STATE OF CHHATTISGARH & ORS. v. M-S. VTP CONSTRUCTIONS

Citation: [2007] 12 S.C.R. 1148

Court: Supreme Court of India

Bench: ARIJIT PASAYAT, AFTAB ALAM

Case summary

STATE OF CHHATTISGARH & ORS. v. M-S. VTP CONSTRUCTIONS.pdf

Judgment text

STATE OF CHHATTISGARH & ORS. v. M/S. VIP CONSTRUCTIONS DECEMBER 7, 2007 [DR. ARIJIT PASAYAT AND AFTAB ALAM, JJ. ) Chhattisgarh VanijyikKar Adhinihyam, 1994-s. 35-Sales Tax- Deduction at source-Constitutional validity of-Held: The provision is constitutionally invalid. Sales tax was deducted at source under Section 35 of Chhattisgarh Vanijyik Kar Adhinihyam, 1994, from the payment made to the respondent-assessee, for works contracts executed by it. Respondent filed Writ Petition challenging constitutionality of Section 35. High Court declared the provision as unconstitutional and directed refund of the amount recovered to the respondent. Hence the present appeal. Dismissing the appeal, the Court HELD: In view of the decisions in Steel Authority's case and Nathapa 's case* the High Court was right in holding that Section 35 ofChhattisgarh Vanijyik KarAdhinihyam, 1994,was constitutionally invalid.

The direction for refund ofthe amount collected from the respondent under the provi~ions ofthe said Section had been rightly directed to be refunded. [Para 10] [1152-C, DJ Steel Authority ofIndia Ltd. v. State ofOrissa and Ors. , [2000) 3 SCC 200 and 1\1/s. Nathpa Jhakri Jt. Venture v. State ofHimachal Pradesh and Ors. , [2000] 3 SCC 319, relied on Punj Lloyd Ltd. v. State ofMadhya Pradesh and Ors. , (1996) 29 VKN 533, referred to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5679 of 2007. STATE v. VTPCONSTRUCTIONS[PASAYAT,J. ] 1149 From the Judgment and Order dated 21. 2. 2006 ofthe High Court ofChattisgarh at Bilaspur in W. P. No. 661 of2002. Rajesh Srivastava for the Appellant. The Judgment ofthe Court was delivered by DR ARIJIT PASAYAT, J. 1. Leave granted. 2. Challenge in this appeal is to the judgment rendered by a Division Bench ofthe Chhatisgarh High Court.

Respondent filed a writ petition before the Chhatisgarh High Court questioning constitutional validity of Section 35 ofChhattisgarh Vanijyik Kar Adhiniyam, 1994 (hereinafter referred to as the 'Adhiniyam'). It corresponds to the Chhatisgarh Commercial Tax Act, 1994 (in short the 'Act'). The respondent hereinafter is described as the 'assessee'. 3. Background facts highlighted by the respondent are as follows: The writ petitioner is a prop1ietary concern of one Shri Krishana Mudliar and it has been executing works contracts for various Departments ofthe Chhattisgarh State Government and others and was holding salestax registration No. 061/RDN/14,'2739/02. During the assessment year 2001-2002, the writ petitioner had executed works contracts awarded by Executive Engineer, P. W. D. (B&R), Division Khairagarh, for which it received payment ofRs. 1,27,115/- on which sales tax ofRs. 2,545/-, being 2% of sum ofRs. 1,27.

115/- was deducted at source towards the sales tax payable as provided under Section 35 ofthe Adhiniyam. Certificate oftax deduction is dated 11104/2001 made under Section 35 ofthe Act. f 4. In support ofthe writ petition, it was contended that Section 35 ofthe Act does not make any provision for deduction and ascertainment ofvalue and nature ofgoods supplied during execution ofwork-contracts. Section 35 ofthe Act does not make any provision for detennination of value ofgoods supplied in the course ofinter State trade during execution of works contracts. 5. The writ petition is opposed by the present appellants by filing reply/statement ofobjections. In the reply statement, it was stated that the contractors who are engaged in the construction ofbuildings, roads, bridges, dams etc generally come from other States.

The process of assessment of sales tax is very lengthy and before the assessment is completed, such contractors disappear from the scene after receiving full payment under the contract. In such situation, it was very difficult for the Commercial Tax Department to trace out such contractors and eventually sales tax payable by such contractors could not be recovered at all thereby causing heavy financial loss to the Government. In order to safeguard the interest of the State, Section 35 is enacted in the Act and that the State Legislature has legislative competence to enact Section 35.

It was stated that Section 35 is not a unique provision in the Act and similar provisions are enacted in the Sales Tax Acts of other States, for example, Section 6-D of the Uttar Pradesh 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 ofthe Haryana General Sales Tax Act 1973, Section 12-A ofthe Himachal Pradesh General Sales Tax Act 1968, Section 16- C ofthe Jarnmu & Kaslunir General Sales Tax Act, Section 19-A ofthe Kamataka Sales Tax Act and Section 13-AA of the Orissa Sates Tax Act, 1947. It was also contended that the Constitutional validity ofSection 35 ofthe Adhiniyam was already considered and upheld by the Division Bench ofthe Madhya Pradesh High Court in the case ofPunj Lloyd Ltd. v. State ofMadhya Pradesh and Ors. , (1996) 29 VKN 533. 6. The High Court referred to decisions of this Court in Steel Authority of India Ltd. v. State of Orissa and Ors. , [2000] 3 SCC 200 and Mis. Nathpa Jhakri Jt.

Venture v. Slate ofHimachal Pradesh and Ors.. [2000] 3 SCC 319 and declared the provision to be unsustainable. 7. In support of the appeal learned counsel for the appellants submitted that the ambit and scope of s~ction 35 ofthe Act were not kept in view by the High Court. The decision in Steel Authority's case (supra) and Nathpa 's case (supra) were dealing with different provisions and, therefore, has no application to the facts ofthe case. 8. Steel Authority's case (supra) related to Section 13AA of the Orissa Sales Tax Act, 1947 (hereinafter referred to as the 'Orissa Act'). In Nathpa Jhakri 's case (supra) dispute related to Section 12A of the Himachal Pradesh General Sales Tax Act, 1968 (in short the 'Himachal STATE v. VTP CONSTRUCTIONS [PASAYAT, J. ] 1151 Pradesh Act').

While striking do'Ml Section l3AA ofthe Orissa Act, this Court observed as follows in Steel Authority 's case (supra): "There can be no doubt, upon a plain interpretation ofSection 13AA, that it is enacted for the purposes of deduction at source ofthe State sales tax that is payable by a contractor on the value ofa works contract. For the purpose ofthe 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 ofproperty in goods consequent upon ofan inter-State sale, an outside sale or . a sale in the course ofimport. 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 contracts includes the value ofinter-State sales, outside sales or sales in the course of import.

There is, in our view, therefore, no. doubt that the provisions ofSection 13AA are beyond the powers <( ofthe State Legislature for the State Legislature may make no law levying sales tax on inter-State sales, outside sales or sales in the course ofimport. " 9. In Nathapa Jhakri 's case (supra) this court held Section 12A of the Himachal Pradesh Act to be unconstitutional and the relevant portion ofthe judgment reads as follows: "A bare perusal ofthe two provisions will make it clear that in either provision there is an obligation to deduct from transactions F relating to works contract on bills or invoices raised by the works contractor an amount not exceeding 4 percent or 2 per cent as the case may be.

Though the object ofthe provision is to meet the tax in respect ofthe transactions on all works contract on the valuable consideration payable for the transfer ofproperty in goods involved in the execution ofthe works contract, the effect ofthe provision is that, irrespective ofwhether the sales are inter-State sales or outside sales or export sales which are outside the purview ofthe State Act and those transactions in respect ofwhich no tax can be levied even in terms ofthe enactment itself, such deductions have to be made in the bills or invoices ofthe contractors. To say that ifa person is not liable for payment oftax inasmuch as on completion ofthe assessment refund can be obtained at a later stage in no solace, as noticed in Bhawani Cotton Mills Ltd. v. State ofPunjab, (1967) 20 STC 290 (SC): [1967] 3 SCR 577. Further, there is no provision for certification ofthe extent ofthe 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 4 per cent from the swn payable to the works contract irrespective whether ultimately the transaction is liable for payment to any sales tax at all. In that view ofthe matter, we have no hesitation in rejecting the contention advanced on behalfofthe State. " 10. In view ofwhat ha" been stated by this Court in SteelAuthority's case and Nathpa 's case (supra) the inevitable conclusion is that the High Court was right in holding that Section 35 ofthe Act was constitutionally invalid. The direction for refund of the amount collected from the respondent under the provisions ofthe said section had been rightly directed to be refunded. 11. The appeal is sans merit and, therefore, deserves dismissal, which .. we direct. There will be no order as to costs. K. K. T. Appeal dismissed.