State of Chhattisgarh & Ors. v. M/S VIP Constructions

A B E F G ## STATE OF CHHA TTISGARH & ORS. ## _v._ ## M/S. VIP CONSTRUCTIONS ## DECEMBER 7, 2007 [DR. ARIJIT P ASAY AT AND AFT AB ALAM, JJ.) _Chhattisgarh VanijyikKar Adhinihyam, 1994-s.35-Sales TaxDeduction at source-Constitutional validity of-Held: The provision_ C _is constitutionally invalid._ Sales tax was deducted at source under Section 35 of Chhattisgarh Vanijyik Kar Adhinihyam, 1994, from the payment made to the respondent-assessee, for works contracts executed by D it. Respondent filed Writ Petition challenging constitutionality of Section 35. High Court declared the provision as unconstitutional and directed refund of the amount recovered to the respondent. Hence the present appeal. ## Dismissing the appeal, the Court HELD: In view of the decisions in _Steel Authority's_ case and _Nathapa 's_ case* the High Court was right in holding that Section 35 ofChhattisgarh Vanijyik Kar Adhinihyam, 1994, was constitutionally invalid. The direction for refund of the amount collected from the respondent under the provi~ions of the said Section had been rightly directed to be refunded. [Para 10] [1152-C, DJ _Steel Authority of India Ltd._ v. _State of Orissa and Ors.,_ [2000) 3 SCC 200 and _1\1/s. Nathpa Jhakri Jt. Venture_ v. _State of Himachal Pradesh and Ors.,_ [2000] 3 SCC 319, relied on _Punj Lloyd Ltd._ v. _State of Madhya Pradesh and Ors.,_ (1996) 29 VKN 533, referred to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5679 of 2007. H 1148 STATE _v._ VTPCONSTRUCTIONS[PASAYAT,J.] 1149 _f_ From the Judgment and Order dated 21.2.2006 of the High Court A ofChattisgarh at Bilaspur in W.P. No. 661 of2002. Rajesh Srivastava for the Appellant. The Judgment of the Court was delivered by **DR ARIJIT P** ASA **YAT, J.** 1. Leave granted. B 2. Challenge in this appeal is to the judgment rendered by a Division Bench of the Chhatisgarh High Court. Respondent filed a writ petition before the Chhatisgarh High Court questioning constitutional validity of Section 35 ofChhattisgarh Vanijyik Kar Adhiniyam, 1994 (hereinafter C referred to as the 'Adhiniyam'). It corresponds to the Chhatisgarh Commercial Tax Act, 1994 (in short the 'Act'). The respondent hereinafter is described as the 'assessee'. 3. Background facts highlighted by the respondent are as follows: D The writ petitioner is a prop1ietary concern of one Shri Krishana Mudliar and it has been executing works contracts for various Departments of the Chhattisgarh State Government and others and was holding salestax registration No.061/RDN/14,'2739/02. During the assessment year 2001-2002, the writ petitioner had executed works contracts awarded E by Executive Engineer, P.W.D. (B&R), Division Khairagarh, for which it received payment ofRs.1,27,115/- on which sales tax ofRs.2,545/-, being 2% of sum ofRs.1,27.115/- was deducted at source towards the sales tax payable as provided under Section 35 of the Adhiniyam. Certificate of tax deduction is dated 11104/2001 made under Section 35 of the Act. F 4. In support of the writ petition, it was contended that Section 35 of the Act does not make any provision for deduction and ascertainment of value and nature of goods supplied during execution of work-contracts. Section 35 of the Act does not make any provision for detennination of value of goods supplied in the course of inter State trade during execution G of works contracts. 5. The writ petition is opposed by the present appellants by filing reply/statement of objections. In the reply statement, it was stated that the contractors who are engaged in the construction of buildings, roads, H 1150 SUPREME COURT REPORTS [2007] 12 S.C.R. A bridges, dams etc generally come from other States. The process of assessment of sales tax is very lengthy and before the assessment is completed, such contractors disappear from the scene after receiving full payment under the contract. In such situation, it was very difficult for the Commercial Tax Department to trace out such contractors and eventually B sales tax payable by such contractors could not be recovered at all thereby causing heavy financial loss to the Government. In order to safeguard the interest of the State, Section 35 is enacted in the Act and that the State Legislature has legislative competence to enact Section 35. It was stated that Section 35 is not a unique provision in the Act and similar provisions c are enacted in the Sales Tax Acts of other States, for example, Section 6-D of the Uttar Pradesh Trade Tax Act, Section 6-E of the Bengal Finance (Sales-Tax) Act, 1941; Section 25-A of the Bihar Finance Act, 1981; Section 25-B of the Haryana General Sales Tax Act 1973, Section 12-A of the Himachal Pradesh General Sales Tax Act 1968, Section 16D C of the Jarnmu & Kaslunir General Sales Tax Act, Section 19-A of the Kamataka Sales Tax Act and Section 13-AA of the Orissa Sates Tax Act, 1947. It was also contended that the Constitutional validity of Section 35 of the Adhiniyam was already considered and upheld by the Division Bench of the Madhya Pradesh High Court in the case of _Punj Lloyd Ltd._ E v. _State of Madhya Pradesh and Ors.,_ (1996) 29 VKN 533. 6. The High Court referred to decisions of this Court in _Steel Authority of India Ltd._ v. _State of Orissa and Ors.,_ [2000] 3 SCC 200 and _Mis. Nathpa Jhakri Jt. Venture_ v. _Slate of Himachal Pradesh and Ors .._ [2000] 3 SCC 319 and declared the provision to be F unsustainable. 7. In support of the appeal learned counsel for the appellants submitted that the ambit and scope of s~ction 35 of the Act were not kept in view by the High Court. The decision in _Steel Authority's_ case G (supra) and _Nathpa 's_ case (supra) were dealing with different provisions and, therefore, has no application to the facts of the case. 8. _Steel Authority's_ case (supra) related to Section 13AA of the Orissa Sales Tax Act, 1947 (hereinafter referred to as the 'Orissa Act'). In _Nathpa Jhakri 's_ case (supra) dispute related to Section 12A of the H Himachal Pradesh General Sales Tax Act, 1968 (in short the 'Himachal STATE v. VTP CONSTRUCTIONS [PASA Y AT, J.] 1151 _<(_ Pradesh Act'). While striking do'Ml Section l 3AA of the Orissa Act, this A Court observed as follows in _Steel Authority's_ case (supra): "There can be no doubt, upon a plain interpretation of Section 13AA, that it is enacted for the purposes of deduction at source of the State sales tax that is payable by a contractor on the value of a works contract. For the purpose of the deduction neither the B owner nor the Commissioner who issues to the contractor a certificate under Section 13AA(5) is entitled to take into account the fact that the works contract involves transfer of property in goods consequent upon of an inter-State sale, an outside sale or . a sale in the course of import. The owner is required by Section C 13AA(1 ) to deposit towards the contractor's liability to State sales tax four per cent of such amount as he credits or pays to the contractor regardless of the fact that the value of the works contracts includes the value of inter-State sales, outside sales or sales in the course of import. There is, in our view, therefore, no. D doubt that the provisions of Section 13AA are beyond the powers of the State Legislature for the State Legislature may make no law levying sales tax on inter-State sales, outside sales or sales in the course of import." E 9. In _Nathapa Jhakri 's_ case (supra) this court held Section 12A of the Himachal Pradesh Act to be unconstitutional and the relevant portion of the judgment reads as follows: "A bare perusal of the two provisions will make it clear that in either provision there is an obligation to deduct from transactions F relating to works contract on bills or invoices raised by the works contractor an amount not exceeding 4 percent or 2 per cent as the case may be. Though the object of the provision is to meet the tax in respect of the transactions on all works contract on the valuable consideration payable for the transfer of property in goods G involved in the execution of the works contract, the effect of the provision is that, irrespective of whether the sales are inter-State sales or outside sales or export sales which are outside the purview of the State Act and those transactions in respect of which no tax can be levied even in terms of the enactment itself, such deductions H 1152 SUPREME COURT REPORTS (2007] 12 S.C.R. - A have to be made in the bills or invoices of the contractors. To say that if a person is not liable for payment of tax inasmuch as on completion of the assessment refund can be obtained at a later stage in no solace, as noticed in _Bhawani Cotton Mills Ltd._ v. _State of Punjab,_ (1967) 20 STC 290 (SC): [1967] 3 SCR 577. - B Further, there is no provision for certification of the extent of the deduction that can be made by the authority. Therefore, we must hold that arbitrary and uncanalised powers have been conferred on the concerned person to deduct up to 4 per cent from the swn payable to the works contract irrespective whether ultimately the - c transaction is liable for payment to any sales tax at all. In that view of the matter, we have no hesitation in rejecting the contention advanced on behalf of the State." 10. In view of what ha" been stated by this Court in _Steel Authority's_ case and _Nathpa 's_ case (supra) the inevitable conclusion is that the High D Court was right in holding that Section 35 of the Act was constitutionally invalid. The direction for refund of the amount collected from the respondent under the provisions of the said section had been rightly directed to be refunded. E 11. The appeal is sans merit and, therefore, deserves dismissal, which we direct. There will be no order as to costs. K.K.T. Appeal dismissed.