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Karnataka High Court
Judges : Venkataramaiya,H.Hombe Gowda
KENCHAPPA - Appellant
Versus
SALES TAX OFFICER, FOURTH CIRCLE, BANGALORE - Respondent
Writ Petition 63 Of 1956
Decided On : 09/12/1956
Sales Tax - Works Contract - Mysore Sales Tax Act - Section 2(e), 2(j), 2(l), 2(d), 2(k), 3 - The court discussed the provisions of the Mysore Sales Tax Act and the rules framed thereunder, emphasizing the definition of 'goods', 'sale', 'works contract', 'dealer', 'turnover', and the explanation related to the amount payable for carrying out a works contract. The court highlighted the arbitrary nature of the levy, the artificiality in assessment, and the unreasonable discrimination in the classification of contracts.
Fact of the Case:
The petitions challenged the levy of sales tax on moneys realized for execution of 'works contract' under the Mysore Sales Tax Act. The petitioners objected to the treatment of articles used by them as goods sold and the determination of their value by a formula.
Finding of the Court:
The court found that the assessment under the Act was arbitrary and led to unreasonable discrimination. It quashed the orders of assessment, noting the repugnancy to the principles of natural justice and Article 14.
Issues: The issues involved the treatment of articles used in works contracts as goods sold, the determination of their value, and the classification of contracts for the purpose of taxation.
Ratio Decidendi: The court held that the assessment was arbitrary, led to unreasonable discrimination, and was repugnant to the principles of natural justice and Article 14.
Final Decision: The court allowed the petitions and quashed the orders of assessment, directing parties to bear their own costs.
( 1 ) THIS is a batch of petitions filed under Article 226 of the Constitution of India in which the levy of sales tax on moneys realised for execution of certain contracts called "works contract" has been challenged. The petitioners are charged with liability for payment of the tax not on the total amount received by them but on the value of goods supplied by them for fulfilment of contracts entered into with others. The value has been fixed and the tax assessed in accordance with the provisions of the Mysore Sales Tax Act and the rules framed thereunder. The objections raised and arguments advanced being the same in all the petitions these may be conveniently disposed of by a single order.
( 2 ) THE grievance of the petitioners is that the articles used by them for carrying out the works undertaken by them are treated as goods sold by them and that the value of these is determined not by the actual cost paid for but by the application of a formula. It is true that considering the object of the Act, the meaning attached to sale and the scheme of assessment provided for generally, there is reasons for the petitioners to complain of pecularity and arbitrariness in the principle and procedure applied to them. There is no dispute about the assessment being in conformity with what is provided for by the statute and the rules made by Government in exercise of the power conferred on it by the statute. What has to be considered therefore is whether these are unauthorised, unconstitutional or unwarranted by the facts admitted or proved.
( 3 ) THREE decisions, one of the Madras High Court in Gannan Dunkerley v. State of Madras AIR1954 Mad 130 , another of the Nagpur High Court in Pandit banarsi Das v. State of Madhya Pradesh ([1955] 6 S. T. C. 93) and the third of the Hyderabad high in Jubilee Engineering Co. Ltd. v. Sales Tax Officer, Hyderabad ([1956] 7 S. T. C. 423; a. I. R. 1956 Hyd. 79), were strongly relied upon in support of the objections to the Act and the levy of the tax. In each of these, assessments similar to these now in question under analogous enactments were quashed; but the reasons for this are not identical. In the Hyderabad case the act which the Court had to consider was passed after the Constitution came into force and the view expressed by the Madras High Court has been adopted. The other two cases were concerned with the interpretation of the scope and spirit of Entry No. 48 in List II of the government of India Act, 1935 - tax on sale of goods. Although the conclusion in both is against the levy of the tax, emphasis is laid in one on the tax offending legislative policy and in the other on its being arbitrary, standard of assessment being artificial. An appeal against the order in the case of the Madras High Court is said to be pending before the Supreme court and the result of this may set at rest doubts now felt about the taxability of "works contract" under the Act in madras.
( 4 ) THERE is however an important feature of the Mysore Sales Tax Act which distinguishes it from the Acts, the assessment under which has been attacked in these cases and calls for independent examination of the criticism levelled against the orders. The Sales Tax Act in mysore unlike that of Hyderabad was passed prior to the Constitution and the power to enact it was not derived as in Madras or Central Provisions from any entry in the Schedule to the government of India Act. The provisions of the Mysore Act cannot therefore be impugned on the ground of these not being within the ambit of the entry or as not in harmony with the legislative policy of the Government of India Act. For this State there was Act XVIII of 1940 called the Government of Mysore Act which received the assent of His Highness the Maharaja on 13th April, 1940, and under section 24 of this Act : "subject to the provisions of this Act and the terms of instrument or agreement entered into in that behalf by His Highness the Maharaja or the Go
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