IMPORTANT POINT
Section 12-A of the Himachal Pradesh General Sales Tax Act and Rule 31-A of the Rules conferring arbitrary and uncanalised powers on the concerned person to deduct tax from the sum payable to the works contractor irrespective of whether ultimately the transaction is liable for payment to any sales tax at all, quashed as being beyond the purview of the Himachal Pradesh State Legislature.

Headnote:Himachal Pradesh General Sales Tax Act, 1968-Section 12-A-H.P. General Sales Tax Rules-Rule 31-A -Validity of-Deduction of an amount from bills or invoices of works contractors purporting to be tax payable towards transfer of goods involved in works contract-Challenged on ground that recovery is on events which do not attract tax at all-Arbitrary and uncanalised powers conferred on concerned person to deduct an amount from the sum payable irrespective of whether ultimately the transaction is liable for payment to any sales tax at all-Provisions quashed as being beyond the purview of the Himachal Pradesh State Legislature-Such amount as has been collected from appellant under Section 12-A r/w Rule 31-A to be refunded by the State.
Held : There is an obligation to deduct from transactions relating to works contract on bills or invoices raised by the work contractor an amount not exceeding 4 per cent 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 involved in the execution of the work 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 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 is no solace. 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 upto 4 per cent from the sum payable to the works contractor irrespective whether ultimately the transaction is liable for payment to any sales tax at all. (Para 3)

JUDGMENT

Rajendra Babu, J.-

Civil Appeal No. 8468 of 1997 :

The appellant before us called in question the validity of Section 12-A of the Himachal Pradesh General Sales Tax Act, 1968 [hereinafter referred as the Act ] and Rule 31-A of the Himachal Pradesh General Sales Tax Rules [for short the Rules ] before the High Court of Himachal Pradesh. The said provisions provided for deduction of an amount from the bills or invoices of the works contractors purporting to be tax payable towards transfer of goods involved in works contract. The High Court took the view that the relevant amount is the valuable consideration payable for the transfer of property in goods and not the entire value or consideration for the entire works contract and what was directed to be deducted is only an amount not exceeding 4 per cent as may be prescribed purporting to be a part or full of the tax payable on such sales which would necessarily mean tax payable under the charging provisions of the Act. The charging provision was not in challenge before the High Court. The High Court held that the State Legislature has not exceeded its competence in enacting Section 12-A of the Act. As regards Rule 31-A of the Rules, the High Court stated that the crucial part of the Section is repeated in the Rule and if all the sub-rules are read together there could be no doubt that the expression all payments being made in respect of all works contract executed means and refers only to the payments on account of valuable consideration payable for the transfer of property in goods and not other payments. The High Court further noticed that the Rule also does not enable any person to deduct any amount other than what is contemplated by the Section and, therefore, it does not suffer from any invalidity. On that basis, the High Court dismissed the writ petitions.

2. As was contended before the High Court, it is submitted on behalf of the appellant that provision for compulsory deduction from payment to works contractor does not provide for exclusion of cases where the transaction may not amount to a sale at all and there is no mechanism by which the contractor can claim that a transaction does not amount to sale so that no deduction may be made under the aforesaid provision. It is also submitted that the recovery is on events which do not attract tax at all, for example, Section 6 of the Act, which is the charging Section, excludes from taxable turn over, the turn over of a dealer on sales to any undertaking supplying electrical energy to the public under a licence or sanction granted under the relevant law of goods for use by it in the generation or distribution of such energy subject to production of a duly signed form by an authorised officer in that regard and the Rule provides for deduction of 4 per cent amount on all payments in similar terms to deduct an amount equal to 4 per cent. The said provisions in Section 12-A and Rule 31-A are identical to those considered by this Court in Steel Authority of India Ltd. v. State of Orissa & Ors. etc. etc.1. The relevant portion of Section 13-AA of the Orissa Sales Tax Act considered by this Court in Steel Authority of India (supra) and Section 12-A of the Act is as under :-

"13-AA. Deduction of tax at source from the payment to works contractor-

(1) Notwithstanding anything contained in Section 13 or any other law or contract to the contrary, any person responsible for paying any sum to any contractor (hereinafter referred to in his section as the "deducting authority") for carrying out any works contract which involved transfer of property in goods, in pursuance of a contract between the contractor and

(a) Central Government or any State Government, or

(b) Any local authority, or

(d) Any Company incorporated under the Companies Act, 1956 (1 of 1956) including any State or Central Govern

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2000 Supreme(SC) 564

Cases Referred (2)