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2012 DIGILAW 309 (GAU)

Sunil Chandra Dey v. Food Corporation of India

2012-03-06

A.K.GOEL, UTPALENDU BIKAS SAHA

body2012
JUDGMENT A.K. Goel, J. 1. This petition seeks quashing of deduction of value added tax at four per cent (annexure P4) from the due payment of the petitioner and also declaring that the provisions contained in the Tripura Value Added Tax Act, 2004 and the Rules framed thereunder to be unconstitutional to the extent of requiring flat rate deductions without reference of tax liability. The petitioner also seeks injunction against the deduction of tax from the bills of the petitioner for the transportation work undertaken by it. The petitioner is carrying out contract for transportation of food grains of the Food Corporation of India (FCI) in terms of the work order dated December 24, 2010. In terms of the contract, it submitted bills to the Food Corporation of India. The Food Corporation of India made deduction from the bills of the petitioner under the head of VAT at four per cent as per mandate of the rules in pursuance of the letter of the Principal Secretary, Government of Tripura, dated June 25/30, 2005, drawing attention to section 4(3) of the Tripura Value Added Tax Act, 2004 and rule 7(1) of the Tripura Value Added Tax Rules, 2005, providing for tax deduction at source. 2. Aggrieved thereby, the petitioner has moved this writ petition on the ground, inter alia, that the provisions for deduction from the bills of the petitioner, without reference to the tax liability was beyond the legislative competence of the State. It has further been submitted that the provision for deduction of tax at source had to have nexus with the tax due or likely to be due. Though the petitioner has also challenged the amendment of entry 54 of List II of the Seventh Schedule to the Constitution, by the Constitution (Sixth Amendment) Act, 1956, on the ground that the State of Tripura became State only in the year 1972 but at the time of hearing learned counsel for the petitioner has not pressed the said issue. 3. The petitioner has also challenged the liability to pay tax on the transaction of transportation on the ground that in the said transportation, the transporter did not transfer the right to use the goods. Goods, i.e., vehicles continued to be with the transporter. In absence of transfer of right to use the goods, no sale or deemed sale was involved and only service of transportation was involved. Goods, i.e., vehicles continued to be with the transporter. In absence of transfer of right to use the goods, no sale or deemed sale was involved and only service of transportation was involved. No tax was attracted as per the impugned provisions and, therefore, no deduction could be made on that account. Reliance has been placed by the petitioner on the judgment of this court dated March 30, 2011, W.P. (C) No. 40 of 2008 Ranjit Kr. Saha v. F.C.I. 4. We are of the view that since the issue of liability of the petitioner to tax has yet to be gone into during assessment proceedings, at this stage, it is not necessary to go into the said issue. Only question which needs to be determined by this court, which cannot be gone into by the statutory authorities, is the deduction of tax at source from the bills of the petitioner without reference to the petitioner's liability towards payment of tax under the VAT Act. 5. It has been laid down by the honourable Supreme Court in various judgment, including the Steel Authority of India Ltd. v. State of Orissa [2000]118 STC 297 (SC) : AIR 2000 SC 946 , that recovery of tax out of nontaxable turnover could not be provided for by the State. The relevant observation in the judgment of the honourable Supreme Court in the said judgment are (pages 304 and 305 in 118 STC): 13. There can be no doubt, upon a plain interpretation of section 13AA, that it is enacted for the purposes of deduction at source of the State sales tax that is payable by a contractor on the value of a works contract. For the purposes of the deduction neither the owner nor the Commissioner who issues to the contractor a certificate under section 13AA(5) is entitled to take into account the fact that the works contract involves transfer of property in goods consequent upon of an inter-State sale, an outside sale or a sale in the course of import. The owner is required by section 13AA(1) to deposit towards the contractor's liability to State sales tax four per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract includes the value of inter-State sales, outside sales or sales in the course of import. The owner is required by section 13AA(1) to deposit towards the contractor's liability to State sales tax four per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract includes the value of inter-State sales, outside sales or sales in the course of import. There is, in our view, therefore, no doubt that the provisions of section 13AA are beyond the powers of the State Legislature for the State Legislature may make no law levying sales tax on inter-State sales, outside sales or sales in the course of import. 15. It was then contended by learned counsel for the State that the preamble of the Orissa Sales Tax Act took account of the fact that that statute was limited to the sale or purchase of goods in Orissa. Unfortunately, it would appear that the State Legislature overlooked its limitations, even as contained in the preamble, when enacting section 13AA. It was also contended that the deduction that was required to be made under section 13AA(1) was of four per cent of the amount credited or paid by the owner to the contractor, whereas the sales tax liability of the contractor thereon was eight per cent. It was contended that this requirement proceeded on the assumption that half of the amount was not liable to tax being in respect of inter-State sales, outside sales and export sales. No such assumption based on the rate of tax at any given point of time can be made. Section 13AA should have been precisely drafted to make it clear that no tax was levied on that part of the amount credited or paid that related to inter-State sales, outside sales and sales in the course of import, particularly after the previous section 13AA had been struck down by the Orissa High Court for the reason that it was couched in terms wider than were permissible to the State Legislature and that judgment was accepted. 6. In Nathpa Jhakri JT. Venture v. State of Himachal Pradesh [2000]118 STC 306 (SC), view taken in Steel Authority of India Ltd. [2000]118 STC 297 (SC) was as follows (pages 309 and 310 in 118 STC): 4. 6. In Nathpa Jhakri JT. Venture v. State of Himachal Pradesh [2000]118 STC 306 (SC), view taken in Steel Authority of India Ltd. [2000]118 STC 297 (SC) was as follows (pages 309 and 310 in 118 STC): 4. A bare perusal of the two provisions will make it clear that in either provision there is an obligation to deduct from transactions relating to works contract on bills or invoices raised by the works contractor an amount not exceeding four per cent or two per cent, as the case may be. Though the object of the provision is to meet the tax in respect of the transactions on all works contracts on the valuable consideration payable for the transfer of property in goods involved in the execution of the works contract, the effect of the provision is that, irrespective of whether the sales are inter-State sales or outside sales or export sales which are outside the purview of the State Act and those transactions in respect of which no tax can be levied even in terms of the enactment itself such deductions have to be made in the bills or invoices of the contractors. To say that if a person is not liable for payment of tax inasmuch as on completion of the assessment refund can be obtained at a later stage is no solace, as noticed in Bhawani Cotton Mills Ltd. v. State of Punjab [1967]20 STC 290 (SC) : [1967]3 SCR 577. Further, there is no provision for certification of the extent of the deduction that can be made by the authority. Therefore, we must hold that arbitrary and uncanalised powers have been conferred on the concerned person to deduct up to four per cent from the sum payable to the works contractor irrespective whether ultimately the transaction is liable for payment to any sales tax at all. In that view of the matter, we have no hesitation in rejecting the contention advanced on behalf of the State. 5. The learned counsel drew our attention to the decision in a case arising under the Bihar Sales Tax Act and the earlier decision under the Orissa Sales Tax Act, but in view of the decision of this court in Steel Authority of India Ltd. [2000]118 STC 297 (SC) : AIR 2000 SC 946 , it is wholly unnecessary to refer to the same. Following the decision in Steel Authority of India Ltd. case [2000]118 STC 297 (SC) : AIR 2000 SC 946 , we allow this appeal and set aside the order made by the High Court by allowing the writ petition and quashing the aforesaid provisions as being beyond the purview of the Himachal Pradesh State Legislature. Such amount as has been collected from the appellant under the provisions of section 12A read with rule 31A shall forthwith be refunded by the State. If any amount has been deposited in any bank pursuant to orders passed by this court or the High court, it shall be refunded to the appellant with interest accruing thereon. In the circumstances of the case, there shall be no orders as to costs. 7. Apart from the above two judgments, the following judgments may also be taken into consideration in support of the said view:- (i) Rapti Commission Agency v. State of U.P. [2006] 147 STC 566 (SC); [2006] 6 SCC 522 Holding that section 8E of the U.P. Trade Tax Act, 1948 which was identical to the impugned provision should be held to be subject to what has been stated in Steel Authority of India Limited [2000] 118 STC 297 (SC) and Nathpa Jhakri Joint Venture [2000] 118 STC 306 (SC). View taken by the Allahabad High Court in merely reading down that provision was disapproved. (ii) Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95 (SC) ; [2006] 145 STC 91 (SC) ; [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1 Holding that service component in a works contract could not be subjected to sales tax. (iii) Keshob Plants v. Bharat Sanchar Nigam Limited [2009] 22 VST 422(P&H) Holding that section 10C of the Punjab General Sales Tax Act, 1948 was ultra vires the Constitution being beyond the competence of State Legislature (iv) Jaiprakash Associates Ltd. v. State of M.P. [2007] 6 VST 1 (MP) [FB] Holding that section 35 of the Madhya Pradesh Commercial Tax Act, 1994 which was identical to the impugned provision was ultra vires the Constitution. (v) Larsen and Toubro Limited v. State of Jharkhand [2005] 140 STC 134 (Jharkh) Holding that section 25A of the Bihar Finance Act, 1981 was unconstitutional. (v) Larsen and Toubro Limited v. State of Jharkhand [2005] 140 STC 134 (Jharkh) Holding that section 25A of the Bihar Finance Act, 1981 was unconstitutional. (vi) Larsen and Toubro Limited v. Commissioner of Sales Tax, Gujarat [2001] 124 STC 162 (Guj) Holding that section 57A of the Gujarat Sales Tax Act, 1969 was ultra vires the Constitution. (vii) Larsen and Toubro Limited v. State of Karnataka [2003] 129 STC 401 (Karn) Holding that section 19A of the Karnataka Sales Tax Act, 1957 was ultra vires the Constitution. (viii) Larsen and Toubro Limited v. State of Haryana [2011] 37 VST 428 (P&H), (CWP No. 14797 of 2010) Holding that under Punjab and Haryana VAT law, reduction of tax at flat rate without reference to tax liability was not valid. 8. In view of the above, it can be taken settled law that the deduction at source cannot be without reference to the liability to pay tax. Provision's for deduction of tax at source is to be read as limited to taxable turnover, though at the stage of TDS, exact liability is not required to be determined. However, the extent of liability cannot be altogether ignored. 9. In the judgment of the Punjab and Haryana High Court in Larsen and Toubro Limited v. State of Haryana [2011]37 VST 428 (P & H), (CWP No. 14797 of 2010) to which one of us (the Chief Justice) was a party, the question considered was admissibility of deduction of tax at source at flat rate, ignoring the turnover which was not covered by the liability to pay VAT or other non-taxable turnover, such as sale ire course of import or export or in the course of inter-State purchase and it was held that such provision for deduction of tax being ultra vires, entry 54 of List II of the Seventh Schedule to the Constitution, the State was under obligation to lay down an appropriate mechanism for computing the amount of deduction from the bill of the contractor. Pending such mechanism, the authority giving the contract could make deduction only limited taxable turnover as tentatively determined with reference to the declaration by the contractee, subject to final order of the assessing authority under the statutory provisions to make assessment. The operative part of the said judgment is as under (pages 439 and 440 in 37 VST): 15. Pending such mechanism, the authority giving the contract could make deduction only limited taxable turnover as tentatively determined with reference to the declaration by the contractee, subject to final order of the assessing authority under the statutory provisions to make assessment. The operative part of the said judgment is as under (pages 439 and 440 in 37 VST): 15. Argument on behalf of the petitioner is that in the case of State of Haryana, clarification does not take care of excluding service component of the turnover and mere clarification is not sufficient unless appropriate amendment is made in absence of which this court may either declare the impugned provisions ultra vires or may declare the rights of the petitioner in consonance with the judgment of the honourable Supreme Court in Steel Authority [2000]118 STC 297 (SC) : AIR 2000 SC 946 and Bharat Sanchar Nigam Ltd. [2006]3 VST 95 (SC) : [2006]145 STC 91 (SC) : [2006]282 ITR 273 (SC) : [2006]6 RC 276 : [2006]3 SCC 1 based on constitutional scheme of taxing power of the State Legislature under entry 54, List II read with articles 286 and 366(29A) of the Constitution. For that purpose, it may be held that tax at source will be limited to taxable turnover, i.e., after excluding service component in the contract and turnover of inter-State sales or sales outside the State or sales in the course of import. For this purpose, the State may lay down a mechanism and till such a mechanism was laid down, the deduction may be limited to the declaration of taxable turnover by the petitioner to the contractor with a copy to the concerned Assessing Authority subject to statutory provisions including those dealing with the assessment, interest, penalty and recovery. In respect of cases from the State of Punjab, it was submitted that pending working out of appropriate mechanism by the State, either the provisions may be declared unconstitutional or similar arrangement as suggested in the case of the State of Haryana may be directed to be adopted. 16. After due consideration of the rival stands, we find that the proposal made on behalf of the petitioners as an alternative to striking down statutory provisions being in consonance with the judgments of the honourable Supreme Court has to be accepted. 16. After due consideration of the rival stands, we find that the proposal made on behalf of the petitioners as an alternative to striking down statutory provisions being in consonance with the judgments of the honourable Supreme Court has to be accepted. This is so as the States propose to do their duty of providing an appropriate mechanism to give effect to the law laid down by the honourable Supreme Court. Accordingly, we hold that the impugned provisions for deduction of tax at source will apply only to the taxable turnover, i.e., after deducting service component and turnover relating to sales outside State, in the course of inter-State sales or in the course of import. The petitioner will give declaration in respect of such payments to the persons making the payment with a copy to the concerned assessing authority. This will be without prejudice to the provisions of assessment, levy of interest, penalty, recovery and all other statutory provisions. This arrangement will continue till any other appropriate arrangement is worked out by the States of Punjab and Haryana. 10. In the present case, we are concerned with the following provisions in the Rules: 7. (1) Every person responsible for making payment to any person (hereinafter 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 in 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 four per cent of the gross amount of the bill towards tax payable in respect of all types of works under section 4(3) of the Act on account of such 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 other than the goods in exempted list of the Act 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 per centum of the payment on account of such transfer of right. 11. 11. Reference to the above will show that the deduction of four per cent from the bills is referable to tax liability and not de hors thereof. Thus, deduction of four per cent from the bills of the petitioner cannot be without considering its tax liability. This being the settled legal position, the petitioner may give a declaration as to its taxable turnover out of the payment of the bill with a copy to the assessing authority and the respondents will make deduction of such tax as is considered to be referable to tax liability of the petitioner and pay the said amount to the credit of the Sales Tax Department. This will be without prejudice to the provisions of assessment, levy of interest, penalty, recovery or any other statutory provisions and will not in any manner affect the statutory rights for levy and collection of taxes. 12. In view of the above direction, we do not consider necessary to deal with any other questions raised in the writ petition as the said questions can be adjudicated by the statutory authorities in accordance with law. The tax already deducted will be liable to be adjusted in the order of final assessment. The writ petition will stand disposed of accordingly. In favour of Department.