Andhra HC (Pre-Telangana)
Media Communications vs Government Of Andhra Pradesh on 6 December, 1996
Equivalent citations: [1997]105STC227(AP)
Author: T.N.C. Rangarajan
Bench: T.N.C Rangarajan
JUDGMENT T.N.C. Rangarajan, J.
1. This batch of writ petitions challenges the constitutional validity of sections 5F, 5G and 5H of the Andhra Pradesh General Sales Tax Act, 1957 and the Rules thereunder.
History of taxation of works contracts :
2. Entry No. 54 of List II of the Seventh Schedule of the Constitution of India reads as follows :
"Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I. Entry 92-A of List I is : Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce."
3. Thus, the State was enabled to tax the sale where the taxable event occurs inside the State whereas the Centre was entitled to tax the sale or purchase if it is in the course of inter-State trade or commerce. The question arose as to whether works contract could be taxed by the State by enlarging the definition of "sale" in the sales tax legislation. The Supreme Court held in the case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. , that a works contract not being a sale within the meaning of the Sale of Goods Act, 1930, there is no sale or transfer of property in the goods as such, and therefore, a works contract is not exigible to sales tax. When the State Legislature expanded the definition of "sales" and declared that works contract shall be deemed to be sales, the Supreme Court held that the State Legislature has no power to tax transactions which are not sales merely by enacting that they shall be deemed sales. Consequently, the Constitution was amended by the 46th Amendment in 1982 by which clause (29A) was inserted in article 366, i.e., "'tax on the sale or purchase of goods includes' -
(a) .............
(b) 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."
4. Reading this definition of a tax on the sale or purchase of goods along with entry No. 54 in List II of the Seventh Schedule, the Constitution has specifically made it competent for the State to levy a tax on works contract and for the Centre to levy such tax in respect of such works contracts involving sale in the course of inter-State trade or commerce. The legislative power of the State flowing from this amended definition came up for consideration before the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan . The court laid down the following parameters for the exercise of this power :
"(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(29A)(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(29A)(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(29A)(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 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(29A)(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 works contract would constitute the measure for impositions 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(29A)(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 deduction 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 he 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 an services for various types of works contract.
(8) While fixing the rate of tax it is permissible of fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may the different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article."
5. The Andhra Pradesh General Sates Tax Act, 1957, was first amended in 1985 by Act No. 18 of 1985 with effect from July 1, 1985 by introducing an explanation to the definition of "sale" in section 2(n) :
"Explanation VI. - Whenever any goods are supplied or used in the execution of a works contract, there shall be deemed to be a transfer of property in such goods, whether or not the value of the goods so supplied or used in the course of execution of such works contract is shown separately and whether or not the value of such goods or material can be separated from the contract for the service and the work done."
6. The impact of this amendment was that the charging section 5 of the Act automatically applied to the turnover including the value of the goods supplied or used in works contract. By the present amendments made by Andhra Pradesh Act No. 22 of 1995 with effect from April 1, 1995, sections 5F, 5G and 5H were inserted. Section 5F provided for composition of such tax and 5H provided for deduction of tax at source.
Contentions of the petitioners :
7. Sri Ratnakar appearing for one of the petitioners submitted that the pattern of taxation under the A.P. General Sales Tax Act was a single point levy, and therefore, the provisions of section 5F imposing a tax on works contract amounted to an internal contradiction as it led to a double taxation of goods which had already suffered tax. He argued that the same goods which will be exempted in the hands of the second seller, would however, be taxed if it is used in a works contract and this amounted to discrimination because there was no rational basis for selecting works contracts for the additional levy. He submitted that this result could have been avoided if there was no non obstante clause in the section. He relied on the decision of the Supreme Court in the case of Union of India v. Sanyasi Rao and submitted that the non obstante clause should be struck down as unreasonable. He also pointed out that there was no such non obstante clause in section 5E which provide for tax on transfer of right to use any goods and this Court had held in the case of I.T.C. Classic Finance and Services v. Commissioner of Commercial Taxes [1995] 97 STC 330 that when the basic norm regulating the tax structure under the Act was tax at a single point levy of tax on a second sale in respect of the goods which have already suffered tax is impermissible and therefore, a deemed sale likewise cannot be subjected to tax if the goods relatable to such deemed sale have already suffered tax. He submitted, on this analogy, that the same goods cannot be subjected to tax twice once as a sale and secondly as a deemed sale in the face of the legislative intent of single point taxation. He relied on the decision of the Supreme Court in the case of Union of India v. Sanyasi Rao , to argue that article 14 of the Constitution of India applies to fiscal legislation also.
8. Sri S. Krishna Murthy appearing for certain other petitioners submitted that a deemed sale must be treated as a regular sale and accordingly any exemptions available to the regular sale, cannot be denied to the deemed sale. He further submitted that the second proviso which referred to the declared goods stipulated a condition that such goods should be transferred in the same form thereby contravening the protection granted to the declared goods and to that extent the proviso was invalid. Again with reference to the third proviso of section 5F, he submitted that by excluding the goods purchased from other States and used in the execution of works contract, transactions really in the nature of inter-State trade would also be subject to additional tax. Relying on the decision of the Supreme Court in the case of Sahney Steel and Press Works Ltd. v. Commercial Tax Officer , he submitted that a situation where the goods are purchased in another State for the purpose of fulfilling a contract, would still be an inter-State contract even though a branch of the assessee took delivery instead of the customer and this intervention of the branch which is for the purpose of executing the works contract would not take it out of the scope of inter-State sales. He further submitted that as far as section 5G was concerned, the terms of the composition appear to be more onerous than the tax itself as it referred to the tax on the total turnover which would include all the transactions of the assessee even other than works contracts if we go by the definition of "total turnover" in section 2(r). He pointed out that a similar section had been struck down in Builders Association of India v. State of Kerala [1995] 98 STC 490 (Ker). He also argued that the Rules went beyond the scope of the section particularly with reference to section 5H and consequently, a provision which enables the collection of tax more than the chargeable amount, cannot be sustained.
9. Sri Dilleswara Rao submitted that the reference to a "registered dealer" in the fourth proviso to section 5F cast an unreasonable burden on the assessee as he was required to purchase only from the registered dealers in order to avoid the tax in respect of sub-contracts. He also submitted that while the goods could be classified there cannot be differential rate according to the dealers and relied on the decision in Jamshedpur Contractor's to the dealers and relied on the decision in Jamshedpur Contractors' Association v. State of Bihar [1989] 75 STC 132 (Pat.).
10. Sri S. R. Ashok submitted that the provisions of section 5F treated the use of the goods in the works contract as a sale whereas under the Rules, the purchase for use was itself taken as a basis for collection of tax at source where the contract extended beyond one year. He submitted that there was no machinery to ascertain the actual turnover that will be liable to tax by excluding the declared goods, inter-State sales and other exempted sales, and therefore, the provisions of section 5H are liable to be struck down as unworkable.
Contentions of the Revenue :
11. The learned Government Pleader for Commercial Taxes submitted that the provisions have been incorporated in the Act strictly following the observations of the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204. The anomalies were removed by making suitable amendments to the section by latest Amendment Act No. 27 of 1996 which came into effect from October 1, 1996 as well as a notification in G.O. Ms. No. 788 dated September 21, 1996 by which the Rules were also amended. He submitted that though there was an earlier intention to subject all goods to single point tax there was already a departure by the introduction of Sixth Schedule by Act No. 22 of 1995 by which a value added tax was introduced at every point of sale, and therefore, an additional tax under section 5F could not be considered to be contradicting a single point system. He also argued that the Legislature has wide amplitude in the matter of classification and picking and choosing not only the taxable events but also the dealers for differential treatment. He submitted that section 5F was a separate charging section and the provisos protected those those goods which are otherwise exempt from tax. He pointed out that similar sections have been upheld in Tirath Ram Ahuja Limited v. State of Haryana [1991] 83 STC 523 (P & H) and an unreported decision [KEC International Limited Company v. State of Karnataka (W.P. Nos. 16470 and 19493 of 1992 decided on 17th December, 1993 - Karnataka High Court)] referred to in Builders Association of India v. State of Kerala [1995] 98 STC 490 at 500 (Ker). He submitted that if at all there was any difficulty in the implementation of sections, that cannot be a ground for considering them to be constitutionally invalid as such difficulties could be removed by appropriate notifications.
Validity of section 5F :
12. This section reads as under :
"Levy of tax on transfer of property in goods involved in the execution of works contract. - Notwithstanding anything contained in section 5 or section 6, every dealer shall pay a tax under this Act for each year, on his turnover of transfer of property in goods whether as goods or in some other form, involved in the execution of works contract, at the rate of six paise on every rupee of his turnover :
Provided that tax shall be paid at the rate of four paise on every rupee of his turnover pertaining to declared goods, if the goods have not suffered tax earlier, and no tax shall be payable on the turnover pertaining to declared goods, if such goods have suffered tax earlier under this Act and are transferred from the contractor to the contractee in the same form in which they were purchases by the contractor :
Provided further that no tax shall be levied on the turnover of transfer of property in goods, specified in the Fourth Schedule to the Act, involved in the execution of works contract, if such goods are transferred from the contractor to the contractee in the same form in which they were purchased by the contractor :
Provided also that no such tax shall be leviable on the turnover of transfer of property in goods whether as goods or in some other form involved in the execution of works contract, if such transfer from the contractor to the contractee constitutes a sale in the course of inter-State trade or commerce under section 3 or an outside the State sale under section 4, or a sale in the course of import or export under section 5 of the Central Sales Tax Act, 1956 but does not include the goods either obtained or purchased from other States and used in the execution of works contract :
Provided also that no tax shall be payable under this section on the turnover relating to the amounts paid to a sub-contractor as consideration for the execution of works contract whether wholly or partly subject to the production of proof that such sub-contractor is a registered dealer liable to tax under the Act and that the turnover of such amount is included in the return of turnover filed by such sub-contractor."
13. This section imposes a uniform levy on all goods involved in the execution of works contract.
14. This section is attacked on three grounds. The first is that it imposes a tax on goods which have already suffered tax and it is incongruous in a sales tax system of single point taxation. It is true that in the case of I.T.C. Classic Finance and Services [1995] 97 STC 330 a Bench of which one of us (M. N. Rao, J.) was a party, noted, in the context of section 5E which imposes a tax on the right to use the goods as a deemed sale, that the intention of the Legislature in enacting the A.P. General Sales Tax Act was to subject all goods to single point tax, and therefore, no tax can be levied under section 5E on the deemed sales if those goods have already suffered tax in the State. It must be remembered that at that time, the objects and reasons of the Amending Act No. 4 of 1989 stated that the intention was to replace the existing multi-point levy by a single point levy and further section 5E did not contain a non obstante clause. With reference to works contract also prior to the introduction of section 5F, goods supplied in works contract were deemed to be transferred under Explanation VI of section 2(n), and therefore, subject to tax under section 5 like any other sales. The situation was quite similar to that adumbrated by this Court in the I.T.C. Classic's case [1995] 97 STC 330. The goods supplied in works contract also, though assessable as deemed sales, were subjected to the same charge as regular sales and could be taxed only at the point of sale or purchase specified in the Schedule. It is also to be noted that subsequent to the amending Act of 1989 referred to above, the Act underwent a further change by which the Sixth Schedule was added by Act No. 22 of 1995 (by which section 5F was also introduced) providing for a value added tax at every successive point of sale. This amending Act has not given any objects and reasons. Being a fiscal statute it must be presumed that the only object of this amending Act was to raise revenues. Consequently, we find that section 5F was a conscious attempt to increase the revenue by levying a separate tax on goods involved in works contract. The contention that the levy of such tax is contrary to the single point system of tax cannot be accepted because the Legislature has intentionally departed from a single point system. It must be noted a non obstante clause was added to the beginning of section 5E also by the same amending Act.
15. It was argued that if the non obstante clause leads to discrimination, the section can be read down to remove such discrimination and reliance was placed on the Supreme Court decision in Sanyasi Rao's case . In that case, the Supreme Court found that, while enacting section 44AC in the Income-tax Act, 1961, to collect the tax at the inception, the facility of determining the tax, available to the other persons carrying on the business in the same commodity, could not be denied. That was the reason why in spite of non obstante clause, the Supreme Court held that the reliefs available under sections 28 to 43C to the particular business should also be extended other carrying on the same business even though they are liable to a presumptive tax. In the present context, the petitioners are not able to show how any discrimination results from a separate charge on the goods involved in the works contact. Even though the goods involved in the works contract may be the same as those sold by the regular dealers, the Legislature has ample power to classify the same with reference to the dealers and treat them differently. Similarly, in the decision of the Supreme Court in K. T. Moopil Nair v. State of Kerala AIR [96] SC 552 Travancore-Cochin Land Tax Act was struck down because it was confiscatory and discriminatory as the incidence of taxation resulted in inequality among holders of the same kind of the property. The present case does not fall within that situation because works contracts are a class by themselves and the imposition of different rate of tax for goods involved in works contract cannot be considered to be discriminatory at all.
16. The second line of attack was that the goods which have already suffered tax, would again be liable to tax when involved in works contract and such double taxation is arbitrary. The question of arbitrariness cannot arise in the case of legislation particularly in fiscal statutes. As observed by the Supreme Court in Avinder Singh v. State of Punjab , there is nothing in article 265 from which one can spin out the constitutional vice called double taxation. If on the same subject-matter the Legislature chooses to levy tax twice over there is not inherent invalidity in the fiscal adventure. On behalf of the petitioners, it was pointed out that in the case of rubber used for retreading tyres, for instance, the local rate of tax was 16 per cent while the Central sales tax was 4 per cent if there should be an additional 4 per cent tax on the goods involved in the works contract, there will be a preference to get the rubber from outside the State thereby reducing the incidence of tax and from the economic point of view, a separate charge under section 5F would thus be counter productive. We are of the opinion that the constitutional validity of the section cannot be tested with reference to the impact of the taxation. It is for the Government to consider whether it is worth retaining the section if in fact it drove the business out of the State. It is well-settled that a greater latitude is permitted in the matter of classification and the State is allowed to pick and choose objects, persons, methods and even the rates for taxation (see Khyerbari Tea Co. Ltd. v. State of Assam . Since in the present case the goods involved in the works contract have been treated as a separate class for additional levy, we find no discrimination or improper classification.
17. The third line of attack was that all the goods supplied in works contract are taxed at uniform rate whereas in the Schedule given in the Sates Tax Act, all those goods are taxable at a different rate. As already noted, the Supreme Court has held in Gannon Dunkerley & Co. , that 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 goods as a separate article. We, therefore, hold that the main provisions of section 5F is not discriminatory and is valid.
Validity of the first proviso to section 5F :
18. This proviso stipulates that the rate of tax in respect of the declared goods will be limited to 4 per cent if it has not suffered tax earlier. This has reference to section 15 of the Central Sales Tax Act which provides that the tax on the declared goods shall not exceed 4 per cent and such tax shall not be levied at more than one stage. The proviso is actually intended to give effect to the restriction placed by section 15 of the Central Sales Tax Act. However, it was contended that in the last portion of this proviso it was stipulated that such goods must be transferred in the same form in which they were purchased and by reason of this stipulation it may be possible for the State to tax the declared goods on the ground that there was a transformation during the process of carrying out the works contract. Our attention was drawn to the decision of the Supreme Court in Telangana Steel Industries v. State of Andhra Pradesh [1994] 93 STC 187; (1994) 18 APSTJ 163, where it was held that the goods of one sub-item should be taken as one taxable commodity and it was suggested that if the declared goods falling under one sub-item were to change its from to another form falling within another sub-item, in the course of execution of works contract, it may be exigible to tax in spit of the protection afforded by section 15 of the Central Sales Tax Act. The wording of the section does appear to give room for this apprehension. The main part of section 5F itself refers to "transfer of property in goods whether as goods or in some other form" which is a repetition of the definition in article 366(29A), removing the parenthesis. It would, in fact, be identical if a comma is put between the words "goods" and "whether", it will make a reading of this section more sensible and in complete consonance with the constitutional definition and avoid any ambiguity. The definition of "goods" in section 2(h) also includes all materials, articles and commodities [including the goods (as goods or some other form) involved in the execution of a works contract or those goods used or to be used in the construction, fitting out, improvement or repair of movable or immovable property]. Explanation VI to the definition of the "sale" deems the use of the goods in the execution of a works contract as transfer of property in such goods. Reading these definitions together, it cannot be disputed that any transformation of the goods from one from to another in the execution of the contract, will not amount to the creation of a different or distinct commercial commodity exigible to tax once again. The learned counsel for the petitioners submitted that there would often be cases where a particular commodity is purchased and fabricated into another commodity by a sub-contractor and then fitted into the property of the customer in execution of the works contract and such transformation may be sought to be taxed on the ground that it was not transferred in the same form. We find that the use of expression "in the same form" was contrary to the intention of section 5F to tax the goods utilised in the works contract in whatever form it may be transformed during the execution of the works contract. We, therefore, hold in the first proviso of section 5F, the words "in the same form" go beyond the charging section in the main part of section 5F and thereby offends the provisions of section 15 of the Central Sales Tax Act also. We, therefore, strike down the words "in the same form in which they were purchased by the contractor" to this proviso as void.
Validity of the second proviso to section 5F :
19. This proviso refers to the goods which are specified in the Fourth Schedule. Those are the goods which are exempted under section 8 of the Act. Here again, there is a stipulation that the goods should be transferred in the same form for enjoying the exemption granted under section 8. The observations which have been made with reference to the first proviso with reference to the stipulation that the goods must be in the same form equally apply to this proviso because the main charging portion of the section itself allows the transfer of goods as goods or in some other form and the proviso cannot be in contradiction of that situation. The transfer of goods as goods or in some other form in the execution of the works contract is treated as a single taxable event, and if the goods involved in the event are exempted, they should continue to enjoy the exemption as long as they are part of the same taxable event. We are, therefore, of the opinion that the phrase "in the same form in which they were purchased by the contractor" in the second proviso also is to be declared as void and struck down.
Validity of the third proviso :
20. This proviso refers to inter-State sales and import and export sales which are the subject of the Central Sales Tax Act, and therefore, excludes them from the levy under section 5F. This is in consonance with the provisions of the section 38 of the Act which is as follows :
"38. Act not to apply to sales or purchases outside the State, in the course of import or export, etc. - Nothing contained in this Act shall be deemed to impose or authorise the imposition of a tax on the sale or purchase of any goods, where such sale or purchase takes place, -
(i) outside the State; or
(ii) in the course of the import of the goods into, or export of the goods out of the territory of India; or
(iii) in the course of inter-State trade or commerce."
21. However, it is contended that the last part of this proviso which states "but does not include the goods either obtained or purchased from other States and used in the execution of works contract", takes away the protection afforded by section 38. No doubt, if a contractor had purchased certain goods in another State and transfers it to the State of Andhra Pradesh for executing a contract, there will be two taxable events, one with reference to his purchase outside the State and the second with reference to the deemed sale under section 5F inside the State. Since the second deemed sale in that situation is not in the course of inter-State as defined in the Central Sales Tax Act, it will not have the protection of section 38. But it was submitted that if the purchases were made specifically for the execution of the contract, then the intervention of the branch office of a contractor in the movement of the goods from outside the State, for the execution of the contract inside the State should not make it any the less an inter-State sale. Reliance was placed in a Supreme Court case in Sahney Steel and Press Works Ltd. . In that case, the company manufactured the goods according to the designs and specifications of the customers at its factory at Hyderabad and despatched them to the respective branches by way of transfer of stocks. The goods were taken delivery by the branches in the other States and ultimately delivered to the customers. The company was assessed in the other State where the goods were delivered as local sales but the State of Andhra Pradesh also claimed that the transfer of stocks from Hyderabad to the branch of the company outside the State cannot be regarded as a branch transfer but as a transfer in the course of inter-State sales and the goods must be taxed in Andhra Pradesh and not in the other State as local sale. The Supreme Court accepted that contention and held that movement of the goods from the Registered Office at Hyderabad was occasioned by the order placed by the customer and therefore, from the beginning from Hyderabad all the way until delivery to the customer it was an inter-State movement even though the branch office had taken delivery in the middle, as the branch office cannot be regarded as a separate juridical personality, with the consequence that there could not be a disruption in the movement of the goods from the company at Hyderabad to the customer outside particularly when the goods were manufactured to the specifications of the customer. In view of this exposition of the law by the Supreme Court, such transaction cannot be exluceed from the protection given by section 38. Therefore, to the extent that the last portion of this proviso is in contradiction to the principle laid down by the Supreme Court, we have to construe the words "but does not include the goods either obtained or purchased from other States and used in the execution of works contract" as not applicable to such transactions which are assessed to the Central Sales Tax Act in the other States and in respect of which "C" forms have been issued by the contractee.
Validity of the last proviso :
22. This proviso allows the deduction of the turnover of the sub-contracts from the turnover of the contractor liable for tax under section 5F. The objection of the petitioners is to the last part of this proviso which requires proof that the sub-contractor is a registered dealer and that the turnover of such amount is included in his return. It was submitted that this burden was onerous and also put unnecessary fetters on the ability of the contractor to deal with the unregistered sub-contractors. The first part of this objection is misconceived because under section 12(2)(b) every dealer carrying on or executing any works contract shall get himself registered irrespective of the quantum of his turnover. It follows that every sub-contractor has to be a registered dealer. With reference to the second part of the objection, reliance was placed on the decision of this Court in Venkata Subbaiah & Co. v. State of A.P. [1981] 47 STC 204, that the goods related to levy of tax on the last purchaser and it was observed that in order to prove that the assessee was not the last purchaser all that was necessary to be shown was that he sold the goods to another dealer and it was not necessary for him to show that the purchaser was either a registered dealer or that he suffered tax. That position was not disputed by the learned Government Pleader in that case. In the present case also once it is found that a sub-contractor is compulsorily registrable, we fail to see any further purpose in requiring the contractor to prove that the turnover of the sub-contractor was included in the return of turnover filed by the sub-contractor. That information will be only with the sub-contractor and it could also be easily verified from the records of the taxing authority since the sub-contractor is registered and his registration number will be known. To require that the contractor should also show that the sub-contractor's turnover was returned by the sub-contractor appears to be an unreasonable burden on the contractor. We are, therefore, of the opinion that the words "and that the turnover of such amount is included in the return of turnover filed by the sub-contractor" must be struck down as unreasonable.
Validity of section 5G :
23. This section as originally inserted by Andhra Pradesh Act 22 of 1995 reads as follows :
"5G. Composition of tax payable under section 5F. - (1) Subject to such conditions and in such circumstances as may be prescribed, the assessing authority of the area may, if a dealer, liable to pay tax under section 5F, so elects, accept in lieu of the amount of tax payable by him under the said section during the year, by way of composition an amount at the rate of four per cent of his total turnover :
Provided that no tax shall be payable under this section on the turnover relating to the amounts paid to a sub-contractor as consideration for the execution of works contract whether wholly or partly subject to the production of proof that such sub-contractor is a registered dealer liable to tax under the Act and that the turnover of such amounts is included in the return of turnover filed by such sub-contractor.
(2) Every dealer who elects to pay tax under sub-section (1) shall apply in the prescribed form to the assessing authority to be permitted to pay the amount of tax under sub-section (1) and, on being so permitted, in the prescribed form, he shall pay tax as specified under sections 13 and 15 of the Act."
24. We may at once say that the words "and that the turnover of such amount is included in the return of turnover filed by such sub-contractor" must be struck down as unreasonable just as in the case of the last proviso to section 5F. Apart from this, the contention of the petitioners is that the expression "total turnover" in sub-State (1) would take all other sales because the total turnover has been defined in section 2(r) as follows :
"Total turnover. - means the aggregate turnover in all good of a dealer at all places of business in the State whether or not the whole or any portion of such turnover is liable to tax (including the turnover of purchases or sales in the course of inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into the territory of India)."
25. It was submitted that this definition includes even the turnover not liable to tax and consequently the provision for composition imposes a tax on goods which are not liable to tax and hence exceeds the scope of the charging section itself. However, the definition section starts with the words "in this Act, unless the context otherwise requires", the words shall have the meaning given in the sub-sections. It is obvious that the expression "total turnover" in section 5G(1) cannot, in the context of the liability under section 5G, refer to the total turnover as defined in section 2(r). On the contrary, it must relate to section 5F which refers to the payment of tax "on his turnover of transfer of property in goods whether as goods or in some other form involved in the execution of works contract", that is to say it must refer only to the turnover of the works contract itself. The Legislature itself has clarified the issue by substituting the section by the latest Amendment Act 27 of 1996 in the following terms :
"5G(1). Subject to such conditions and in such circumstances as may be prescribed if a dealer, who executes any works contract other than the category of contacts notified by the Government under sub-section (2), so opts, the assessing authority of the area may accept, in lieu of the amount of tax payable by him under the Act during the year, by way of composition, an amount at the rate of two paise on every rupee of the total amount paid or payable to the dealer towards execution of the works contract :
Provided that no tax shall be payable under this section on the turnover relating to the amounts paid to a sub-contractor as consideration for the execution of the works contract whether wholly or partly subject to the production of proof that such sub-contractor is a registered dealer liable to tax under the Act and that the turnover of such amounts is included in the return of the turnover filed by such sub-contractor.
(2) The Government may notify from time to time the category of works contract for which the scheme of payment of tax by composition under sub-section (1) does not apply.
(3) Every dealer who elects to pay tax under sub-section (1) shall apply in the prescribed form to the assessing authority to be permitted to pay the amount of tax under sub-section (1), and on being so permitted, in the prescribed form, he shall pay tax as specified under sections 13 and 15 of the Act."
26. In view of this modification of the section, it is very clear that the composition is with reference to the prescribed tax on the amount payable in respect of works contract itself thus clarifying the meaning of the total turnover referred to in the section earlier. We also note that the proviso which excludes the sub-contract is retained in the same form and consequently our view is that the condition that the turnover of such amount should be included in the return of turnover filed by the sub-contractor is unreasonable and has to be omitted from the section.
27. The earlier sub-section (2) which is now sub-section (3) in section 5G was also attacked on the ground that in spite of the permission to compound the tax, the assessee was required to follow the provisions of sections 13 and 15. Section 13 requires the dealer to submit a return and section 15 provides for a provisional assessment. It was submitted that if the assessee were to file a return under section 13 by which he will be required to given full details of the works contract and the value of the goods involved therein, there would be no sense in compounding the same which is a facility only to avoid the submission of detailed accounts. We are unable to accept this contention because under rule 9, every registered dealer has to file a return in form A showing his estimated total net turnover for the first twelve months of his business. This return does not require any details. It is, thereafter, that he is required to produce his accounts and it is only when he fails to submit his accounts that a best judgment assessment follows under rule 11. If the same pattern is to be followed, it is clear that a dealer who opts for compounding the tax, must file a return in form A showing the amount paid or payable to the dealer towards execution of works contract and make an application for composition. Thereafter, permission is granted in form L1 and accordingly, a provisional assessment will have to be made under rule 10 treating the composition fee as the tax provisionally fixed on the basis of the return and allowing the assessee under rule 13 to pay the same in twelve equal monthly instalments. The relevant rules, therefore, do not require the production of accounts where the assessee opts for composition and hence the contention that sub-clause (3), as it presently stands, requires the production of accounts, is not sound. However, form L1 itself states that "the assessee has shown to the satisfaction of the assessing officer that the turnover return relates to the works contract" which indicates that the assessee will be required to produce proof that the amount due or payable under the works contract is correctly returned by production of some certificate from the contractee.
28. The other argument advanced on behalf of the petitioners is that this section imposes a tax on the entire works contract which includes the cost of labour, and therefore, goes beyond the scope of the charging section 5F. It was pointed out that by G.O. Ms. No. 244, Revenue dated May 17, 1995 sub-rule (4) was inserted in the following terms :
"6(4). Notwithstanding anything contained in sub-rules (1) to (3), the total turnover of a dealer who opts to pay tax under section 5G shall be determined after deducting the amounts specified in clauses (a) to (f).
(a) Labour charges for execution of the works;
(b) Charges for planning, designing and architect's fees;
(c) Cost of establishment of the contractor to the extent it is relatable to supply of labour and services;
(d) Other similar expenses relatable to supply of labour and services;
(e) Profit earned by the contractor to the extent it is relatable to supply of labour and services;
(f) Amounts paid to sub-contractor for the execution of works contract, provided he is a registered dealer and the turnover is included in the return filed by such sub-contractor."
29. Subsequently, this sub-rule was omitted by G.O. Ms. No. 788, Revenue (CT-II), September 21, 1996. The omission of this sub-rule which excluded certain items not liable to tax from the turnover in respect of which compounding was to be made, according to the petitioners clearly indicated that there was an intention to impose the tax, while compounding the same, on components of the amounts payable for works contract which did not involve any transfer of goods. At first sight, this argument is attractive. But it must be remembered that this is a case where an option is given to the assessee not to produce the accounts and pay a lesser rate of tax on the total turnover of an indivisible works contract. In other words, the assessee is allowed to keep back accounts even in a divisible contract so that the assessing officer will have no idea about the components which are taxable and those which are not. If that were the position even in respect of the divisible contracts, all the more reason that in an indivisible contract the assessee withholds the power of the assessing authority to estimate the value of the goods involved in the works contract for the purpose of restricting the tax to that alone. Naturally, therefore, it is the assess who has to consider whether it would be worthwhile for him to pay a lesser rate on the total turnover of the works contract without ascertaining the portion that will be taxable under section 5F at a higher rate. It is only in such cases where the composition is of benefit to the assessee that he would opt for the same. In this situation, there is no question of the statute imposing a tax on non-taxable components of the value of the works contract. It is the assessee who prefers to pay a lesser rate of tax on the total value of the contract and as the assessee derives the benefit from that procedure, he will be estopped from questioning the validity of that composition fee which is paid in lieu of the actual tax payable under section 5F. As regards turnover relating to the sub-contract, sub-section (3) itself provides for excluding the same and in the absence anything in the rule, it will not debar the assessee from excluding the same from the return required to be filed in form A. We are, therefore, of the considered opinion that there is no substance in this attack on the provisions of section 5G exceeding the scope of the charging section.
Validity of section 5H :
30. This section as originally introduced by Act 22 of 1995 reads as follows :
"5H. Deduction of tax at source. - (1) Notwithstanding anything contained in this Act, the Central Government, or the State Government, or an industrial, commercial or trading undertaking of the Central Government or of the State Government or a local authority or a statutory body, shall deduct from out of the amounts payable by them to dealer in respect of works contracts of the works specified in sections 5F and 5G executed for them, an amount calculated at the rate of four per cent of the total turnover.
(2) The tax deducted under sub-section (1) shall be remitted into the Government treasury under the sales tax head of account within seven days from the date of such deduction.
(3) The authority making deduction under sub-section (1) shall furnish to the dealer from whom such deduction is made, a certificate, containing such particulars as may be prescribed.
(4) If any such authority defaults to deduct the tax specified under sub-section (1) or defaults to remit the amount so deducted or any portion thereof as required under sub-section (2), it shall be liable to pay, in addition to the amount so deducted, interest at the rates specified in sub-section (3) of section 16 of the Act on the amount with respect to which the default has taken place from the date of default to the date on which such amount is remitted.
(5) Payment by way of deduction in accordance with sub-section (2) shall be without prejudice to any other mode of recovery of tax due under this Act from the dealer executing the works contract.
(6) Where, tax in respect of works contract is remitted under sub-section (2), the tax payable by the dealer in respect of such works contract shall be reduced by the amount of tax already remitted under the said sub-section :
Provided that the burden of proving that the tax on such works contract has already been remitted and of establishing the exact quantum of tax so remitted shall be on the dealer claiming the reduction."
31. The main thrust of the counsel in this entire batch of case was only with reference to this section. According to them, this provision for deduction of tax at source is very harsh and unreasonable in view of the practice of the Commercial Tax Department itself. It was submitted that if the tax is deducted, even though there is a provision for adjusting it against the final assessment, such a final assessment takes place almost at the end of the period of limitation prescribed, namely, four years and in the event of the works contract not being taxable at all or being taxable at a very nominal amount, a very large amount will become refundable which also may not be given back to the assessee promptly and in any case the assessee will not be compensated for the delayed payment because there is no provision in the Act for payment of interest as in the case of the Income-tax Act. It was submitted that such a deprivation of the funds of the petitioners was not only arbitrary but almost confiscatory, and therefore, this section was inherently vicious. The sting of this section has been partly removed by the substitution of the first two sub-sections the same by the following sub-sections by the amending Act 27 of 1996 :
"5H(1). Notwithstanding anything contained in this Act the Central Government or the State Government or an industrial, commercial or trading undertaking of the Central Government or of the State Government or a local authority or a statutory body, or a company registered under Companies Act, 1956 or any other person which the Government may notify from time to time, shall deduct from out of the amounts payable by them to a dealer in respect of works contract executed for them, an amount calculated at such rate as may be prescribed, but not exceeding three per cent of the total turnover;
(2) The tax deducted under sub-section (1) shall be remitted to Government in such manner and within such time as may be prescribed."
32. It will be noted that earlier the rate of tax was four per cent of the total turnover whereas now it is a rate prescribed not exceeding three per cent of the amount payable in respect of the works contract. It is stated that the rate prescribed for civil contracts is only one per cent. Reliance was placed on a decision in Brajendra Mishra v. State of Orissa [1994] 92 STC 17 where the Orissa High Court struck down a similar section and in Builders Association of India v. State of Kerala [1995] 98 STC 490 where the Kerala High Court struck down a similar section of the Kerala Act. On the other hand, the Revenue relied on a decision of the Punjab and Haryana High Court in Tirath Ram Ahuja Limited v. State of Haryana [1991] 83 STC 523 where a similar section in the Haryana Act was upheld.
33. In the case of Brajendra Mishra v. State of Orissa [1994] 92 STC 17, the Orissa High Court found that in the absence of any mechanism by which the contractor can approach any authority and obtain a certificate to the effect that the works contract is not taxable, the deduction at source was confiscatory in nature. In the case of Builders Association [1995] 98 STC 490, the Kerala High Court held that the imposition of tax on the whole amount without considering whether the turnover excludes non-taxable turnover, is clearly arbitrary and illegal. They distinguished an unreported decision of the Karnataka High Court in W.P. Nos. 16470 and 19493 of 1992 dated December 17, 1993, in KEC International Limited Company v. State of Karnataka [See [1995] 98 STC 490 at 500] where it was held that necessary adjustments will have to be made at the time of final assessment of the tax. The Punjab and Haryana High Court had also taken the view that ultimately whatever is found due on the basis of the assessment after the adjustment of the amount collected at source would have to be recovered, and if surplus, refunded. They took note of the argument that undue delay may be prejudicial to the assessee and observed that it will be open to the aggrieved contractor to move the court for speedy disposal.
34. The focus, therefore, shifts from the section to the mechanism by which the deduction of tax at source could be limited to the actual tax leviable under section 5F. As held by the Patna High Court if no such mechanism is available, perhaps the section itself would be invalid. But then, the Legislature should be presumed to have intended to enact only a constitutionally valid law. It is no doubt true that if a provision in the statute reasonably construed, does not pass the test of the constitutionality, it cannot be taken to be valid merely because it is administered in a manner which might not conflict with the constitutional requirements as held by the Supreme Court in Collector of Customs v. Nathella Sampathu Chetty [1962] 3 SCR 786. The requirement is that it should not violate the article 265 to the effect that taxes are not to be imposed save by authority of law. The contention is only that the provisions of section 5H permits the collection of tax far in excess of the tax authorised by section 5F. But, the question is whether the provisions of section 5H reasonably construed lead to that conclusion. It is well-settled that if any provision has not been happily worded or is couched in wide terms, it can be read down so as to make it constitutionally valid. The object of such reading down is to keep the operation of the statute within the purpose of the Act and constitutionally valid. We may refer to the following passage in Federal Steam Navigation Co. Ltd. v. Department of Trade and Industry [1974] 2 All ER 97 at 100 (HL) :
"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."
35. Before we do that, we have to refer to the rules because the mechanism for co-ordinating the scope of section 5H with the charging section 5F can be seen in the rules.
36. Originally, before the introduction of section 5F, when works contract were deemed sales falling within the scope of section 5 itself, tax was levied on the net turnover under rule 6. Sub-rule (2) provided as follows :
"Sub-rule (2) :
(i) For the purpose of sub-rule (1), the total turnover of a dealer shall, in relation to a works contract, be the amount realised or realisable by the dealer for carrying out such contract less the cost of labour incurred by the dealer in the execution of such contract.
(ii) In case, the cost of labour is not ascertainable from the accounts of the dealer, the value of goods involved in the execution of a works contract shall be the value of such goods estimated with reference to the prevailing market prices.
(iii) In case, the execution of a works contract extends over a period of more than one year, the total turnover for the purpose of this rule for the year shall be deemed to be the value of goods purchased for being supplied or used in the execution of such contract in the year.
(iv) In case, either the value of goods involved in the execution of a works contract or the cost of labour in such contract is not ascertainable from the accounts of a dealer, the total turnover of the dealer, shall be deemed to be the amount payable to the dealer for carrying out such contract less a sum not exceeding such percentage of it as may be fixed by the Commissioner of Commercial Taxes from time to time for different types of contracts for different areas, representing the usual proportion in such areas of the cost of labour to the value of materials used in executing such contract, subject to the following maximum percentages :
Percentages
(a) Electrical contracts -
(i) H.T. Transmission lines 15 (ii) Sub-station equipment 10 (iii) Power house equipment and extensions 10 (iv) 11 and 22 KV and LT distribution lines 12 (v) All other electrical contracts 20 (b) All structural contracts 30 (c) Sanitary contracts - (i) Construction of fish nurseries and cement ring wells 25 (ii) Supplying and fixing sluices 15 (iii) Concrete broken stone in lime mortar 1 : 2 22 (iv) Concrete broken stone cement mortar 1 : 3 15 (v) Country brick in cement mortar 12 (vi) Country brick in lime mortar 16 (vii) Country brick in clay 25 (viii) Plastering with cement mortar 1 : 2 1/2" thick 33 1/3 (ix) Plastering with cement mortar 1 : 3" thick 33 1/3 (x) Reinforced concrete work 31 (xi) Sanitary fitting such as fixing closets 20 ventilating shafts, etc. (d) Watch and or clock repair contract 50 (e) Dyeing contracts 40 (f) All other contracts 30"
37. After the introduction of section 5F, sub-rule (2) of rule 6 was substituted in the following manner :
"Rule 6(2) : Notwithstanding anything contained in sub-rule (1), the tax under section 5F, shall be levied on the turnover of a dealer who transfers property in goods, whether as same goods or in some other form, involved in the execution of works contract. In determining the turnover of a dealer liable to tax, the amounts specified in clauses (a) to (l) shall, subject to the conditions specified therein, be deducted from the total turnover of the dealer :
(a) Labour charges for execution of the works; for the execution of works contract provided such a sub-contract;
(b) Amount paid to a sub-contractor (sic) is a registered dealer and that turnover is included in the return filed by him before the assessing authority concerned;
(c) Charges for planning, designing and architect's fees;
(d) Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
(e) Cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract, the property in which is not transferred in the course of execution of a works contract;
(f) Cost of establishment of the contractor to the extent it is relatable to supply of labour and service;
(g) Other similar expenses relatable to supply of labour and services;
(h) Profit earned by the contractor to the extent it is relatable to supply of labour and services;
(i) All amounts for which goods exempted by the notification under section 9(1) are transferred in execution of works contract provided the goods are transferred in the same form as they were purchased;
(j) All amounts for which the goods specified in the Third Schedule are transferred by a dealer when such sales are exempt from the tax liable, under any of the provisions of the Act, provided, that the goods are transferred by the dealer as the same goods as they were purchased;
(k) All amounts for which the goods specified in the Fourth Schedule are transferred by the dealer in execution of the works contract provided that the goods are transferred as the same goods as they were purchased;
(1) Turnover of goods involved in the execution of works contract which are transferred in the course of inter-State trade or commerce under section 3 or transferred outside the State under section 4 or transferred in the course of import or export under section 5 of the Central Sales Tax Act, 1956."
38. The deductions prescribed under this rule follow the pattern laid down by the Supreme Court in Gannon Dunkerley's case and also along with four more items. This is perhaps the reason why the petitioners have not challenged the validity of this sub-rule.
39. Rule 6(3)(i) : In case where the execution of a works contract extends over a period of more than one year, the total turnover of the purpose for sub-rule (2) for that year shall be deemed to be the value of goods purchased for being supplied or used in the execution of such contract in that year.
(ii) In the cases where the value of goods involved in the execution of a works contract or the amounts referred at clauses (a) to (l) of sub-rule (2) in such contract are not ascertainable from the accounts of a dealer where under section 5H contractee is required to deduct tax at source, the turnover of the dealer for the purpose of section 5F or 5H, shall be determined after deducting the amount calculated at the following percentages for different types of contracts from the amounts paid or payable to the dealer for carrying out such contract :
Percentages
(a) Electrical contracts -
(i) H.T. Transmission lines 20 (ii) Sub-station equipment 15 (iii) Power house equipment and extensions 15 (iv) 11 and 22 KV and LT distribution lines 12 + 5 17 (v) All other electrical contracts (b) All structural contracts 35 (c) Sanitary contracts - (i) Construction of fish nurseries and cement ring wells 30 (ii) Supplying and fixing sluices 20 (iii) Concrete broken stone in lime mortar 1 : 2 27 (iv) Concrete broken stone cement mortar 1 : 3 20 (v) Country brick in cement mortar 17 (vi) Country brick in lime mortar 20 (vii) Country brick in clay 30 (viii) Plastering with cement mortar 1 : 2 1/2" thick 35 (ix) Plastering with cement mortar 1 : 3" thick 35 (x) Reinforced concrete work 35 (xi) Sanitary fitting such as fixing closets 25 ventilating shafts, etc. (d) Watch and or clock repair contract 50 (e) Dyeing contracts 50 (f) All other contracts 30"
40. A comparison of the two tables before and after the amendment indicate that there has been a reduction of the rate of deductions.
41. It is seen that sub-rule (2) excludes from the turnover liable to tax under section 5F all those components of the amount payable for the works contract which are not liable to sales tax including the value of the declared goods as well as the goods protected by section 38 of the Act and also the value of the sub-contracts. Since we have already held that in respect of sub-contracts the assessee cannot be required to prove that the amount was returned by the sub-contractor and that in respect of the exempted goods, the transformation of the goods in the execution of the contracts will have to be ignored, sub-rule (2)(b), (i), (j) and (k) would have to be read after deleting those offensive portions.
Validity of rule 6(3) :
42. In W.P. No. 17415 of 1995, the validity of rule 6(3) and (4) questioned. As sub-rule (4) has already been omitted by G.O. Ms. No. 788, Revenue (CT-II), September 21, 1996, the challenge has to be confined to rule 6(3). It was submitted that the first portion of this sub-rule imposes a tax on the value of the goods purchased for being supplied where the contract extends more than a year even though it may not be ultimately used in the contract. There appears to be some force in this contention. The Supreme Court has held in the case of State of Madras v. Narayanaswamy Naidu that the stock in hand may or may not be sold or consumed and could even be destroyed, and therefore, unless the taxable event has occurred, it cannot be taxed. Perhaps, the intention of this sub-rule was only that, but it is not happily worded. If the words "for being" are substituted by the word "and", it would be clear that only the value of the goods purchased and supplied or used in the execution of such contracts in that year would be liable to be taxed. It must be remembered that in respect of the goods used in the execution of contracts, there is no sale price as such, and therefore, the turnover pertaining to the goods involved in the execution of the contract refers only to the purchase turnover. The purchases so made will not be liable to tax unless actually supplied or used in the execution of such contracts. Accordingly, the turnover must be limited only to such supply or use, and cannot, extend to the stock in hand at the end of the assessment year as held by the Supreme Court. Instead of declaring the rule to be invalid, we are of the opinion that it would be appropriate to read the rule to mean only that and no more.
43. The second issue is whether the prescription of percentages for different types of contracts for ascertaining the amount of the value of the goods is arbitrary or unreasonable. The learned counsel laid particular emphasis on the last item where thirty per cent is prescribed for all contracts. According to him, this percentage was arbitrary and has no nexus with the actual amount of labour involved in any particular contract. We are not impressed with this argument because the question of prescribing the percentage will arise only where the value of the goods supplied is not ascertainable from the accounts of the dealer. Even if there was an indivisible lump sum contract, the purchase accounts of the assessee with details of the goods used or supplied in the execution of the works contract, would eliminate the need for any estimate. It is only in a situation where the assessee does not or is unable to prove the actual value of the goods supplied or used in the execution of the contract that an estimate is required. The supreme Court had already held in Gannon Dunkerley v. State of Rajasthan that in such a situation, the Legislature may prescribe a formula of deduction of cost of labour and services on the basis of a percentage of 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 the normal circumstances in respect of that particular type of works contract. The reliance was placed on the Patna High Court in Jamshedpur Contractors' Association v. State of Bihar [1989] 75 STC 132 where a similar rule was struck down. But that decision was rendered prior to the decision of the Supreme Court. Again, the case of Ashok Kumar Ghosh v. Union of India [1990] 76 STC 57 decided by the patna High Court on the same lines is also prior to the decision of the Supreme Court. It was argued, basing on the observation of the Supreme Court in Builders Association of India v. Union of India :
"As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the 'deemed' sales and purchases of goods under clause (29-A) of article 366 is to be found only in entry 54 and not outside it", that what is admittedly not a sale of goods, cannot be taxed with reference to the definition by a deeming provision. But then, this observation was also made prior to the decision in Gannon Dunkerley & Co. v. State of Rajasthan , where the issue of indivisible contract and the need for estimating the value of the goods supplied was specifically considered. The only caveat recorded was that the rate prescribed should not exceed the rates normally incurred in any such type of works contract. The petitioners have not placed any material to suggest that the rates prescribed are much less than the normal labour component of such works contract. In view of the fact that the percentages were reduced in the substituted table, presumably some study has preceded the revised prescription. As far as the residuary item is concerned, the percentage remains the same at 30 per cent. Since the assessee can avoid the application of this estimate by producing actual figures, we do not see any merit in this grievance. Therefore, the challenge to rule 6(3) falls subject to the manner in which 6(3)(1) is read by us.
44. The question that finally remains is whether the provisions of section 5H could at be upheld on a reasonable construction read with the rules. This section refers to the introduction of a tax at a rate prescribed on the total turnover. As already held by us, the expression "total turnover" in the context can refer only to the turnover of the transfer of property in goods involved in the execution of the works contract. In a case where the assessee can produce information to ascertain the purchase value of the goods supplied or used in the contract, the total turnover, could be easily determined. The rules provide for furnishing of a return by the assessee and the making of a provisional assessment by the assessing officer. No doubt, the contractee will not be in a position to ascertain the total turnover and therefore, it will be incumbent on the assessing officer to make a provisional assessment and intimate the same to the contractee so that the necessary amount can be deducted at source. As we see it the provisions of section 5H by itself does not exceed the charging section because the tax is at a rate of total turnover which is a subject-matter of the levy under section 5F. Nor can it be said that there is no mechanism to ascertain the total turnover because rules 9, 10 and 13 provide for ascertaining the liability to tax. All that is required is that the provisional assessment should be communicated to the contractee so that the amount of tax to be deducted is in conformity with the provisional assessment and does not exceed the tax that is leviable under section 5F. We are sure that this lacuna can easily be rectified by suitable instructions by the Government to the assessing officers to intimate the provisional assessment to the contractees once the return is filed by the assessee. In such an event, the tax deducted will not in any way exceed the final liability under section 5F because even in a case of an indivisible contract, the total turnover would be much less than the amount payable in respect of the works contract.
45. The last item in the list of grievances of the assessee was the burdensome proviso to the sub-section (6) of section 5H. This proviso requires that in order to claim adjustment of the tax deducted at source, the assessee has to establish that the tax deducted has been remitted along with the exact quantum of tax so remitted. The assessees appear to imagine that by placing the burden of proving deduction of tax at source, the assessees are required to produce information not in their possession but with the contractee. We are of the opinion that this is an imaginary grievance because once sub-section (3) provides that the authority making the deduction shall furnish to the dealer a certificate containing such particulars as may be prescribed, the burden cast by the proviso in sub-section (6) will be discharged by producing that certificate. The form XX which is prescribed under rule 17-I which provides for deduction at source, gives the form of certificate of deduction of sales tax. This includes complete particulars with reference to the amount of tax, quantity of goods supplied and the particulars of the challan by which the amount was deposited. In view of this prescription, we see no merit in the challenge to the proviso to sub-section (6) of section 5H.
46. To sum up, (1) Section 5F is valid.
(2) In the first and second provisos of section 5F the words "in the same form in which they were purchased by the contractor" are struck down as invalid.
(3) In the third proviso of section 5F the words "but does not include the goods either obtained or purchased from other States and used in the execution of works contract" will not apply to the goods in respect of which "C" forms under the Central Sales Tax Act are furnished by the contractees.
(4) In the last proviso of section 5F the words "and that the turnover of such amount is included in the return of turnover filed by such sub-contractor" are struck down.
(5) Section 5G is valid.
(6) Section 5H is also valid subject to the Government instructing the assessing officers to make provisional assessments and to intimate the authorities required to deduct the tax at source.
(7) The amended rule 6(2) is valid after omitting the words "and that turnover is included in the return filed by him before the assessing authority concerned" in sub-rule (b) and the words "provided that the goods are transferred in the same form as they were purchased" in sub-rules (i), (j) and (k) thereof.
(8) Rule 6(3)(i) shall be read as applicable only to the value of goods supplied or used in works contracts during the year.
(9) Rule 6(3)(ii) prescribing percentage of deduction for different kinds of contracts for estimating value of goods supplied, where it cannot be ascertained, is valid.
47. All the writ petitions are partly allowed. No costs.
48. Writ petitioners partly allowed.