S. SANKARASUBBAN, J. –

This original petition challenges the vires of item (c) of Explanation 4 of clause (xxi) of section 2 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the Act"). This was introduced by Act 11 of 1995 which repealed Ordinance No. 11 of 1995. Item (c) of Explanation 4 of section 2 of the Act says that for the purpose of this Act, the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract shall be deemed to have taken place in the State, if the goods are within the State at the time of such transfer, irrespective of the place where the agreement of works contract is made, whether the assent of the other party to the contract is prior or subsequent to such transfer.

According to the petitioner, it deals with works contract and the contract consists of both sale of goods as well as sale of labour. But so far as the sale of goods is concerned, according to the petitioner, goods sold are sales of inter-State and hence, not liable to be taxed by the State Legislature. Before we deal with the contentions of both parties, it is necessary to state in brief the law regarding the works contract.

Tax on the sale of goods and purchase is the subject coming under entry 54 of List II of the Constitution of India. But this is subject to entry 92-A of List I of the Seventh Schedule. Under entry 92-A it is within the province of the Central Legislature to legislate with regard to tax on the sale or purchase of goods where such sale or purchase takes place in the course of inter-State trade or commerce. The question arose as to whether a works contract can be taxed under the definition of "sale" comes under the Act. This was resolved by the Supreme Court in the decision reported in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353. This decision, as already stated, gave difficulty in assessing the works contract under the Act.

Thereafter, Forty-sixth Amendment of the Constitution took place. As per the amendment, article 366(29-A) was introduced which gave a definition of tax on the sale or purchase of goods. As per this, tax on the sale or purchase of goods includes a tax on the transfer of the property in goods involved in the execution of a works contract. Consequential amendment was also made under article 286 of the Constitution of India. Article 286(3)(b) of the Constitution of India enabled the State to tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of article 366. Thus, by the Forty-sixth Amendment, State Legislature is enabled to tax on the sale or purchase of goods involved in a works contract. The State Legislature accordingly passed various legislations for enforcing the tax on the sale of goods involved in a works contract. Such legislations immediately paved the way for litigations and the validity of this enactment including the validity of article 366(29-A) of the Constitution of India was challenged before the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370. Two points were taken attacking the imposition of tax on the sale of goods involved in a works contract. The first point was that the Forty-sixth Amendment was unconstitutional, because it was not ratified by the Legislature of not less than one half of the State. The second point was that it was not open to ignore the provisions contained in article 286 of the Constitution of India and the provisions of the Central Sales Tax Act, 1956, while making assessment under the sales tax laws passed by the Legislature. The first point was found against the petitioner. It was found that the constitutional amendment was validly passed. In answering the second point, at page 403 of the above decision, the court observed as follows :

"We, therefore, declare that sales tax laws passed by the Legislatures of States levying tax