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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE JANARTHANAM
Kamatchi Lamination Private Limited - Appellant
Versus
State of Tamil Nadu and Another - Respondents
Writ Petition Nos. 10593, 10594, 11148, 12071, 12740, 12747, 13257, 13258, 14019, 14244, 15477, 15705, 15706, 15707, 15967 of 1993
Decided On : 13 June 1994
Whether the provisions of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984) in so far as it amended section 2(g), (j), (n), (r) and (u) pursuant to the Constitution (Forty-sixth Amendment) Act, 1982 are intra vires and valid and quite in accordance with law; Whether the provisions of the Tamil Nadu General Sales Tax (Fourth-Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986), are intra vires and valid and quite in accordance with law; Whether the provisions of rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, are unconstitutional, illegal and are struck down as unenforceable in law; consequently any orders passed and any action initiated on the basis of such rules shall be invalid in law; Whether the liability or otherwise of the dealers/assessees under the Tamil Nadu General Sales Tax Act, 1959 and the Rules made thereunder, de hors our decision striking down rules 6-A and 6-B shall not stand in any manner affected or undermined by this decision; Whether the State shall be at liberty to bring to life, force and effect section 3-B by appropriate legislation, including subordinate legislation in accordance with the principles and dicta laid down by the Supreme Court of India in the decisions in (i) Gannon Dunkerley & Co. v. State of Rajasthan (1992) 2 MTCR 474 and (ii) Builders Association of India v. State of Karnataka 1993 (8) STC 248; (1992) 2 MTCR 542; Whether nothing in this order shall affect the right of the Revenue to initiate or continue or pursue and proceed to decide or pass orders or assess and recover the tax due as and when the law is validity made and in accordance with law; and Whether these writ petitions, shall stand ordered and finally disposed of in the above terms.
Fact of the Case:
The challenge in these actions is relatable to tax on "goods", involved in the execution of works contracts, as per the sanguine provisions adumbrated in section3-B of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act No. 1 of 1959 - for short "the Principal Act"), substituted from March 12, 1993 by Act No. 25 of 1993 - Gazette dated May 28, 1993.
Finding of the Court:
The provisions of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984) in so far as it amended section 2(g), (j), (n), (r) and (u) pursuant to the Constitution (Forty-sixth Amendment) Act, 1982 are intra vires and valid and quite in accordance with law; The provisions of the Tamil Nadu General Sales Tax (Fourth-Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986), are intra vires and valid and quite in accordance with law; The provisions of rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, are unconstitutional, illegal and are struck down as unenforceable in law; consequently any orders passed and any action initiated on the basis of such rules shall be invalid in law; The liability or otherwise of the dealers/assessees under the Tamil Nadu General Sales Tax Act, 1959 and the Rules made thereunder, de hors our decision striking down rules 6-A and 6-B shall not stand in any manner affected or undermined by this decision; The State shall be at liberty to bring to life, force and effect section 3-B by appropriate legislation, including subordinate legislation in accordance with the principles and dicta laid down by the Supreme Court of India in the decisions in (i) Gannon Dunkerley & Co. v. State of Rajasthan (1992) 2 MTCR 474 and (ii) Builders Association of India v. State of Karnataka 1993 (8) STC 248; (1992) 2 MTCR 542; Nothing in this order shall affect the right of the Revenue to initiate or continue or pursue and proceed to decide or pass orders or assess and recover the tax due as and when the law is validity made and in accordance with law; and these writ petitions, shall stand ordered and finally disposed of in the above terms.
Issues: Whether the provisions of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984) in so far as it amended section 2(g), (j), (n), (r) and (u) pursuant to the Constitution (Forty-sixth Amendment) Act, 1982 are intra vires and valid and quite in accordance with law; Whether the provisions of the Tamil Nadu General Sales Tax (Fourth-Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986), are intra vires and valid and quite in accordance with law; Whether the provisions of rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, are unconstitutional, illegal and are struck down as unenforceable in law; consequently any orders passed and any action initiated on the basis of such rules shall be invalid in law; Whether the liability or otherwise of the dealers/assessees under the Tamil Nadu General Sales Tax Act, 1959 and the Rules made thereunder, de hors our decision striking down rules 6-A and 6-B shall not stand in any manner affected or undermined by this decision; Whether the State shall be at liberty to bring to life, force and effect section 3-B by appropriate legislation, including subordinate legislation in accordance with the principles and dicta laid down by the Supreme Court of India in the decisions in (i) Gannon Dunkerley & Co. v. State of Rajasthan (1992) 2 MTCR 474 and (ii) Builders Association of India v. State of Karnataka 1993 (8) STC 248; (1992) 2 MTCR 542; Whether nothing in this order shall affect the right of the Revenue to initiate or continue or pursue and proceed to decide or pass orders or assess and recover the tax due as and when the law is validity made and in accordance with law; and Whether these writ petitions, shall stand ordered and finally disposed of in the above terms.
Ratio Decidendi: The expression "tax on the sale or purchase of goods" in entry 54 of the State List, therefore, includes 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 also. The tax leviable by virtue of sub-clause (b) of clause (29-A) of article 366 of the Constitution thus becomes subject to the same discipline to which any levy under entry 54 of the State List is made subject to under the Constitution.
Final Decision: These writ petitions are accordingly disposed of, with no order as to costs. Consequently, all W.M.Ps. are also dismissed.
JANARTHANAM, J.
The challenge in these actions is relatable to tax on "goods", involved in the execution of works contract, as per the sanguine provisions adumbrated in section3-B of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act No. 1 of 1959 - for short "the Principal Act"), substituted from March 12, 1993 by Act No. 25 of 1993 - Gazette dated May 28, 1993.
2. Before narrating and enumerating the specific challenges made, better it is, I think, to trace the legislative history leading to the enactment of a statutory provision, namely, section 3-B, in its present form, in a bid, to rather understand, in a crisp fashion, such challenges and solve the tangle posed therefor, with ease and grace, and without any difficulty whatever.
3. Under entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935 (for short "the GI Act"), the legislative power to impose taxes on sale of goods and on advertisements was conferred on the Provincial Legislatures. Under the Constitution, as adopted, the said power was divided between Parliament and State Legislature, under entry 92 in List I and entry 54 of List II of the Seventh Schedule to the Constitution of India (for short "the Constitution").
4. Parliament was empowered to impose taxes on the sale or purchase of newspapers and on advertisements published therein and under entry 54 in List, II, the State Legislatures were empowered to impose taxes on the sale or purchase of goods, other than newspapers.
5. With regard to imposition of sales tax on goods involved in the execution of works contracts, where the contract was single and indivisible, the question arose whether there was a "sale" of those materials within the meaning of that word in entry 48 in List II of the Seventh Schedule to the GI Act and entry 54 in List II of the Seventh Schedule to the Constitution.
6. There was a sharp cleavage of opinion among the High Courts on that question. This Court, in Gannon Dunkerley & Co. (Madras) Ltd. v. State of Madras took the view that the expression "sale of goods" in entry 48 in List II of the GI Act and entry 54 in List II of the Constitution had the same meaning as it has in the Sale of Goods Act, 1930 and that construction works contracts were not contracts for sale of the materials used there in and that the contract, being entire and indivisible, could not be broken into a contract for sale of materials and a contract for payment for work done. On that view, it was held that the provisions of the amendments introduced by the Amendment Act of 1947 in the Madras General Sales Tax Act, 1939, whereby the definition of "sale" was enlarged to include
"a transfer of property in goods involved in the execution of a works contract"*
and thereby impose sales tax on such transfers, were declared ultra vires the powers of the Provincial Legislature.
7. This sort of a view of this Court was adopted by the Hyderabad High Court in Jubilee Engineering Co. Ltd. v. Sales Tax Officer.
8. The Kerala High Court in Gannon Dunkerley and Co. Madras (Private) Ltd. v. Sales Tax Officer and the Mysore High Court in Mohamed Khasim v. State of Mysore took the contrary view and upheld the power of the State to impose sales tax on the turnover relating to construction works.
9. The Nagpur High Court in Pandit Banarsi Das v. State of Madhya Pradesh while declining to follow the decision of this Court, expressed the view that the State Legislature could pick out a sale from the composite transaction of a building contract, which included transfer of property in materials and could make the portion attributable to the cost of such materials subject to payment of sales tax in exercise of its undoubted and plenary powers. The Rajasthan High Court in Bhuramal v. State of Rajasthan took a similar view.
10. This sort of a conflict was resolved by the apex Court of this country in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., where in the decision of this Court was affirmed and it
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