VERY IMPORTANT POINT
Secton 13AA of the Orissa Sales Tax Act, as amended with effect from 4th October, 1993, is struck down as being beyond the purview of the Orissa State Legislature, since there is no provision therein to exclude inter-State sales, outside sale or sale in the course of import.

Headnote:Orissa Sales Tax Act-Section 13AA-Works contract-Tax on-Constitutional validity of provisions-No provision to exclude value of inter-State sales, outside sales or sales in course of import-Neither owner nor Commissioner who issues certificate under Section 13AA(5) to contractor can take into account fact that works contract involves transfer of property in goods consequent upon inter-State sale, outside sale or sale in course of import-Provisions struck down as being beyond purview of Orissa State Legislature.
       Held : By virtue of Entry 54 of List II of the Seventh Schedule read with Article 246 of the Constitution of India, the States are empowered to levy taxes on the sale or purchase of goods, other than newspapers. The Forty-sixth Amendment to the Constitution introduced, inter alia, clause (29A)(b) in Article 366 of the Constitution; as a result, tax on the purchase or sale of goods included 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". Article 286(1) of the Constitution states that no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place outside the State or in the course of the import of goods into, or export of goods out of the territory of India. Article 286(2) authorises Parliament by law to formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in sub-Article (1). Acting upon this power, Parliament has set out in Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 principles for determining when a sale or purchase of goods can be said to take place in the course of inter-State trade or commerce, when a sale or purchase of goods can be said to take place outside the State and when a sale or purchase of goods can be said to take place in the course of import or export. (Para 8)
       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 purposes of the deduction neither the 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 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 contract includes the value of inter-State sales, outside sales or sales in the course of import. There is, in our view, therefore, no 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. (Para 13)
       Section 13AA should have been precisely drafted to make it clear that no tax was levied on that part of the amount credited or paid that related to inter-State sales, outside sales and sales in the course of import, particularly after the previous Section 13AA had been struck down by the Orissa High Court for the reason that it was couched in terms wider than were permissible to the State legislature and that judgment was accepted. Section 13AA of the Orissa Sales Tax Act, as amended with effect from 4th October, 1993, is struck down as being beyond the purview of the Orissa State Legislature. (Paras 15 and 16)

JUDGMENT

Bharucha, J.-Before it was held to be unconditional on 28th April, 1993, Section 13AA of the Orissa Sales Tax Act read thus:

"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 of any contractor for carrying out any works contract 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 Government undertaking, or

(e) Co-operative Society or any other Association registered under the Societies Registration Act, 1860, (21 of 1860)

shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier, deduct an amount towards sales tax equal to two percentum of such sum in respect of the works contract :

Provided that if the value of the works contract does not exceed rupee one lakh, no sich deduction shall be made.

(2) While making deduction as referred to in sub-section (1), the deducting authority shall grant a certificate to the contractor in the form prescribed and shall send a copy thereof to the Sales Tax Officer within whose jurisdiction the works contract is executed.

(3) The amount deducted from the Bills or Invoices shall be deposited into the Government Treasury within one week from the date of deduction in such form or challan as may be prescribed.

(4) Such deposit into the Tresury shall be adjusted by the Sales Tax Officer towards the sales tax liability of the Works contractor and would also costitute a good and sufficient discharge of the liability of the deducting authority to the contractor to the extent of the amount deposited.

(5) If any person contravenes the provisions of sub-section (1) or sub-section (2) or sub-section (3) of this Section, the Sales Tax Officer shall, after giving him an opportunity of being heard, by an order in writing, impose on such person penalty not exceeding twice the amount required to be deducted and deposited by him into Government Treasury".

2. Section 13AA, as it was then read, was struck down by the High Court of Orissa on 28th April, 1993 in the case of Brajendra Mishra v. State of Orissa & Ors.1. The High Court held that Section 13AA did not provide any mechanism to exclude a transaction from its purview even if, ultimately, the transaction was not at all liable to the levy of sales tax. In other words, even in the case of a pure and simple labour contract or service contract where the question of sale would not arise, the person responsible for making any payment to a contractor had no option but to deduct two per cent of such sum towards sales tax. Though a transaction which might not be a sale at all was made liable for levy of sales tax, yet in respect of that transaction power had been conferred to make deduction of two per cent from the amount to be paid. In the absence of any discretion with the authority and in the absence of any mechanism by which the contractor could approach any authority and obtain a certificate to the effect that the transaction did not amount to a sale, the deduction of two per cent from the amount could not but be held to be grossly discriminatory and confiscatory in nature and, therefore, the same had to be struck down. The High Court added that by conferring arbitrary, unbridled and uncanalised powers on the person concerned to deduct two per cent from the sum payable to the contractor, irrespective of the question whether, ultimately, the transaction was liable for payment of any sales tax at all, could not be held

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2000 Supreme(SC) 437

VERY IMPORTANT POINTSecton 13AA of the Orissa Sales Tax Act, as amended with effect from 4th October, 1993, is struck down as being beyond the purview of the Orissa State Legislature, since there is no provision therein to exclude inter-State sales, outside sale or sale in the course of import.

Cases Referred (3)

VERY IMPORTANT POINT
Secton 13AA of the Orissa Sales Tax Act, as amended with effect from 4th October, 1993, is struck down as being beyond the purview of the Orissa State Legislature, since there is no provision therein to exclude inter-State sales, outside sale or sale in the course of import.