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1996 Supreme(AP) 1252
M.N. Rao, T.N.C. Rangarajan, JJ.
MEDIA COMMUNICATIONS
Versus
GOVERNMENT OF ANDHRA PRADESH. (W.P. NO. 12256 OF 1995) GANNON DUNKERLEY & CO. v. GOVERNMENT OF ANDHRA PRADESH. (W.P. NO. 17415 OF 1995) (AND OTHER CASES).
Writ Petition Nos. 12256, 12378, 14162, 16416, 17322, 17415 and 29179 of 1995 and 171, 385, 471, 542, 836, 937, 984, 1016, 1278, 1296, 1298, 1416, 1423, 1442, 1512, 1554, 1812, 1814, 1816, 2084, 2175, 2177, 2276, 2317, 2396, 2472, 2491, 2812, 2874, 3006, 3013, 3074, 3176, 3250, 3251, 3382, 3405, 3513, 3559, 3764, 3849, 4114, 4127, 4151, 4207, 4213, 4214, 4382, 4595, 4597, 4834, 4885, 4910, 4989, 4992, 4994, 5030, 5090, 5106, 5192, 5337, 5373, 5430, 5476, 5553, 5746, 5781, 6069, 6091, 6155, 6173, 6320, 6337, 6387, 6423, 6488, 6615, 6637, 6645, 6707, 6822, 6942, 7041, 7072, 7097, 7742, 7743, 7749, 7750, 7751, 8067, 8247, 8455, 8536, 8584, 8638, 8989, 9086, 9087, 9153, 9161, 9214, 9258, 9381, 9455, 9547, 9886, 10391, 11085, 11391, 11437, 11791, 11857, 12059, 12411, 12438, 12574, 12773, 12870, 13288, 13297, 13346, 14222, 14225, 14740, 14764, 15517, 15613, 15670, 15837, 16012, 16379, 16412, 20020, 20021, 20022, 28033 of 1996
Decided On: 06-12-1996
Headnote:
Constitution of India, 1950 - Articles 366, 366(29A)(b), 14 and 265 - Central Sales Tax Act, 1956 - sections 3, 4, 5 and sections 14 and 15 - Andhra Pradesh Act No. 22 of 1995 - Sections 5F, 5G and 5H, 2(r), 5F, 5 or section 6 - Levy of tax on a second sale - Works contract shall be deemed to be sales - Transfer of property in goods - State was enabled to tax sale where taxable event occurs inside State whereas Centre was entitled to tax sale or purchase if it is in course of inter-State trade or commerce - whether works contract could be taxed by State by enlarging definition of "sale" in sales tax legislation - works contract is not exigible to sales tax - When State Legislature expanded definition of "sales" and declared that works contract shall be deemed to be sales - Held, case also once it is found that a sub-contractor is compulsorily registrable, we fail to see any further purpose in requiring contractor to prove that turnover of sub-contractor was included in return of turnover filed by sub-contractor - information will be only with sub-contractor and it could also be easily verified from records of taxing authority since sub-contractor is registered and his registration number will be known - We are, therefore, of opinion that words "and that turnover of such amount is included in return of turnover filed by sub-contractor" must be struck down as unreasonable – Ordered Accordingly
The judgment of the Court was delivered by
T. N. C. RANGARAJAN, J. - This batch of writ petitions challenges the constitutional validity of sections 5F, 5G and 5H of the Andhra Pradesh General Sales Tax Act, 1957 and the Rules thereunder.
History of taxation of works contracts :
2. Entry No. 54 of List II of the Seventh Schedule of the Constitution of India reads as follows :
"Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I.
Entry 92-A of List I is : Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce."
3. Thus, the State was enabled to tax the sale where the taxable event occurs inside the State whereas the Centre was entitled to tax the sale or purchase if it is in the course of inter-State trade or commerce. The question arose as to whether works contract could be taxed by the State by enlarging the definition of "sale" in the sales tax legislation. The Supreme Court held in the case of State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353; AIR 1958 SC 560, that a works contract not being a sale within the meaning of the Sale of Goods Act, 1930, there is no sale or transfer of property in the goods as such, and therefore, a works contract is not exigible to sales tax. When the State Legislature expanded the definition of "sales" and declared that works contract shall be deemed to be sales, the Supreme Court held that the State Legislature has no power to tax transactions which are not sales merely by enacting that they shall be deemed sales. Consequently, the Constitution was amended by the 46th Amendment in 1982 by which clause (29A) was inserted in article 366, i.e.,
"'tax on the sale or purchase of goods includes' -
(a) .............
(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."
4. Reading this definition of a tax on the sale or purchase of goods along with entry No. 54 in List II of the Seventh Schedule, the Constitution has specifically made it competent for the State to levy a tax on works contract and for the Centre to levy such tax in respect of such works contracts involving sale in the course of inter-State trade or commerce. The legislative power of the State flowing from this amended definition came up for consideration before the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204. The court laid down the following parameters for the exercise of this power :
"(1) In exercise of its legislative power to impose tax on sale or purchase of goods under entry 54 of the State List read with article 366(29A)(b), the State Legislature, while imposing 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 is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export.
(2) The provisions of sections 3, 4, 5 and sections 14 and 15 of the Central Sales Tax Act, 1956, are applicable to a transfer of property in goods involved in the execution of a works contract covered by article 366(29A)(b).
(3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of article 366(29A)(b) but it is not permissible for the State Legislature to define the expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export.
(4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling
