JUDGMENT

G. B. PATNAIK, J. - The constitutional validity of section 13AA of the Orissa Sales Tax Act, 1947, has been challenged in this writ application. Under the said provision, a person who is responsible for paying any sum to a contractor for carrying out any works contract is liable to deduct an amount towards sales tax equal to two per cent of such sum in respect of the works contract at the time of making the payment in question and the said deducting authority is required to grant a certificate to the contractor in the form prescribed and send a copy thereof to the Sales Tax Officer within whose jurisdiction the works contract is executed. The deduction in question will be adjusted by the Sales Tax Officer towards the sales tax liability of the works contractor. Contravention of the provision authorises the Sales Tax Officer to impose penalty not exceeding twice the amount required to be deducted by the person responsible for making the payment to the contractor and deduction therefrom. For a proper appreciation of the grounds of challenge, it is appropriate to extract the provision of section 13AA of the Orissa Sales Tax Act in extenso :

"13AA. 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 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

(c) any authority or corporation established by or under a statute, or

(d) any company incorporated under the Companies Act, 1956 including any State or Central Government undertaking, or

(e) any co-operative society or any other association registered under the Societies Registration Act, 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 per centum of such sum in respect of the works contract :

Provided that if the value of the works contract does not exceed rupees one lakh, no such 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 treasury shall be adjusted by the Sales Tax Officer towards the sales tax liability of the works contractor and would also constitute 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. The power to levy sales tax has been conferred upon the State Legislature under entry 54 of the State List. By the 46th Amendment of the Constitution introducing clause (29A)(b) in article 366 of the Constitution, it became possible for the States to levy sales tax on the price of goods and materials used in works contract as if there was a sale of such goods and materials, but that power is subject to the restrictions and conditions mentioned in article 286 of the Constitution, as has been held by the Supreme Court in the case of Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371.