IMPORTANT POINT
Sub-sections (7), (7A), (7B), (11) and (12) of Section 7 of the Kerala General Sales Tax Act are constitutionally valid.

Headnote:SALES TAX-Kerala General Sales Tax Act-Sub-sections (7), (7A), (7B), (11) and (12) of Section 7- Rules 22A and 30A-Validity of- Challenged-Alternate method of taxation provided by sub-section (7) or (7A) of Section 7 is optional- Method of taxation provided thereunder is applicable only to a contractor who elects to be governed by said alternate method of taxation- There being no compulsion upon any contractor to opt for this method of taxation-Sub-sections (8), (11) and (12) are incidental and ancillary to sub-sections (7) and (7A)-There being no invalidity in these provisions-Provisions are valid.
       Held that the alternate method of taxation provided by sub-section (7) or (7A) of Section 7 is optional. The sub-sections expressly provide that the method of taxation provided thereunder is applicable only to a contractor who elects to be governed by the said alternate method of taxation. There is no compulsion upon any contractor to opt for the method of taxation provided by sub-section (7) or sub-section (7A). It is wholly within the choice and pleasure of the contractor. If he thinks it is beneficial for him to so opt, he will opt; otherwise, he will be governed by the normal method of taxation provided by Section 5(l)(iv). Sub-section (8) provides that the option to come under sub-section (7) or (7A) has to be exercised by the contractor "either by an express provision in the agreement for the contract or by an application to the assessing authority to permit him to pay the tax in accordance with any of the said sub-sections". In these circumstances, it is evident that a contractor who had not opted to this alternate method of taxation cannot complain against the said sub-sections, for he is in no way affected by them. Nor can the contractor who has opted to the said alternate method of taxation, complain. Having voluntarily, and with the full knowledge of the features of the alternate method of taxation, opted to be governed by it, a contractor cannot be heard to question the validity of the relevant sub-sections or the rules. Sub-sections (8), (11) and (12) of Section 7 are incidental and ancillary to sub-sections (7) and (7 A) and cannot equally be faulted. (Para 8)
       Further held that the method of taxation introduced by sub-sections (7) and (7 A) is in the nature of composition of tax payable under Section 5(l)(iv). The impugned sub-sections have evolved a convenient, hassle-free and simple method of assessment just as the system of levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contractor saves himself the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under sub-section (7), the contractor pays two percent of the total value of the contract by way of tax and he is done with all the above mentioned botheration. The rate of two percent prescribed by sub-section (7) is far lower than the rates in Schedules 1, 2 and 5 referred to in Section 5(l)(iv)(a). In short, sub-sections (7) and (7 A) evolve a rough and ready method of assessment of tax and leave it to the contractor either to opt to it or be governed by the normal method. It is only an alternative method of ascertaining the tax payable, which may be availed of by a contractor if he thinks it advantageous to him. (Para 8)
       All these provisions are designed to ensure due realisation of the tax due. No exception can be taken thereto. The attack upon,Rule 30-A is equally untenable. It merely provides the procedure according to which the option to come under the alternate method of taxation provided by sub-section (7) or (7A) of Section 7 is to be exercised. The Division Bench was, therefore, in error in declaring the said rules as invalid. (Para 11)

JUDGMENT

B.P. Jeevan Reddy, J.-Leave granted.

2. Section 5 of the Kerala General Sales Tax Act levies tax on sale or purchase of goods. Clause (iv) of sub-section (1) of Section 5 provides for levy of tax on transfer of goods involved in the execution of the works contract. Sub-clause (a) of clause (iv) deals with a situation where "transfer is in the form of goods". In such a case, the rates and the point of levy are specified in the First, Second or Fifth Schedule to the Act. Sub-clause (b) deals with a situation where the "transfer of goods involved in the execution of works contract.......is not in the form of goods but in some other form." In such a case, the rate is specified in the Fourth Schedule to the Act. There are two provisos to clause (iv) which we need not refer to for the purpose of this case. Section 7 provides for payment of tax at compounded rates. We are concerned herein with sub-sections (7), (7A), (7B), 11 and 12 which were inserted along with certain other provisions by Act 23 of 1991 and Act 8 of 1992. Sub-section (7) provides :

"Notwithstanding anything contained in sub-section (1) of Section 5, every contractor (engaged ?) in civil works of construction of buildings, bridges, roads, dams and canals including any repair or maintenance of such civil works may at his option, instead of paying tax in accordance with clause (iv) of that sub-section, pay tax at the rate of two per cent on the whole amount of contract and which shall be deducted from the payments made by the awarded at every time including advance payment and shall remit to Government in such manner as may be prescribed."

3. Sub-section (7A) provides for a similar option to pay at a uniform specified rate in case of contractors not covered by sub-section (7). Sub-section (7A) reads :

"(7A) Notwithstanding anything contained in sub-section (1) of Section 5 every contractor not covered by sub-section (7) may at his option, instead of paying tax in accordance with the said section, pay tax on the whole amount of contract at the rate of seventy per cent of the rates shown in the Fourth Schedule against such contract, less any tax paid by him under this Act on the purchase of any goods used in such contract, the transfer of which to the works contract was effected without any processing or manufacture;

(Proviso omitted as not relevant for the purpose of this case)."

Sub-section (7B) provides that the tax under clause (iv) of sub-section (1) of Section 5 and under sub-sections (7) and (7 A) of this section shall be deducted from the payment made by the awarder at every time including advance payment and remit it to Government within seven days in the prescribed manner. Sub-section (11) requires every contractor who opts for payment of tax in accordance with sub-section (7) or sub-section (7 A) of Section 7 to "file the returns showing all the contracts he has undertaken along with certificates from the awarders, showing the whole amount of contract and the details of tax deducted and remitted to Government". The sub-section further says that if the particulars so furnished are found to be correct and complete, the assessing authority may summarily make an assessment on that basis. Sub-section (12) provides that "after the close of the year or at the completion of the works contract and on receipt of final statement of accounts and return, if the tax on purchases is found to be in excess of the tax payable under the compounded rates, no refund of such excess tax paid shall be made."

4. Rules have been made under the pursuant to the aforesaid sub-sections. We are concerned with two such rules, viz., Rule 22A and Rule 30A. They read as follows :

"22A. Payment and recovery of tax in works contract :-

(1) In the case of works contract on which tax is payable in accordance with the provisions of the Act whether an option under sub-section (8) of , Section 7 is made or not, the tax shall be paid either by the contractor in accordance with the rules or

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1996 Supreme(SC) 2035

IMPORTANT POINTSub-sections (7), (7A), (7B), (11) and (12) of Section 7 of the Kerala General Sales Tax Act are constitutionally valid.

Cases Referred (2)

IMPORTANT POINT
Sub-sections (7), (7A), (7B), (11) and (12) of Section 7 of the Kerala General Sales Tax Act are constitutionally valid.