Madras High Court
Larsen And Toubro Limited vs State Of Tamil Nadu And Another on 23 December, 1992
JUDGMENT Bakthavatsalam, J.
1. These batch of cases raise identical and similar issues pertaining to the constitutional validity, legality and propriety of levy of sales tax and other allied taxes on transactions familiarly known as "works contracts". Though the nature of such works contracts are varied and multifarious, their grievance and concern are common, except certain differences peculiar to the type of contracts which ultimately have relevance only in respect of the individual assessment and determination of the liability of the assessee concerned, but so far as the constitutional and legal issues raised are concerned, there are no differences, as such. In these batch of writ petitions, some of the assessees have challenged the validity of the amendments introduced by the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984) and rules 6-A and 6-B introduced with effect from October 1, 1984 or the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986) introducing section 3-B and the Fourth Schedule to the main Act with effect from June 26, 1986 and amendments to rule 6-B, etc., at different stages obtaining interim orders from initiating any action against them and others challenging in addition to the validity of those provisions, the consequential pre-assessment notices or orders of provisional assessment or final assessment passed in individual cases by the respective assessing officers. In October, 1989, some of the writ petitions earlier filed came to be summarily disposed of by a Division Bench of this Court by issuing certain directions to the assessees and assessing officers and without going into the question of vires of the provisions challenged, in the wake of the decision of the Supreme Court of India reported in [1989] 73 STC 370 (Builders Association of India v. Union of India). Even those assessees have filed second round of cases taking advantage of the law declared by the apex Court in the above decision and the petitioner in W.P. No. 8465 of 1986 filed an appeal before the apex Court in C.A. No. 138 of 1990, in which the apex Court while setting aside the order of the Division Bench of this Court, remanded the matter for fresh consideration on the various issues raised including the vires of the Act and the Rules made thereunder.
2. The circumstances leading to the enactment of the Constitution (Forty-sixth Amendment) Act, 1982, have been set out at length by the apex Court both in the decision reported in Builders Association case [1989] 73 STC 370 and Gannon Dunkerley and Co. v. State of Rajasthan - Larsen and Toubro Limited v. Union of India [S.L.P. (Civil) Nos. 3365 to 3368 of 1992 and W.P. No. 197 of 1991] reported in [1993] 88 STC 204 supra; (1992) 2 MTCR 474 and there is no need for making a detailed reference to the same. Suffice it to notice that in view of certain decisions of the apex Court on the legislative competence of the Provincial Legislatures under entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935 and entry 54 of List II of the Seventh Schedule to the Constitution of India, the matter with regard to the taxability of goods involved in execution of works contracts was examined by the Law Commission of India and certain recommendations were made in its 61st report suggesting various and alternate methods to be adopted to restore power to the States to legislate and levy sales tax on transactions like works contracts which resemble sale in substance. Consequently, the Constitution (Forty-sixth Amendment) Act inserted clause (29-A) in article 366 and substituted clause (3) of article 286 of the Constitution of India. Thereafter, various State Legislatures, including the State of Tamil Nadu amended their respective sales tax legislations to make provision for imposition of sales tax on transaction relating to works contracts. The constitutional validity of the Forty-sixth Amendment as well as the consequent amendments of State laws came up for challenge before the apex Court in the Builders Association case [1989] 73 STC 370. While upholding the validity of the Constitution (Forty-sixth Amendment) Act, it has been held by the apex Court that the sales tax laws passed by the Legislatures of the States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of article 286 of the constitution. The plea on behalf of the States that the constitution Amendment in question had conferred on the States a larger freedom than what they had before in respect of their power to levy sales tax under entry 54 of List II of the Seventh Schedule was rejected and it was held that the amendment did no more than make it possible for the States to levy sales tax on the price of the goods and materials used in works contracts, as if there was a sale of such goods and materials. Liberty was also given to those aggrieved and before them to approach the concerned authorities or before the competent High Court for vindicating the rights of the parties before court and to even challenge the validity of the statutory provisions and the rules made thereunder before High Courts.
3. While matters stood thus, the issue relating to the constitutional validity of the statutory provisions and rules made thereunder came up before the apex Court. The constitutional validity of the relevant provisions of the Rajasthan Sales Tax Act, 1954 and the Rajasthan Sales Tax Rules, 1956, relating to the imposition of sales tax on transfer of property in goods involved in the execution of a works contract came up before the apex Court in Gannon Dunkerley's case [1993] 88 STC 204 supra; (1992) 2 MTCR 474 and the relevant provisions of the Karnataka Sales Tax Act, 1957 and the Karnataka Sales Tax Rules, 1957, in the decision in C.A. No. 990 of 1991 (Builders Association of India v. State of KARNATAKA reported in [1993] 88 STC 248 supra; (1992) 2 MTCR 542. While declaring the position of law, generally and also with particular reference to the Rajasthan and Karnataka State Acts and the Rules made thereunder, the apex Court, in the Rajasthan case [1993] 88 STC 204 supra; (1992) 2 MTCR 474 specifically adverted to the challenge made to the Tamil Nadu General Sales Tax Amendment Acts of the years 1984 and 1986 and the Rules and orders made thereunder and gave liberty to the petitioners who raised such issues to institute appropriate proceedings for redress of their grievances before appropriate forum and made it clear that they do not express any opinion on such issues.
4. Be that as it may, the Constitution Bench of the apex Court in Gannon Dunkerley's case [1993] 88 STC 204 supra; (1992) 2 MTCR 474, after a careful and meticulous analysis and consideration of the legal position, generally, declared the position that it would be permissible for the State Legislature to tax all the goods involved in the execution of a works contract at a uniform rate which may be different from the rates applicable to individual goods because the goods which are involved in the execution of the works contract when incorporated in the works can be classified into a separate category for the purpose of imposing the tax and that a uniform rate may be imposed on such goods - clarified with precision the scope and extent of the powers of the State Legislatures concerned and the restrictions as well as the modalities and manner of such exercise of power to ensure and render such exercise of powers and the laws so made to be within constitutional and permissible legal limits in the following terms :
"(1) In exercise of its legislative power to impose tax on sale or purchase of goods under entry 54 of the State List read with article 366(29-A)(b), the State Legislature, while imposing 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 is not competent to impose a tax on such a transfer (deemed sale) which constitutes 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.
(2) The provisions of sections 3, 4, 5 and sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by article 366(29-A)(b).
(3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power 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 and export.
(4) The tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of article 366(29-A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of a works contract would constitute the measure for imposition of the tax.
(5) 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 referred to in article 366(29-A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract.
(6) The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract; (iv) charges for planning, designing and architect's fees; and (v) cost of consumables used in the execution of the works contract; (vi) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services.
(7) To deal with cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the assessing authority the Legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. It would be permissible for the Legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract.
(8) While fixing the rate of tax, it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of those Foods as a separate article."
5. Mr. C. Natarajan, learned counsel appearing for some of the petitioners, made leading arguments followed up by M/s. K. M. Vijayan, K. J. Chandran, K. Ramagopal, S. V. Subramaniam, T. V. Ramanathan, Venkataraman, Radhakrishnan, Jayakumar and others who while adopting the submissions of Mr. Natarajan, brought to our notice certain facets of the problems encountered by the different assessees. Before adverting to the submissions made for our consideration, it may be stated that the learned counsel appearing on either side realised the position that several of the points raised in the affidavits filed in support of the various writ petitions stood answered and concluded by the declaration of the law in the three decisions of the apex Court rendered after the Constitution (Forty-sixth Amendment) Act and that the endeavour of the various counsel who argued was only to highlight the infirmities in the amendments to the Act and the Rules introduced to the Tamil Nadu General Sales Tax Act, 1959, to bring the same within the category of the Rajasthan Sales Tax Act, the amendments to which were held to be vitiated and pleaded that they are not of the pattern of amendments introduced to the Karnataka Sales Tax Act, which came to be upheld by the apex Court. There is no controversy among the counsel appearing both for the petitioners and the State that the principles enunciated and laid down in the Gannon Dunkerley's case - Rajasthan case [1993] 88 S 204 (SC) supra; (1992) 2 MTCR 474 have got to he conformed to by any law of any one State and that any violation of the principles and the ratio of the decision cannot be said to be permissible without rendering such law to run the risk of being declared unconstitutional or unlawful and unenforceable.
6. The endeavour of every one of the learned counsel appearing for the petitioners before us was, as indicated above, to brand the impugned provisions as suffering the vice of Rajasthan Amendment Act and the rules, held to he unconstitutional. Mr. C. Natarajan, learned counsel, while spearheading the challenge contended that the provisions of section 3-B, as in the case of Rajasthan Act and unlike the provision in the Karnataka Act, provides for the levy of tax on the "turnover" and not on the "taxable turnover" and the vice the Rajasthan Act was said to suffer is writ large and apparent in the Tamil Nadu Act. The provisions of section 3-B read with rule 6-A takes into account the total amount payable for the execution of the contract, inclusive of labour and other charges for computing total turnover and the turnover for levy of tax to be less only labour and other charges out of the total turnover and this is stated to be impermissible. For the period prior to June 26, 1986, it is stated that there is no charging section at all for levying tax on transfer of property in goods involved in the execution of works contracts and that even in section 3-B there is no provision to levy tax on transfer of property in goods "in some other form" involved in the execution of a works contract and consequently in works contracts involving transfer of property not qua chattel but in some other form there is no scope or authority to levy or collect any sales tax under the Tamil Nadu General Sales Tax Act, 1959 and the Rules made thereunder. The provisions contained in rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, are said to be in contravention of the dicta of the apex Court in so far as they prescribe a flat rate of percentage of deduction for labour or other charges making thereby irrelevant the actual labour and other expenses incurred as per accounts and thereby subjecting to tax what really is labour and other charges not involving any transfer of property. It is also contended that the fluctuations and variations in the percentage of deduction in the notifications dated October 1, 1984 and December 15, 1986 have no reasonable basis or material whatsoever and has been arbitrarily fixed at random without any rhyme or reason and, therefore, the same is liable to be declared unlawful. In support of the said grievance a plea of under-classification is also raised by adverting to the fact that whereas Schedule IV indicates about 20 items of contracts the rules deal with only about 5 items of contracts in fixing the percentage of deduction for labour and other charges and that too adopting artificial percentage without any appropriate research material therefor. Finally, it is submitted that the absence of any provision to exclude the turnover relating to transfer of property in the goods in the course of inter-State and import/export sales and also to preserve and secure the benefit of single point levy and the benefits of sections 14 and 15 of the Central Sales Tax Act, 1956 and article 286(3) of the Constitution seriously undermine the validity of the impugned provisions. the absence of specific reference to the above as also the various items of deduction as forming part of labour and other charges not involving any transfer of property in the execution of the works contract as noticed by the apex Court, both in section 3-B and also rule 6-B is said to vitiate the very charge and render the same illegal and unenforceable.
7. While elaborating the submissions further, Mr. C. Natarajan, learned counsel, submitted whereas under sections 3, 4 and 5 of the Tamil Nadu General Sales Tax Act, 1959, the charge is on the taxable turnover and the other provisions as well as rules 5 and 6 of the Tamil Nadu General Sales Tax Rules, 1959 provide for exclusion from the total turnover as well as taxable turnover portions of turnover which are not taxable and exempted from taxation, section 3-B and rules 6-A and 6-B do not make any such provision and conspicuously make the charge and levy upon turnover, in contrast, therefore in view of the decision of the apex Court in [1993] 88 STC 204 supra; (1992) 2 MTCR 474 (Gannon Dunkerley & Co. v. State of Rajasthan) section 3-B and rules 6-A and 6-B are liable to be struck down. Argued the learned counsel further that as the provisions of the Act and the rules stand, with the non obstante clauses therein, there is no scope for reading down them to save them or sustain them. According to the learned counsel till rule 6-B was amended by G.O.P. No. 1277, CT & RE dated December 15, 1986, rule 6-B as made in 1984 rendered the regular books of account maintained to show the actual expenditure incurred for determining and deducting labour and other charges, irrelevant by fixing a flat rate of deduction only and to this extent it purports to transgress the limits and constitutional mandate of levying tax only on the transfer of property involved in the execution of a works contract, whether as goods or in some other form, thus suffering the vice pointed out by the Apex Court in the Rajasthan case. Reliance was also placed upon the decisions (Associated Cement Co. Ltd. v. Commercial Tax Officer), (Income-lax Officer v. T. S. Devinatha Nadar) and (Govind Saran Ganga Saran v. Commissioner of Sales Tax) to support the plea that the charging section should be strictly construed and there can be no presumption or assumption about the levy of tax. Relying upon the decision in (Aphali Pharmaceutical Ltd. v. State of Maharashtra), it is contended that wherever there is inconsistency between the charging section and the Schedule to the Act the Schedule has to yield an give way and the absence of levy on transfer of property in goods in some other form in section 3-B renders the Fourth Schedule to that extent inconsistent and unenforceable in respect of such turnover. Relying upon the ratio of the decisions (Stale of H. P. v. Associated Hotels of India Ltd.) and (Patnaik & Co. v. State of Orissa), rule 6-B(a) is said to he obnoxious, since property does not pass earlier in finished goods in certain types of works contracts.
8. Mr. K. M. Vijayan, while adopting the submissions of Mr. Natarajan, also contended that rules 6-A and 6-B are illegal and invalid in that they are neither reasonable nor in conformity with the 46th Amendment to the Constitution and that Schedule IV is opposed to the dicta of the judgments of the apex Court. It was also contended that the assessees relating to works contract must be extended all standard and normal deductions, exemptions and concessions shown to other dealers/assessees. It is also the contention of the learned counsel that section 3-B of the Act can he applied as the charging section even without rules and for that matter even the Fourth Schedule becomes wholly redundant. The absence of a proviso to rule 6-B(a) on lines similar to the proviso to rule 6-B(b) and absence of further guidelines to the assessing authorities to apply the correct rate when the contract overlaps on more than one item are also said to be vitiating factors undermining the validity of the said Rules.
9. Mr. K. J. Chandran, learned counsel appearing for some of the petitioners carrying on business as "cooly tanners" of hides and skins who dye hides and converters of aluminium scrap by re-rolling them as aluminium ingots and sheets contend that they use materials which are consumed in the process and such processing is carried out only on the goods of their customers and in respect of materials so used they cannot be considered to be last purchasers since ultimate sales of tanned and dyed goods are only effected by their customers who were owners of the goods, thereafter. It is also contended that so far as their business is concerned, it may fall under item 5 as well as under item 6 of the Table contained in rule 6-B(b) and there are no guidelines for the assessing officer as to the course adopted, and to apply the correct item in such circumstances.
10. Mr. K. Ramagopal, learned counsel appearing for some of the petitioners, who are carrying on business as printers, contends that so long as the charge or levy under section 3 of the Act is on the turnover and not on taxable turnover, the provisions have to be struck down on the ratio of the decision of the apex Court reported in [1993] 88 STC 204 supra; (1992) 2 MTCR 474 (Gannon Dunkerley & Co. v. State of Rajasthan) and the decision of the apex Court in the Karnataka case will have no application having regard to the nature of the provisions contained in rule 6. According to the learned counsel, item No. 6 in the Table to rule 6-B(b) which otherwise would apply cannot be applied to the printing contracts and there is no due or reasonable provision for exclusion of the labour charges from the turnover which would be subjected to levy.
11. Mr. S. V. Subramaniam, learned senior counsel appearing for some of the petitioners, highlighted the differences in the relevant provisions of the Tamil Nadu General Sales Tax Act and the Rules on a comparative analysis with the provisions contained in the Rajasthan Act and the Karnataka Act and endeavoured to support the line of submissions made by Mr. C. Natarajan. While adverting to the decision of a Division Bench of the Patna High Court reported in [1989] 75 STC 132 (Jamshedpur Contractors' Association v. State of Bihar) it was also contended that the rate of percentage fixed for deduction towards labour and other charges has no basis or nexus to the object of such deduction.
12. Mr. T. V. Ramanathan, learned counsel appearing for some of the petitioners, stated that his clients carry on the business of re-charging customers' batteries, that no sale or transfer of property is involved in the same and that acid, etc., used has already suffered levy and there was no scope for once again subjecting the same to tax in the hands of those petitioners. It It is the plea of the petitioners that even the amendments introduced would not render the said petitioners liable to tax under the Tamil Nadu General Sales Tax Act, 1959.
13. Mr. M. Venkatachalapathy, learned counsel appearing for some of the petitioners who carry on the business of bleaching and dyeing of yarn and handloom cloth, adopted the submissions of the other counsel and in addition contended (a) that the rules which do not provide for all the deductions declared by the apex Court as not amenable for tax are liable to be set aside; and (b) that the exemption granted with effect from October 7, 1988 by the notification in G.O.P. No. 1316, CT & RE dated October 7, 1988 would, having regard to the very reason for such exemption enure to the benefit of those petitioners even from October 1, 1984 and that such an exemption is available as a matter of right since no transfer of property in any goods is involved in such contracts and that the goods of the customers in respect of which the processing or dyeing is undertaken itself is already exempt from taxation.
14. Mr. R. Venkataraman, learned counsel appearing for some of the petitioners who carry on business as photographers as well as printers also contended that the matter should be allowed to the discretion of the assessing officer to be decided objectively and to the best of judgment, as a quasi-judicial authority. While pleading that the exercise of discretion by the assessing officer ought not to he interfered with by such fixation, it is also submitted that proper rules with sufficient clarity must be made in tune with the ratio of the decision of the apex Court providing for all such deductions visualised by the apex Court and till that is done the charging provisions cannot be enforced. The rules, as framed, is said to be contrary to law and unenforceable.
15. Mr. Radhakrishnan, learned counsel appearing for some of the petitioners, adopted the submission of the other learned counsel. Mr. Jayakumar, learned counsel appearing for some of the petitioners, invited our attention to the decision of the apex Court reported in [1981] 128 ITR 294 (Commissioner of Income-tax v. B. C. Srinivasa Setty) to impress upon the manner and method of construing a charging section in a fiscal enactment.
16. Mrs. Chitra Venkataraman, learned Additional Government Pleader (Taxes), countered the contentions of the counsel for the petitioners, contending that the scheme underlying section 3-B and rules 6-A and 6-B of the Rules in the Tamil Nadu General Sales Tax Act and the Rules is distinct and not similar to the one held bad in the Rajasthan Act. While adverting to sections 4 and 7-A(1)(c) of the Act and rule 6-B of the Rules, the learned counsel contends that what really ultimately taxed is only the taxable turnover as determined and not the whole of the turnover or the value of the contract as a whole. The omission to provide specifically for the exclusion of the turnover taxable under the Central Sales Tax Act does not, according to the learned counsel matters since it can never form part of the turnover, total or taxable as held by the apex Court reported in [1967] 8 STC 561 (Fernandez v. State of Kerala) and a Division Bench of this Court reported in [1969] 23 STC 447 (Kumarasamy Pathar v. State of Madras). It is also contended that notwithstanding the non obstante clause used in section 3-B in respect of certain charging provisions, the levy is made only "subject to the other provisions of this Act" as found specifically stated in the very provision and read in that manner with the other provisions, the so-called omissions complained of for the petitioners would be of no significance whatsoever. Section 2(n) and 2(q) has been also referred to by the learned counsel in this regard. Argued the learned Additional Government Pleader further that the Rules and the Schedule to the Act do not suffer any infirmities as alleged and on a proper reading and understanding and construction it could be seen that the provisions in the Tamil Nadu Act and the Rules do not suffer from the vice pointed out by the apex Court in the Rajasthan case. It is also the contention of the learned counsel that this Court, even if it is found that section 3-B or any of the provisions have not been either happily worded or is found couched in wide terms can and has to read them down so as to make them constitutionally valid and invited our attention to the decisions (Delhi Transport Corporation v. D. T. C. Mazdoor Congress), (Spences Hotel Pvt. Ltd v. State of West Bengal) and (S. K Dutta, Income-tax Officer v. Lawrence Singh Ingty). Finally, it has been contended that the rules made both in 1984 and as amended in 1986 are quite in accordance with law and are not vitiated in any manner for any of the alleged infirmities and that the so-called inconsistencies and infirmities in the course of levy in certain given situations are problems or matters which have got to be dealt with or tackled at the time of individual assessments and do not, even if true, affect the constitutional validity of the provisions as such.
17. We have carefully considered the submissions of the learned counsel appearing on either side. Having regard to the different kinds and nature of reliefs sought for at different stages by the petitioners before us, it becomes necessary for us to consider and determine (a) the constitutional validity and legality of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984), hereinafter referred to as "the 1984 Amendment Act"; (b) the constitutional validity and the legality of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986) hereinafter referred to as "the 1986 Amendment Act" inserting section 3-B to the main Act and also adding the Fourth Schedule to the main Act; (c) the constitutional validity and the legality of rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, framed in exercise of the powers conferred under section 53(2)(bb) of the Tamil Nadu General Sales Tax Act, 1959, in G.O.P. No. 1103, Commercial Taxes and Religious Endowments Department, dated October 1, 1984, published in the Tamil Nadu Government Gazette, Extraordinary dated October 1, 1984; and (d) the constitutional validity and legality of rule 6-B (b) made in substitution of the original clause (b) by G.O.P. No. 1277, C.T. & R.E. dated December 15', 1986 and the relief, if any, to be given in the above writ petitions depending upon the decision of ours on the other issues.
18. So far as "the 1984 Amendment Act" is concerned, which consequent to the Constitution Forty-sixth Amendment Act added by inserting clauses (v) to (ix) to section 2(g) of the main Act, enlarging the scope of definition of "dealer" for the purpose of the Act, amendments to section 2(j) of the main Act which defines "goods", section 2(n) which defines "sale" in the main Act and section 2(r) relating to the definition of "turnover" were also made, in addition to the addition of a new definition clause in section 2(u) defining "works contract". We are not concerned with, in these batch of cases, other amendments introduced except noticing the position that section 7 of the Amendment Act which provides for the addition of clause (bb) to sub-section (2) of section 53 enabled the rule-making authority .to make rules in relation to the manner of determination of the amount payable to the dealer for the property in goods (as goods or in some other form) involved in the execution of a works contract. The amendments introduced to the definitions of "dealer", "goods", "sale", and "turnover" are a sequal to the Constitution (Forty-sixth Amendment) Act, 1982. As a matter of fact, the amendment introduced to the definition of "sale" in section 2(n) of the main Act was in substance a repetition and incorporation of clause (29-A) of article 366 of the Constitution of India. The constitutional validity and legality of the said amendment was the subject-matter of a decision of the Constitution Bench of the apex Court reported in [1989] 73 STC 370 (Builders Association of India v. Union of India) and the same was upheld by the apex Court. The apex Court held that after the 46th Amendment, the works contract which was an indivisible one by a legal fiction altered into a contract which is divisible, one for sale of goods and the other for supply of labour and services and it has become possible thereafter for the Sates to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and material supplied in a building contract which had been entered into in the distinct and separate parts and consequently such a deemed sale has all the incidental of a sale of goods involved in the execution of a works contract where the contract is divisible into one for sale of goods and the other for supply of labour and services. It has, therefore, become necessary for the various State Legislatures to amend their local sales tax laws by enlarging the definition of "sale" and effecting incidental amendments thereto on par with the Constitution 46th Amendment. The amendments introduced by the 1984 Amendment Act to the Tamil Nadu General ales Tax Act, 1959, therefore, do not suffer any vice of unconstitutionality on any ground whatsoever in so far as they related to the enlargement of the definitions of "sale", "dealer", "goods" and "turnover", and "works contract". A similar amendment introduced to the Andhra Pradesh General Sales Tax Act, 1957, was upheld by a Division Bench of the Andhra Pradesh High Court in the decision reported in [1987] 66 STC 26 (Padmaja Commercial Corporation v. Commercial Tax officer). A similar challenge to the amendments introduced to the Karnataka Sales Tax Act, 1957, was upheld by a Division Bench of the Karnataka High Court in the decision reported in [1990] 79 STC 442 (Builders Association of India v. State of Karnataka).
19. The challenge to the amendments introduced by the 1984 Amendment Act on the basis of the Constitution (Forty-sixth Amendment) Act, 1982, could no longer survive after the decision of the apex Court in the First Builders Association case [1989] 73 STC 370. The challenge to the said provisions, therefore, fails and shall consequently stand rejected.
20. The next issue that requires to be considered is regarding the constitutional validity and legality of the 1986 Amendment inserting section 3-B and also adding the Fourth Schedule to the main Act. Section 3-B reads as hereunder :
"3-B. Levy of tax on the transfer of goods involved in works contract. -Notwithstanding anything contained in sections 3, 4, 5, 7 or 7-A, but subject to the other provisions of this Act, every dealer referred to in item (vi) of clause (g) of section 2 whose total turnover relating to the business of transfer of property in goods involved in the execution of a works contract is not less than fifty thousand rupees and every casual trader or agent of a non-resident dealer in respect of such business whatever be his turnover for the year, shall pay for each year a tax on his turnover of transfer of property in goods involved in the execution of works contract mentioned in column (2) of the Fourth Schedule at the rates specified in the corresponding entries in column (3) of the said Schedule.
Explanation. - Where any works contract involves more than one item of work specified in the Fourth Schedule, the rate of tax shall he determined separately for each such item."
The Fourth Schedule enumerates about 20 items and classes of works contracts with a residuary item, "other contracts not failing under serial numbers 1 to 20 above", and specifies the rates of tax leviable icy respect of such categories of works contracts. The levy or charge under section 3-B is on the turnover of transfer of property in goods involved in the execution of works contract mentioned in column No. (2) of the Fourth Schedule and the explanation stipulates that where any works contract involves more than one item of work specified in the Fourth Schedule, the rate of tax shall he determined separately for each of such item. No doubt the said provision itself does not by itself provide the method or manner of ascertaining the value of goods involved in the execution of a works contract. The apex Court has held that though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract and that the value of the goods which constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. While making the position thus clear it has also been held that incorporation of the goods in the works forms part of the contract relating to work and labour which is distinct from the contract for transfer property in goods and that, therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure for the levy of tax, contemplated by article 366(29-A) of the Constitution of India.
21. The learned counsel appearing for the petitioners contended in unison, that unless, the manner and method of determination of the turnover that could be taxed is provided for in the very charging provision, the same stood vitiated and suffer the vice pointed out by the Apex Court in the Gannon Dunkerley's Rajasthan case [1993] 88 STC 204 supra; (1992) 2 MTCR 474 and section 3-B is, therefore, liable to be struck down, applying the ratio of the said decision. It is also contended for the petitioners that unlike section 5-B of the Karnataka Sales Tax Act, 1957 and in the same manner as section 5(3) of the Rajasthan Sales Tax Act, 1954, the levy is imposed on the turnover and not on taxable turnover and on this ground also section 3-B is liable to he struck down. It is further contended that in any event even the provisions contained in rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, which deal with the determination of such turnover for imposing the tax do not provide for deduction of all that should be, to properly arrive at the turnover that alone could be taxed even after the Constitution (Forty-sixth Amendment) Act. In Gannon Dunkerley and Co. v. State of Rajasthan [1993] 88 STC 204 supra; (1992) 2 MTCR 474 the apex Court observed as hereunder :
"Section 5(3) read with clause (t) of section 2 of the Rajasthan Sales Tax Act, thus, provides that in relation to a works contract, tax would he leviable on the value of the works contract after deducting (i) the cost of labour up to such extent as may be prescribed in the rules framed under the Act in view of the explanation (i) to clause 2(1)(t); and (ii) such deductions as may be prescribed under the Rules in view of the proviso to section 5(3). The Legislature has not made any express provision for exclusion of transactions constituting deemed sales which take place in the course of inter-State trade or commerce or outside the State or in the course of import and export in relation to which the State Legislature lacks the competence to impose a tax under entry 54 of the State List. Nor has any provision been made with regard to sales of goods which are declared to be of special importance in inter-State trade or commerce and are governed by sections 14 and 15 of the Central Sales Tax Act. The matter has been left to the discretion of the rule-making authority to prescribe whether deductions in respect of such transactions should be allowed or not.
22. The apex Court, proceeding further, has also held as follows in striking down section 5(3) of the Rajasthan Sales Tax Act, 1954 :
"A comparison of the provisions contained in 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 to permit tax being levied on sales in the course of inter-State trade or commerce, sales outside the State and sales in the course of import and export and to ignore the conditions and restrictions placed by section 15 of the Central Sales Tax Act in relation to imposition of tax on goods which are declared to be of special importance in inter-State trade or commerce under section 14 of the Central Sales Tax Act. 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 constitutional validity of a statute has to be determined on the basis of its provisions and on the ambit of its operation as reasonably construed and if, so judged, it does not pass the test of constitutionality and it cannot be pronounced valid merely because it is administered in a manner which might not conflict with the constitutional requirements. (See. Collection of Customs v. Nathella Sampathu Chetty [1962] 3 SCR 786 at pages 825 and 826). 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). We have, however, examined the rules that have been framed and we find that they do not improve the position. The relevant provisions in this regard are contained in sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules which makes provision for deductions from the turnover in the case of a works contract. The said sub-rule (2) contains two clauses. Clause (i), which is referable to the proviso to sub-section (3) of section 5, provides for deduction of the value of the goods transferred in the execution of works contract, whether as goods or in some other form, which have already suffered tax at the rates prescribed by section 5 or which are exempted from tax under section 4. Clause (ii) is referable to explanation (i) of section 2(t) and it provides for deduction of all sums towards labour charges, which are directly correlated with the goods, property in which has passed in the execution of works contract, whether as goods or in some other form.
......................
The High Court has upheld the validity of sub-section (3) of section 5 by taking into account the provisions of sub-rule (2) of rule 29. But, while considering the said provisions the High Court has failed to notice that under clause (i) of sub-rule (2) of rule 29, transfer of property in goods involved in the execution of a works contract, on which no tax is leviable under section 5, are not required to be deducted from the turnover. The High Court also failed to attach importance to the use of the word 'turnover' (instead of word 'taxable turnover') in sub-section (3) of section 5 as a result of which the amplitude of the incidence of tax has been widened so as to include transactions which are outside the sphere of taxation available to the State Legislature under entry 54 of the State List. We are, therefore, unable to uphold the decision of the High Court in this regard and it must be held that sub-section (3) of section 6 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 the course of inter-State trade or commerce, or which take place on 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 of the Central Sales Tax Act on goods declared to be of special importance in inter-State trade or commerce under section 14 of the Central Sales Tax Act. Clause (i) of sub-rule (2) of rule 29 of the Rajasthan Sales Tax Rules also suffers from the same infirmity. 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.
Since the invalidity of section 5(3) goes to the root of the imposition of tax and in the absence of the said provision the tax cannot be levied, the appellants in the appeals are entitled to succeed."
23. We shall now advert to the other decision of the apex Court in Builders' Association of India v. State of Karnataka [1993] 88 STC 248 supra relied upon very much for the respondent-State rendered in relation to the Karnataka Sales Tax Act, confirming the Division Bench judgment of the Karnataka High Court reported in [1990] 79 STC 442 (Builders Association of India v. State of Karnataka). That was a case whereunder the constitutional validity of section 5-B of the Karnataka Sales Tax Act, 1957 and allied provisions and rules made relating to the levy of sales tax on the transfer of property in goods involved in the execution of works contracts came up for consideration and the apex Court as well as the High Court repelled the challenge holding that the provisions of section 5-B read with the relevant rules made in rule 6 cannot be said to provide 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. As a matter of fact, after an analysis of the various provisions in rule 6 of the Karnataka Sales Tax Rules, the apex Court observed as hereunder :
"From these provisions, it is evident that 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' in sub-clause (ii) of clause (m) and the expression 'labour charges and other like charges' in sub-clause (iv) of clause (n) are, in our opinion, wide enough to include the charges for labour and services, as indicated by us in our judgment in Gannon Dunkerley v. State of Rajasthan ."
24. On a careful consideration of the above conclusion of the apex Court in the two decisions rendered recently it could he seen that the provisions of section 5(3) of the Rajasthan Sales Tax Act 1954, came to be struck down since there was no provision in the Act or the rule 29(2) for deduction from the turnover the portion of the transfer of property in goods involved in the execution of works contract on which no tax is leviable under section 5 and that the invalidity of section 5(3) goes to the root of the imposition of tax. The emphasis made by the apex Court in the Karnataka case, as could be seen from the passage quoted supra, would show that the vitiating factor lays in providing for levy of tax not on the value of the goods involved in the execution of works contract alone but also on something which not part of that value. As a matter of fact, the procedure for determination and ascertainment of the taxable turnover under the Karnataka Act also was ordained to he prescribed and was only prescribed under the Rules made thereunder. That apart as, pointed out by the apex Court in the Rajasthan case, the charge or levy was imposed in the case of a works contract on the "turnover of such contract"' without making any proper provision either in the Act itself or under the rules to ensure that the tax is levied and collected only on transfer of property in goods involved in the execution of works contract and not on the cost of incorporation of the moods in the works too, which forms part of the contract relating to work and labour and is also distinct from the contract for transfer of property in goods.
25. The provisions of section 3-B of the Tamil Nadu Act unlike section 5(3) of the Rajasthan Act imposes the levy on the turnover of transfer of property in the execution of works contract. The use of the word "turnover" in contrast to "taxable turnover" is not so much either pernicious or a vitiating factor Provided the provisions in the Act or the Rules ensure properly levy of tax on the value of the goods alone as held by the apex Court eliminating and excluding something which is not part of that value. That apart, as rightly contended for the respondents there is scope and need for reading down the provision in section 3-B of the Act so as to make it operate and have force upon the taxable turnover. As a matter of fact, rule 6-B of the Rules also provides for determination of the taxable turnover only to quantify the tax liability. The question as to whether the rules 6-A and 6-B themselves are bad and suffered the vice condemned by the apex Court will he considered separately. The absent of sufficient provision to properly determine the turnover on which alone the tax could be levied and collected, either in the Act or the rules prescribed may have the consequence of making at the most section 3-B dormant and liable to be benumbed but not necessarily he struck down. The apex Court has chosen to strike down section 5(3) of the Rajasthan Act only because the very basis and nature of the levy came to he enlarged therein since apart from providing of levy of tax on the value of the goods involved in the execution of the contract, the said provision purported to levy tax on something which is not part of that value. With the prescription of proper rules, as has been done under the Karnataka Sales Tax Act, section 3-B can always be activated, vitalised and brought to life and enforced and there is no necessity, to strike down section 3-B as such, when it does not per se run counter to the Constitution Forty-sixth Amendment or aim at enlarging the scope of the levy by changing the basis of the impost. The provision of section 3-B though begins with a non obstante clause is not absolute in its overriding effect but proceed further making it "subject to the other provisions of the Act", and therefore, does not stand by itself and that too completely divorced from the other provisions. Notwithstanding the non obstante clause in the opening part of the section, it abundantly makes it clear in the following phrase that it is also subject to the other provisions of the Act. It cannot be ignored that the non obstante clause is also sometimes appended to a section or rule in the beginning with a view to give the enacting part of that section or rule, in case of conflict, an overriding effect over the provision of the Act mentioned in that clause. In this case before us, though the non obstante clause would indicate that section 3-B should prevail despite anything to the contrary in section 3, 4, 5 and 7 or 7-A, the immediately following purchase "but subject to the that other provision of this Act" makes the mandate clear that it would be subject to the other governing provisions.
26. That apart, when a question arises whether the power has been properly conferred and even if so the extent of it, a Judge cannot simply fold his hand and blame the draftsmen and look for new enactment. A Judge can articulate what is inarticulate and what can be reasonably and plainly found to be inherent on the presumption that the Legislature or a law making body with limited authority would act only within limitations so as to make the legislation or the law valid and then supplant the written words and add to it and give "force and life" to the intention and purpose of the Legislature or the law making authority. Though a Judge must not alter the material of which a law or an instrument is woven but he can and should iron out the creases by construing it in a limited sense so as to keep it within the power. The technique of construction known as reading down has the practical effect that where an Act is expressed in language of a generality which makes it capable if read literally, of applying to matters beyond he relevant legislative power, the court can construe it in a more limited sense so as to keep it within power. The object of reading down is to keep the operation of the statue within the purpose if the Act and constitutionally valid. In the decision reported in [1974] 2 All ER 97 at 100 (Federal Steam Navigation Co. v. Department of Trade and Industry), it has been held thus :
"The Judge may read in words which he considers to be necessarily implied by words which are already in the statute and he has a limited power to add, to alter or ignore statutory words in order to prevent a provision from being unintelligible, absurd or totally unreasonable, unworkable or totally irreconcilable with the rest of the statute."
[See with advantage : Paragraphs 116, 214, 228, 268 and 270 in the decision (Delhi Transport Corporation v. D. T. C. Mazdoor Congress)]. In the case before us, the object and aim of the State is made clear to tax only the transfer of property in goods involved in the execution of works contract and not any and every turnover, which could not otherwise be subjected to tax and the principle of construction by reading down the scope of the word "turnover" so as to mean and to refer to only the taxable turnover as the subject-matter of charge and the measure to actually levy tax. Such a construction would also be in conformity with the scheme underlying rule 6-B as it stood even at the time when section 3-B came to be enacted. The Constitution Bench of the apex Court, in the earlier decisions rendered had made it clear that the Forty-sixth Amendment to the Constitution of India had not conferred on the States any larger freedom than what they had before in regard to their power to levy sales tax under entry 54 of the State List and on the other hand, the Forty-sixth Amendment does not more than making it possible for the States to levy sales tax on the price of the goods and materials used in works contracts as if there was a sale of such goods and materials. It is only on that view and since section 5(3) of the Rajasthan Sales Tax Act, 1957, tried to impose the charge on the turnover of the works contract as such without properly making due provision for deduction of the labour and other charges and also for the exclusion of inter-state sales and sales in the course of export/import and ensure compliance with sections 14 and 15 of the Central Sales Tax Act, 1956, that the apex Court struck down the relevant provisions of the Rajasthan Act. Having regard to the scheme underlying the pattern of levy in section 3-B of the Tamil Nadu General Sales Tax Act, the provisions per se cannot be said to suffer the same infirmity. For all the above reasons, we are unable to countenance the challenge to the provisions of section 3-B either on the ground of absence of the word "taxable" prefixed to the word "turnover" or on the omission to formulate in the provision of the Act itself the procedure for determination of the taxable turnover by having an inbuilt and illustrated items of deductions, the charge under section 3-B itself being only on the value of the good involved in the execution of the works contract as and when the transfer of property takes place and not the cost or value of the incorporation of the goods forming part of work and labour. The provisions of section 3-B. in our view, is constitutionally valid and does not also suffer from any other infirmity in law warranting or necessitating it to be struck down by us.
27. The contentions of the learned counsel for the petitioners that though in the execution of a works contract, transfer of property in goods is involved whether as goods or in some other form, section 3-B which is the charging provision as well as rules 6-A and 6-B conspicuously omits to provide for the levy in respect of the property in goods in some other form, otherwise than as goods and consequently such category of transfer of property is not and cannot be subjected to tax under section 3-B of the Act and the rule made thereunder, have no merit or substance. With the amendment to the definition of "sale" in section 2(n) of the main Act which serves as the interpretation clause for the Act as a whole encompassing all categories of transfer of property in goods whether as goods or in some other form, the word "goods" in section 3-B has to be consider in the sense in which it has been defined, so as to include a transfer of property in goods or in some other form and the dichotomy which existed prior to the Forty-sixth Amendment to the Constitution and the consequent amendments carried out in the local sales tax law of the States concerned, could not be said to exist any longer. As a matter of fact, in the first Builders Association of India case [1989] 73 STC 370, the apex Court held that in view of the legal fiction created by clause (29-A) of article 366 of the Constitution, it is difficult to hold that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract but a conglomerate and the very object of the new definition Introduced in clause (29-A) of article 366 of the Constitution of India is only to enlarge the scope of sale or purchase of goods, wherever it occurs so that it may include within its scope of transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) hereof, whether as goods or in some other form, in view of the execution of a works contract also. Consequently, the reliance placed by the learned counsel for the petitioners on the decisions [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.]; (Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax) and (Ram Singh & Sons Engineering Works v. Commissioner of Sales Tax) are wholly irrelevant and Inappropriate. The plea of alleged inconsistency raised for the very same reason of the Fourth Schedule with section 3-B of the Act equally deserves to be rejected in view of our conclusions as above.
28. The next challenge from the petitioners that requires to he Considered relates to the legality and constitutional validity of rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959. As noticed already, the above rules came to be introduced originally in its unamended form with effect from October 1, 1984. While rule 6-A provided that, notwithstanding anything contained in rule 5, the total turnover in relation to a works contract shall be the total amount payable for the execution of the works contract inclusive of the value of all goods and the labour and other charges involved in the execution of the contract. Rule 6-B provided the manner of determining the taxable turnover of a works contract by indicating the categories of deductions to be made, subject to the conditions specified therein from the total turnover. The items of deduction provided under rule 6-B(a) are as hereunder :
"(a) where under the contract, the transfer of property takes place in the form of finished goods or the contractor is required to build, construct, manufacture, process, fabricate or otherwise procure or supply any finished goods -
(i) the charges for freight and delivery of the finished goods; and
(ii) any amount charged for, in respect of any work not involving any transfer of property, done after the emergence of the goods as finished goods but before the transfer of property is effected under the works contract :
Provided that the taxable turnover shall not be less than the market price of the same or similar finished goods sold otherwise than under a works contract."
Clause (b) of the said rule provided that where under the contract the transfer of property does, not take place in the form of goods but takes place in some other form towards the labour and other charges not involving any transfer of property in goods incurred in connection with the execution of the contract and subject to the limits prescribed in the Table appended thereto shall be deducted. The Table illustrates 5 kinds of contract and a residuary clause, as item 6, and provides different and varying percentages of deduction from the value of the contract towards labour and other charges. In the year 1986 with effect from December 15, 1986 clause (b) of rule 6-B came to he substituted providing for the first time a flat rate of percentage of deduction towards labour or other charges. Only in cases where the labour and other charges not involving any transfer of property in goods incurred in connection with the execution of the contract are not determinable from the accounts, nor where such charges as shown in the accounts are according to the assessing authority unreasonably high, considering the nature of the contract, the deduction towards labour and other charges are provided for in such cases by the assessing authority determining the same to the best of judgment, subject to the limits prescribed in the revised Table appended to the said rule.
29. The above rules are being challenged by the learned counsel appearing for the petitioners on grounds such as (a) the omission in rules 6-A and 6-B to provide for deductions and exclusion of turnover relating to inter-State sales and sales in the course of import/export, as in the case of levy under sections 3-A, 4 and 5 of the Act, renders the rules vicious and contrary to law as being opposed to even the Constitution (Forty-sixth Amendment) Act, apart from rendering them to he discriminatory; (b) the rule 6-B, prior to its amendment in 1986 renders irrelevant the books of account maintained by an assessee as well as the actual expenditure incurred in respect of works-labour and other charges and this has the pernicious consequence of including as part of the taxable turnover amounts on which no tax could be levied even after the Constitution (Forty-sixth Amendment) Act; (c) the Table appended to rule 6-B deprives the assessing authority from exercising quasi-judicial powers by imposing a ceiling or an outer limit in providing for or allowing deductions permissible towards works-labour and other charges and consequently is arbitrary and unreasonable; (d) the absence of the provisions like the proviso introduced to clause (b) of rule 6-B is discriminatory and arbitrary. Clause (b) of rule 6-B suffers the vice of under-classification in that though in the Fourth Schedule, about 20 items of various categories of contracts are illustrated, the Table appended to clause (b) of rule 6-B provides for a different type of classification with only 5 items and the 6th item being the residuary item. That apart, it is contended that the rules are silent and do not provide for any guidelines as to how to solve a problem when a particular contract falls under more than one item as illustrated in the Table.
30. On a careful consideration of the submissions made for the petitioners, we are of the view that the impugned rules suffer from serious infirmities, considerably affecting the legality and constitutional validity of the same, at least on some of the grounds raised though not on all such grounds. The plea of challenge on the ground that clause (h) of rule 6-B in so far as it provides for levying tax on the turnover relating to transfer of property in goods involved in the execution of the works contract in some other form exceeds the scope of the levy under the charging section does not merit countenance in view of the conclusions rendered by us supra on this issue. Equally untenable, in our view, are the contentions based on the so-called under-classifications, the alleged invalidity in fixing the ceiling of percentage for deduction in respect of works-labour and other charges and the alleged absence of guidelines when a particular contract may be construed to fall under more than one of the illustrated items in the Table appended to clause (b) of rule 6-B of the Rules. The apex Court had an occasion to consider the legality and propriety of fixing a percentage for deduction, on account of the labour and other charges in the second Builders Association of India case [1993] 88 STC 248 supra; (1992) 2 MTCR 542 which arose under the Karnataka Sales Tax Act. While repelling the challenge in this regard, the apex Court held that charge for labour and services cannot be uniform for all types of works contract and they would vary with the nature of the contract and services, and consequently, it is permissible for the rule-making authority to categorise all works contracts into different categories and prescribe a different percentage of the value of the contract for the purpose of deduction of amounts towards labour charges and other charges. There is also no merit, in our view, in the plea that the rule-making authority himself can make as many classifications as there were categories enumerated in the Fourth Schedule to the Act, while providing for deduction for labour and other like charges. The classification for the purposes of fixing the rate of taxation and the classification for fixing the notional percentage for deduction towards labour and other like charges, need not necessarily be one and the same since they have distinct and different purposes to be served, and aims and objects to be achieved, and that by itself provides sufficient scope for different kinds and nature of classification for different purposes. Equally without substance is the plea that the fixation of the percentage for deduction with a limit or ceiling has the consequence of interfering with the exercise of quasi-judicial powers by the assessing officers concerned. Whatever may be the position, prior to December 15, 1986, at least after the substitution of clause (b) of rule 6-B of the Rules with the proviso appended thereto, the need for applying the Table appended to clause (b) arose only in cases where the labour and other charges could not be determined from the accounts maintained or where such charges as shown in the accounts are unreasonably high, considering the nature of the contract, and not in every other case. In our view, the provisions made in the rules cannot be said to suffer from any merely on account of a national fixing so long as it is found to be reasonable. Except contending that the percentage fixed in the rules does not have any basis on the facts obtained on any research for investigation, on concrete material whatsoever has been produced before this Court to come to a conclusion that the percentages fixed are so arbitrary or demonsrably unreasonable or illogical, warranting our interference on that account, in these proceedings under article 226 of the Constitution of India chat apart, it is by now a well-accepted proposition of law, often reiterated by courts including the apex Court that a very wide latitude is available to the Legislature in the matter of classification of Objects, person and things for purpose of taxation and it needs to be shown in the particularly, having regard to the complexities involved in the formulation of a taxation policy. Consequently, the plea of alleged discrimination has no merit and it has not been also substantiated before us with any definite or concrete materials, warranting our interference on that ground.
31. The other grounds of challenge to the impugned rules, in our view, are substantial and merit acceptance. Even at the outset, it should be noticed that the rules as framed with effect from October 1, 1984 and in force till December 14, 1986, provide for an invariable and flat rate deduction towards labour and other charges, not involving any transfer of property in goods incurred in connection with the execution of the contract, irrespective of the fact whether the accounts maintained by an assessee reflects the correct position and gives sufficient and proper details relating to the actual expenditure so incurred in that regard. This method of standard and uniform deduction de hors the accounts of an assessee or the actual materials available in a case disclosing the actual expenditure incurred has, in our view, a vicious and vitiating effect of bringing into the nets of taxation that part of the turnover which is shown in accounts as obviously referable and to have been incurred towards labour and other charges. On this ground alone, clause (b) of rule 6-B as it existed between October 1, 1984 and December 14, 1986, is rendered illegal.
32. The impugned rules 6-A and 6-B, in our view, are liable to be struck down on the very reasoning and grounds on which the apex Court had to strike down the relevant provisions, levying tax on works contract in the Rajasthan Sales Tax Act in Gannon Dunkerley's case [1993] 88 STC 204 supra; (1992) 2 MTCR 474. We have already referred to in detail the principles laid down by the apex Court in the Rajasthan case and it needs no repetition. Once over again the apex Court has declared in unmistakable terms as to how a law enacted by a State Legislature should be even after the Constitution 46th Amendment, in the following terms :
"It must, therefore, be held that while enacting a law imposing a tax on sale or purchase of goods under entry 54 of the State List read with sub-clause (b) of clause (29-A) of article 366 of the Constitution, it is not permissible for the State Legislature to make a law imposing tax on such a deemed sale which constitutes a sale in the course of inter-State trade or commerce under section 3 of the Central Sales Tax Act or an outside sale under section 4 of the Central Sales Tax Act or sale in the course of import or export under section 5 of the Central Sales Tax Act. So also it is not permissible for the State Legislature to impose a tax on goods declared to be of special importance in inter-State trade or commerce under section 14 of the Central Sales Tax Act except in accordance with the restrictions and conditions contained in section 15 of the Central Sales Tax Act."
It has once again been observed by the apex Court as hereunder :
"The State Legislature cannot so frame its law as to convert an outside sale in the course of import and export into a sale inside the State. The question whether a sale is an outside sale or a sale inside the State or whether it is a sale in the course of import or export will have to be determined in accordance with the principles contained in sections 4 and 5 of the Central Sales Tax Act and the State Legislature while enacting the sales tax legislation for the State cannot make a departure from those principles."
The eight principles are the criteria and norms which every State legislation has to conform as per the decision of the apex Court which has been already adverted to by us supra. In addition thereto, we have also referred to at considerable length the particular reasons assigned by the apex Court while striking down section 5(3) of the Rajasthan Sales Tax Act and rule 29(2) of the Rules made thereunder. The impugned rules 6-A and 6-B of the Rules, in our view, do not pass the above vital and essential test and the basic requirements laid down by the ratio of the decision of the apex Court in Gannon Dunkerley's case [1993] 88 STC 204 supra; (1992) 2 MTCR 474. The impugned rules are squarely opposed to the ratio of the said decision and particularly the ratio laid down in conclusion Nos. 1, 2, 3, 6 and 7 of the decision in Gannon Dunkerley's case [1993] 88 STC 204 supra; (1992) 2 MTCR 474 and also reiterated by the apex Court in the second Builders Association of India case [1993] 88 STC 248 (SC); (1992) 2 MTCR 542. In the light of the above, we see no merit in the stand taken for the respondents relying upon the decisions (A. V. Fernandez v. State of Kerala) and [1969] 23 STC 447 (Mad.) (Kumarasamy Pathar v. State of Madras) that the omission to exclude certain items relating to non-taxable turnovers is of no consequence and does not affect or undermine the validity of the impugned proceedings. Consequently, applying the ratio of the above decisions, we hereby strike down rules 6-A and 6-B as illegal and unconstitutional, besides being violative of sections 3 to 6, 14 and 15 of the Central Sales Tax Act and consequently unenforceable.
33. The provisions of section 3-B merely levied the tax on the transfer of property in goods involved in the execution of the works contract. The assessment, determination of liability and recovery had to be under the provisions of the Act read with the relevant rules. In exercise of rule-making power conferred under section 53(1) and (2)(bb), rules 6-A and 6-B came to be made and published. The rules miserably failed to provide the procedure and principles for effectively determining the taxable turnover, after excluding the items of turnover relating to such works contract which could not be subjected to levy of tax by the State in exercise of its power of legislation under entry 64 of the State List. Rule 6 by its own operation had no application in the matter of determination of liability under section 3-B since it has been made applicable only in respect of determining the taxable turnover of a dealer under section 3, 3-A, 4 or 5. Consequently, with our decision above striking down rules 6-A and 6-B of the Rules, there is no proper machinery provisions to determine the taxable turnover for purposes of section 3-B. The provisions of section 3-B, therefore, in the absence of the necessary rules for enforcing the same and determining the taxable turnover for the purposes of section 3-B is rendered dormant, ineffective and unenforceable. Such would be the position till sufficient provisions are made either in the Act itself or in the rules by virtue of the rule-making power to ignite, activate and give life and force to section 3-B of the Act.
34. The learned counsel appearing for some of the writ petitioners have made submissions contending that the nature of the contracts undertaken by the respective petitioners involves pure and simpliciter work and labour with no scope for any transfer of property in goods involved in the execution of the works contract concerned by processing of goods of the customers by using consumable chemicals or colours, etc. We are of the view that the decision of the apex Court reported in [1993] 88 STC 204 supra; (1992) 2 MTCR 474 (Gannon Dunkerley & Co. v. State of Rajasthan) has already declared the position of law in this regard, and the question as to whether in an individual case of an assessee/dealer the claims made conform to the principles laid down by the apex Court is purely matter pertaining to the area of assessment of a dealer under the Act and such exercise cannot and need not be undertaken for adjudication in these proceedings at this stage. Suffice it to clarify the position that if in any individual case, it could he proved before the authorities that their contracts are such which do not involve any transfer of property in goods and on the other hand are pure and simpliciter works contract involving merely labour and services in terms of the law declared by the apex Court, they would be entitled to the relief and such rights could he vindicated before the assessing officers or appellate authorities and ultimately before this Court in terms of the remedies provided under the Tamil Nadu General Sales Tax Act, 1959 and the Rules made thereunder.
35. In the light of the above and our conclusions rendered on the legality and constitutional validity of the provisions of the Act as well as rules 6-A and 6-B, we have to make it clear that in cases where relief has been claimed against individual orders of assessments passed on the basis of rules 6-A and 6-B which we have struck down, they shall equally stand set aside and notices, if any, issued on the basis of the rules held bad by us and further action thereof cannot he pursued.
36. The above direction shall not preclude the respondents from initiating fresh action or pursuing the action already initiated in the light of the law that may be properly made hereafter in terms of the declaration of law by the apex Court in the Rajasthan and Karnataka cases and by us in this order, enabling the authorities under the Act to proceed further in the matter in accordance with law.
37. We are not expressing any view on the liability or otherwise of the assessees/dealer under the Act, de hors the impugned rules or under the impugned rules and section 3-B of the Act, since no such issue or point has been raised or argued before us at the time of hearing of these writ petitions.
38. For all the reasons stated above, we summarise our conclusions and findings as follows :
(a) The provisions of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984) in so far as it amended section 2(g), G), (n), (r) and (u) pursuant to the Constitution (Forty-sixth Amendment) Act, 1982 are intra vines and valid and quite in accordance with law;
(b) The provisions of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986) are intra vires and valid and quite in accordance with law;
(c) The provisions of rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, are unconstitutional, illegal and are struck down as unenforceable in law; consequently any orders passed and any action initiated on the basis of such rules shall also be invalid in law;
(d) The liability or otherwise of the dealers/assessees under the Tamil Nadu General Sales Tax Act, 1959 and the Rules made thereunder, de hors our decision striking down rules 6-A and 6-B shall not stand in any manner affected or undermined by this decision;
(e) The State shall be at liberty to bring to life, force and effect section 3-B by appropriate legislation, including subordinate legislation in accordance with the principles and dicta laid down by the Supreme Court of India in the decisions in (i) Gannon Dunkerley and Co. v. State of Rajasthan [1993] 88 STC 204 supra; (1992) 2 MTCR 474 and (ii) Builders Association of India v. Stage of Karnataka [1993] 88 STC 248 supra; (1992) 2 MTCR 542.
(f) Nothing in this order shall affect the right of the Revenue to initiate or continue or pursue and proceed to decide or pass orders or assess and recover the tax due as and when the law is validly made and in accordance with law; and
(g) These writ petitions, shall stand ordered and finally disposed of in the above terms.
There will be no order as to costs.
39. Writ petition disposed of accordingly.