The State Legislature has the power to tax the transfer of property in goods involved in the execution of a works contract, including an agreement for the building and construction of immovable property.

(Dr. D.Y. Chandrachud, J.)

Rule in Writ Petition Nos.2089 of 2011 and 680 of 2012. Respondents waive service. By consent all the petitions have been taken up for final hearing since common questions are involved.

The nature of the challenge

2. In this batch of petitions under Article 226 of the Constitution there is a challenge to the constitutional validity of Section 2(24) of the Maharashtra Value Added Tax Act, 2002 as amended initially by Maharashtra Act XXXII of 2006 and thereafter by Maharashtra Act XXV of 2007 on the ground that the amendments transgress the limitations contained in Article 366(29A)(b) of the Constitution. The challenge of the petitioners is that by amending the provisions of Section 2(24) the State Legislature has brought within the ambit and purview of the expression "sale", an agreement for the building and construction of immovable property which is not a works contract. Consequently, the legislative competence of the State Legislature is questioned on the ground that the Legislature by and as a result of the amendment has sought to impose a tax on a transaction which does not involve a sale of goods within the meaning of Entry 54 of the State List to the Seventh Schedule to the Constitution and has hence transgressed the limitations on its legislative power under Article 246(3) of the Constitution. There is also a challenge in consequence to the provisions of Rule 58(1A) of the Maharashtra Value Added Tax Rules, 2005 which were introduced by a State Notification dated 1 June 2009. The batch of petitions also involves a challenge to a Circular dated 7 February 2007 issued by the State Government purporting to clarify the scope of the amendment. The petitioners also seek to question a Notification dated 9 July 2010 issued by the State Government under the Act notifying a composition scheme and the legitimacy of certain notices which have been issued by the State Tax Authorities. Maharashtra Value Added Tax Act, 2002 and the Rules

3. The Maharashtra Value Added Tax Act, 2002, as it was originally enacted, defined the expression "sale" in Clause (24) of Section 2 as follows:

"(24) "sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration but does not include a mortgage, hypothecation, charge or pledge; and the words "sell", "buy" and "purchase" with all their grammatical variations and cognate expressions, shall be construed accordingly."

Clause (b) of the Explanation to the Section defined what would be a sale for the purpose of the clause and brought in its ambit the following transactions:

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

(ii) the transfer of property in goods (whether as goods or in some other form) involved in the execution of' a works contract;

(iii) a delivery of goods on hire-purchase or any system of payment by instalments;

(iv) the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(v) the supply of goods by any association or body of persons incorporated or not to a member thereof or other valuable consideration;

(vi) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is made or given for cash, deferred payment or other valuable consideration."

With effect from 20 June 2006 the provisions of Explanation (b)(ii) to Section 2(24) were amended by the insertion of the following words after the words "works contract":-

"namely, an agreement for carrying out for cash, deferred payment or other valuable consideration the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or