J. CHELAMESWAR J.

These two writ petitions are filed challenging the constitutionality of sub-section (4) of section 5G of the Andhra Pradesh General Sales Tax Act, 1957 (hereafter referred as "the Act").

Section 5G of the Act was inserted by Act No. 22 of 1995 with effect from April 1, 1995 and later was substituted by Act No. 27 of 1996 with effect from August 1, 1996. Sub-section (4) came to be added to section 5G by Act No. 25 of 2002 with effect from February 15, 2003.

The facts in Writ Petition No. 8853 of 2006 are taken as representative facts in these two writ petitions.

The petitioner is carrying on business as a works contractor like laying roads, etc. These contracts were awarded to the petitioner by the Government of Andhra Pradesh. In the process of executing such contracts, any contractor, like the petitioner, is necessarily required to use materials (goods); whether the goods so used in the execution of a contract, could be the subject-matter of tax, on the ground that such transaction constitutes a sale of goods, was the subject of a great legal debate for a period of almost four decades.

Under entry 54 of List II of the Seventh Schedule, the States are authorised to levy tax on sale or purchase of goods, other than newspapers and such a power is required to be exercised, subject to the provisions of entry 92A of List I. The amplitude of the expression "sale and purchase" of goods, occurring under entry 54, fell for the consideration of the courts, including the Supreme Court in a number of decisions. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353; AIR 1958 SC 560, the Supreme Court held that the materials used by the contractor, such as the petitioner, could not be subjected to tax under the abovementioned entry 54, as there was no sale of goods in such a transaction. To get over the decisions of the courts, the Parliament amended the Constitution and clause (29A) came to be inserted in article 366 by the Constitution (Forty-sixth Amendment) Act, 1982, which, insofar as relevant for the present purpose, reads as follows :

"(29A) 'tax on the sale or purchase of goods' includes -

(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;

(b) 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;"

Pursuant to the amendment of the Constitution, the State of Andhra Pradesh introduced section 5F in the Act by Act No. 22 of 1995, expressly authorising levy of sales tax on the transfer of property in goods either as goods or in some other form, involved in the execution of works contracts. Section 5F, insofar as it is relevant for the present purpose, reads as follows :

"5F. Levy of tax on transfer of property in goods involved in the execution of works contract. - Notwithstanding anything contained in section 5 or section 6, every dealer shall pay a tax under this Act for each year, on his turnover of transfer of property in goods whether as goods or in some other form, involved in the execution of works contract, at the rate of eight paise on every rupee of his turnover :"

In substance, section 5F authorises levy of sales tax on the transfer of property in goods involved in the execution of works contract. Such levy is on the turnover; in other words, the value of such goods, used in a period of one year, relevant for the assessment. The rate of tax is prescribed at eight paise on every rupee of the turnover.

In exercise of the rule-making power, the State of Andhra Pradesh under rule 6(2) of the Andhra Pradesh General Sales Tax Rules, 1957 (hereinafter referred as "the Rules"), stipulated the mode of determining the turnover contemplated under section 5F of the Act. In substance, the rule 6(2) ("Notwithstanding anything contained in sub-rule (1), the tax under section 5F, shall be levied on the turnovers of a de