act (in short, 'the TST Act'). The vires of Section 3A and3AA were challenged on the ground that the contractors involved were not liable to pay any sales tax as they had not been dealing with sale of taxable goods and, as such, they were not 'dealers' within the meaning of Section2(b) of the TST Act. The vires of Section 3A and3AA were challenged on the ground that the contractors involved were not liable to pay any sales tax as they had not been dealing with sale of taxable goods and, as such, they were not 'dealers' within the meaning of Section2(b) of the TST Act. (iii) The present appellants, as respondents in the writ petitions aforementioned, resisted the writ petitions by contending, inter alia, that in the light of the provisions of the TST Act, which have been made in tune with the 46th amendment of the Constitution of India, the State Government has been empowered to impose sales tax not only on actual 'sale', but also on execution of works contract by deeming such execution of works contract as 'sale' and, under the TST Act, the authorities concerned were entitled to direct deduction, at source, @ 4% from the respective bills of the contractors, who execute the works contract. (iv) By the impugned judgment and order, while the Court has upheld the vires of Section 3A and 3AA, the two memoranda aforementioned were quashed on the ground that in execution of works contract, all items, used by a contractor, may not be amenable to local sales tax and, hence, the directions, given by the State Government to deduct sales tax at a flat rate of 4% from each bill of the contractors, are beyond the scope of the provisions of the TST Act and the Rules made thereunder and, hence, the two memoranda cannot be allowed to survive. 3. While the contractors have not challenged the decision rendered in the writ petitions, whereby not only the vires of Section 3 A and 3 AA has been upheld, but also the Government's authority to direct deduction, at source, has been protected, the present appellants have challenged, as illegal, the directions, given in the said writ petitions, setting aside and quashing the two impugned memoranda and disallowing the present appellants from directing deduction, at source, of an amount equivalent to 4% of each bill raised by a contractor for having executed works contract. 4. 4. The question, therefore, which falls for determination, in the present appeals, in this: Is it permissible for the Sales Tax authorities, under the TST Act, to direct deduction, at source, of an amount equivalent to 4% from each bill of the contractor, who has executed a works contract, without taking into account the fact as to whether all the materials used in the execution of a given works contract were or were not exigible to local sales tax? We may hasten to add that we are not concerned, in the present set of appeals, with the question as to whether deduction, at source, can, at all, be directed to be made by the sales tax authorities, in the State of Tripura, by taking recourse to the provisions of the TST Act and the Rules framed thereunder. 5. We have heard Mr. S. Choudhury, learned Government counsel, appearing on behalf of the appellants, and Mr. B. Das, learned Senior counsel, appearing on behalf of the respondents. 6. While considering the question posed above, what needs to be noted is that though Section 3Aand 3AA of the TST Act have been upheld, the fact remains that since the subject-matter of the impugned memoranda is deduction at source, the provisions, contained in the TST Act and the Rules made thereunder, relating to taxable liability of a person, who executes works contract, need to be taken note of. With this object in view, we reproduce Section 3 A of the TST Act herein-below: 3A. Tax on the transfer of property in goods involved in the execution of works contract. Notwithstanding anything contained elsewhere in this Act, any transfer of property in goods (whether as goods or in some other form) involved in the execution of a works-contract shall be deemed to be a sale of those goods by the person making the transfer and shall liable to be taxed at the rate specified in column 3 of the Schedule: Provided that in respect of any such transfer, only so much value of the goods involved in the works-contract, which has actually been paid to the dealer during the period, shall be taken into account for determining the turnover for that period. 7. 7. From a careful reading of Section 3A, what clearly transpires is that the State Government has the power to impose sales tax on every transfer of property in goods (whether as goods or in some other form), involved in the execution of a works contract, by deeming such a transfer as sale of those goods by the person making the transfer. What Section 3A also makes clear is that the rate of tax on the goods used in execution of works contract shall be as specified in column 3 of the Schedule to the 1ST Act. What Section 3A further makes clear is that while computing the taxable liability for execution of works contract, only so much value of the goods involved in the works contract shall be taken into account, which has actually been paid to the 'dealer' during the period concerned. 8. Now, what needs to be pointed out is that even a cursory glance on the said Schedule shows that different rates of tax have been imposed by the statute on different taxable goods. In other words, the rate of tax on each of the taxable goods, under the Schedule, is not one and and the same. Hence, when a contractor uses different goods, whether in the form of goods or in some other form, in execution of a works contract, he is not liable to pay a flat rate of tax on each of the items, which he may have utilized in the execution of the works contract. 9. Bearing in mind what is indicated above, we, now, turn to Section 3AA, which makes provisions for deduction of tax at the time of making of payments. Section 3AA reads as under: 3AA. Deduction of tax at the time of payments. Any person responsible for paying any sum to any person liable to pay tax under Section 3Aof the Act, shall at the time of credit of such sum to the account of the person or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, deduct such amount towards sales tax as may be prescribed. 10. 10. When we turn to Section 3AA, we find that Section 3AA makes it mandatory for every person, who is responsible for making payment to a person for execution of works contract, to deduct, at the time of making payment, in cash or by issue of cheque or draft or in any other mode, such amount towards sales tax as may be 'prescribed'. A careful reading of Section 3AA, thus, makes it clear that every person, responsible for making payment of the bills of a contractor, who has executed a works contract, has the duty cast upon him to deduct such amount towards sales tax as maybe 'prescribed'. The word 'prescribed' has been defined, in Section 2(e) of the 1ST Act, to mean 'prescribed by Rules under this Act'. 11. In the light of Section 2(e), which defines as to what the word 'prescribed' means, when one reads Section 3AA, there remains no room for doubt that a deduction, at source, towards payment of sales tax, can be made from the bill of an executor of works contract, of only such an amount, which may have been prescribed by the Rules. The question, therefore, is as to what amount (s) have been 'prescribed' by the Tripura Sales Tax Rules (in short, 'the TST Rules') for the purpose of making deduction at source? Our quest for an answer to this question brings us to Rule 3A, which, we find, reads as under: 3 A. (1) Every person responsible for making payment to any person (here-in-after in this rule referred to as the contractor) for discharge of any liability on account of valuable consideration payable for the transfer of property in goods (whether is goods or in any other form) in pursuance of the works contract shall at the time of making such payment to the contractor either in cash or in any manner, deduct an amount equal to the tax payable under Section 3A of the Act on account of such works contract: Provided that no such deduction shall be made from the bill (s) or invoice (s) of the contractor for execution of works contract on account of the contracts for which work order as issued prior to first January, 1989. Provided also that any person responsible to make deduction of any amount equal to the amount of tax as mentioned in this rule may refer the matter to the Superintendent of Taxes, having jurisdiction over the area, for provisional computation of the net turnover and the amount of tax payable thereof by such contractor for the valuable consideration of the goods involved in the works contract. (2) Every person responsible for making payment to any person for discharge of any liability on account of valuable consideration payable for any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash or in any manner, shall at the time of making such payment, deduct an amount equal to four percent of such towards part or, as the case may be, full satisfaction of the tax payable under the Act, on account of such transfer of right; Provided no such deduction shall be made from the bill (s) or invoice (s) of the transfer. (a) On account of such transfer where the transfer of right to use goods was agreed to before first day of January, 1989; (b) The amounts received as penalty for defaults in payment or as damages for any loss or damage caused to the goods by the person to whom such transfer was made; and (c) The amount representing the valuable consideration received for such transfer in respect of goods exempt from tax under Sub-section (2) and (3) of Section 3 of the Act. (3) The amount deducted under Sub-rules (1) and (2) shall be deposited into the Government Treasury by Challan in form XI by the person making such deduction within 7th day of the month following that in which the deduction is made. (4) The person making such deduction under Sub-rules (1) and (2) shall at the time of payment or discharge, furnish to the person from whose bill (s) and invoice (s) such deduction is made a certificate specifying the amount deducted and the rates (s) at which it has been deducted. (5) A copy of the Challan showing the deposit of the amount referred to in Sub-rule (3) shall be made over by the person making the deduction to the person from whom the deduction is made within 7 (seven) days of such deposit. (5) A copy of the Challan showing the deposit of the amount referred to in Sub-rule (3) shall be made over by the person making the deduction to the person from whom the deduction is made within 7 (seven) days of such deposit. (6) The person making such deduction shall furnish to the Superintendent of Taxes, having jurisdiction over the area, a report of such deduction within 15 (fifteen) days from the date of deposit of such amount in form VI A. (7) The person from whose bill (s) or invoice (s) the deduction was made shall furnish the returns along with the Challan to the Superintendent of Taxes having jurisdiction over the area, in accordance with the provisions of the rules. (8) All such deductions and deposits into the Government Treasury shall be deemed to be provisional payment of tax, which shall be adjusted at the time of assessment under Section 9 of the Act. (9) Any deduction made in accordance with the provision of this rule and credited into the Government Treasury shall be treated as a payment of tax on behalf of the person from whose Bill (s) or invoice (s) the deduction has been made and credit shall be given to him for the amount so deducted as per deposit Challan submitted to the Superintendent of Taxes along with the returns in the assessment made for the assessment year. (10) If any person as is referred to in sub-Rule (1) and (2) of this rule fails to manful deduction or after deducting, fails to deposit the amount so deducted as required by Sub-rule (3), the Superintendent of Taxes may after giving to such person opportunity of being heard, by order in writing, direct that such person shall pay, by way of penalty a sum not exceeding one and a half times the amount not so deducted and/or deposited into the Government Treasury. (11) Without prejudice to the provisions of Sub-rule (10), 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 rates contained in Section 25 of the Act, on the amount not so ducted, and/or deposited from the date on which such amount was deductible to the date on which the amount is actually deposited. (12) Where the amount has not been deposited after deduction, such amount together with interest and penalty, if any, shall be recoverable from the person in default as an arrear of land revenue as per provision of Sub-section (3) of Section 26 of the Act. 12. From a cautious and minute reading of the provisions contained in Sub-rule (1) of Rule 3 A, what emerges is that it is statutory obligation of every person, who is responsible for making payment to a contractor for execution of a works contract, to deduct sales tax payable by the contractor under the TST Act. The person, who is responsible for making payment, has, however, the discretion to refer to the Superintendent of Sales Tax, having jurisdiction over the area, for 'provisional computation' of the net turnover and the amount of tax payable thereon by such a contractor for valuable consideration of the goods involved in the works contract. When a piece of legislation, delegated or otherwise, vests, in a person, some discretion, neither exercise of such discretion can be arbitrary nor can omission to exercise the discretion be permitted to be arbitrary. If, in a given case, discretion is not exercised, where exercisable, then, the omission to exercise the discretion will also be bad in law. When a person has been given the discretion, under the second proviso to Sub-rule (1) of Rule 3 A, to refer to the Superintendent of Sales tax for obtaining 'provisional computation' of the net turnover and also for the amount, which is payable as sales tax by the contractor for the transfer of goods involved in the execution of works contract, the person, who may have been made responsible for making such deduction, cannot make deduction at a flat rate from the total bill of a contract for execution of the works contract. The deduction shall be made of an amount, which is approximately same as the amount liable to be paid by such a contractor, or an amount, which is nearer the amount, which, as sales tax, such a contractor is liable to pay. It is, therefore, imperative for the person, who is responsible for making payment of the bills of a contractor, who has executed a works contract, to make a rough assessment of the sales tax, which, in a given case, the contractor is liable to pay. It is, therefore, imperative for the person, who is responsible for making payment of the bills of a contractor, who has executed a works contract, to make a rough assessment of the sales tax, which, in a given case, the contractor is liable to pay. If the person, responsible for making payment, is unable to make such assessment, there is no impediment, on his part, to refer to the Superintendent of Sales Tax, to make a 'provisional computation' of the contractor's liability in terms of Rule 3 A of the 1ST Act. This apart, no deduction can be allowed from the entire bill amount of a contractor regardless of the provisions of Section 3 A, particularly, when the property in goods transferred in the execution of a works contract is taxable in law according to the rates prescribed in the Schedule to the Act and not on the entire bill amount or part thereof. Furthermore, deduction, at source, is permissible only of such an amount, which has actually been paid to a 'dealer' by the contractor during the period, in question. Viewed from this angle too, it is clear that deduction at a flat rate, as the impugned memoranda warrant to be made, run contrary to the proviso to Section3A. It is a well settled principle of law that when a statute provides or prescribes a particular manner for doing of a particular act, then, such an act must be done in accordance with the manner prescribed therefore in the statute or not at all. (See Kunwar Pal Singh v. State of U. P. and Ors. reported in AIR 2007 SC 1675 ). 13. What can also not be ignored is that under, the impugned memoranda, even when a person, while executing a works contract, has not transferred property in goods, yet the person, responsible for making payment to such a contractor, has no other option, but to deduct sales tax at the flat rate of 4% from the bills of such a contractor, though the transactions may not amount to sale even under the provisions of Section 3A of the TST Act. (See Brajendra Mishra v. State of Orissa and Ors. reported in (1994) 92 STC 17 . 14. It is pertinent to point out that in every works contract, there may not be utilization of taxable goods, for, utilization of goods vary from one works contract to another. (See Brajendra Mishra v. State of Orissa and Ors. reported in (1994) 92 STC 17 . 14. It is pertinent to point out that in every works contract, there may not be utilization of taxable goods, for, utilization of goods vary from one works contract to another. For instance, though earth cutting work, road-dressing work, re-claiming of jungles are, ordinarily, works contract, execution of such works contract does not involve transfer of property in goods and, hence, from the bills of a contractor, who does such works, where no transfer of property in goods takes place, no deduction can be made towards payment of sales tax at the flat rate of 4% or at any other rate. 15. The provisions for refund, which the TST Act and the Rules framed thereunder have made, are indicative of the fact that the tax deducted, at source, may, at times, be a little more than what may be due from a contractor. This does not, however, mean that the deduction shall be made in such a manner that the contractor is made to pay much more than what is due from him or made to pay, when he is not, otherwise, liable to pay. Thus, deduction of sales tax, at source, has to be as near the amount, as the contractor may, otherwise, be liable to pay. Viewed thus, it is clear that the impugned memoranda, which oblige every person, who is responsible for making payment of bills of a works contract, to deduct, at source, sales tax at a flat rate of 4%, go far beyond the scope of the provisions of Section 3AA read with Section 3A and Rule 3A. 16. Coupled with the above, it is also worth noticing that when Rule 3 A does not 'prescribe' deduction at source at the flat rate of 4%, a direction to deduct sales tax at the flat rate of 4% from the bills of the contractors is clearly beyond the scope of Section 3 AA read with Rule 3A, for, deduction, at source, is permissible only as prescribed by the Tripura Sales Tax Rules. (See Santosh Kumar Harlalka and Ors. v. State of Assam and Ors. reported in (1995) 2 GLR 95 , and Gauhati Municipal Corporation Contractors' Association v. Gauhati Municipal Corporation and Ors. reported in(1996) 2 GLR 172). 17. (See Santosh Kumar Harlalka and Ors. v. State of Assam and Ors. reported in (1995) 2 GLR 95 , and Gauhati Municipal Corporation Contractors' Association v. Gauhati Municipal Corporation and Ors. reported in(1996) 2 GLR 172). 17. Because of what have been discussed and pointed out above, we do not find that the learned single Judge has committed any error in interfering with the two memoranda aforementioned and in quashing the same, particularly, when we find that the memoranda, in question, had put on the contractors, who were involved in execution of works contract, a legal obligation far more onerous than the TST Act and the Rules framed thereunder envisaged. 18. In the result and for the reasons discussed above, these appeals fail and the same shall accordingly stand dismissed. The interim direction (s), if any, passed in these appeals, shall accordingly stand modified. 19. Before parting with these appeals, we, however, hasten to add that the two impugned memoranda, which have been struck down, relate to a period before Rule 3 A underwent the twelfth amendment in the year 2001. Hence, whatever we have observed and held hereinabove shall remain confined to the interpretation of Rule 3 A as the same stood before the twelfth amendment of the Tripura Sales Tax Rules, which came into force on 8th February, 2001. 20. With the above observations and directions, these appeals shall stand disposed of. No order as to cost.