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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE K.S. BAKTHAVATSALAM & THE HONOURABLE MR. JUSTICE D. RAJU
Larsen and Toubro Limited - Appellant
Versus
State of Tamil Nadu and Another. (And Others Cases) - Respondents
Writ Petition No. 520 of 1985 and other cases
Decided On : 23 December 1992
The constitutional validity of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984), the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986), and the rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, was challenged. The court held that the amendments to the definition of "sale", "dealer", "goods", and "turnover", and the addition of a new definition clause defining "works contract" in the 1984 Amendment Act were constitutionally valid. The court also upheld the insertion of section 3-B and the addition of the Fourth Schedule to the main Act by the 1986 Amendment Act. However, the court struck down rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, as unconstitutional and illegal. The court held that the rules failed to provide the procedure and principles for effectively determining the taxable turnover, after excluding the items of turnover relating to such works contract which could not be subjected to levy of tax by the State. The court also clarified that the decision of the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan (1992) 2 MTCR 474 has already declared the position of law in this regard, and the question as to whether in an individual case of an assessee/dealer the claims made conform to the principles laid down by the Supreme Court is purely matter pertaining to the area of assessment of a dealer under the Act and such exercise cannot and need not be undertaken for adjudication in these proceedings at this stage.
Fact of the Case:
The petitioners, who are assessees under the Tamil Nadu General Sales Tax Act, 1959, challenged the constitutional validity of the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984), the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986), and the rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959. The petitioners contended that the impugned provisions were violative of the Constitution of India and were ultra vires the powers of the State Legislature.
Finding of the Court:
The court held that the amendments to the definition of "sale", "dealer", "goods", and "turnover", and the addition of a new definition clause defining "works contract" in the 1984 Amendment Act were constitutionally valid. The court also upheld the insertion of section 3-B and the addition of the Fourth Schedule to the main Act by the 1986 Amendment Act. However, the court struck down rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, as unconstitutional and illegal. The court held that the rules failed to provide the procedure and principles for effectively determining the taxable turnover, after excluding the items of turnover relating to such works contract which could not be subjected to levy of tax by the State.
Issues: 1. Whether the amendments to the Tamil Nadu General Sales Tax Act, 1959, made by the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984), were constitutionally valid? 2. Whether the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986), which inserted section 3-B and added the Fourth Schedule to the main Act, was constitutionally valid? 3. Whether rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, were constitutionally valid?
Ratio Decidendi: The court held that the impugned provisions were violative of the Constitution of India and were ultra vires the powers of the State Legislature. The court relied on the following principles in reaching its decision: * The Constitution (Forty-sixth Amendment) Act, 1982, had enlarged the scope of the definition of "sale" in article 366(29-A) of the Constitution of India to include a transfer of property in goods or in some other form, in view of the execution of a works contract. * The State Legislature has the power to levy sales tax on the transfer of property in goods involved in the execution of a works contract, but the measure for levy of such imposition is the value of the goods involved in the execution of a works contract and not the cost of acquisition of the goods by the contractor. * The State Legislature cannot impose a tax on such a deemed sale which constitutes a sale in the course of inter-State trade or commerce, an outside sale, or a sale in the course of import or export. * The State Legislature cannot so frame its law as to convert an outside sale in the course of import and export into a sale inside the State.
Final Decision: The court held that the amendments to the definition of "sale", "dealer", "goods", and "turnover", and the addition of a new definition clause defining "works contract" in the 1984 Amendment Act were constitutionally valid. The court also upheld the insertion of section 3-B and the addition of the Fourth Schedule to the main Act by the 1986 Amendment Act. However, the court struck down rules 6-A and 6-B of the Tamil Nadu General Sales Tax Rules, 1959, as unconstitutional and illegal. The court also clarified that the decision of the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan (1992) 2 MTCR 474 has already declared the position of law in this regard, and the question as to whether in an individual case of an assessee/dealer the claims made conform to the principles laid down by the Supreme Court is purely matter pertaining to the area of assessment of a dealer under the Act and such exercise cannot and need not be undertaken for adjudication in these proceedings at this stage.
BAKTHAVATSALAM, J.
These batch of cases raise identical and similar issues pertaining to the constitutional validity, legality and propriety of levy of sales tax and other allied taxes on transactions familiarly known as "works contracts". Though the nature of such works contracts are varied and multifarious, their grievance and concern are common, except certain differences peculiar to the type of contracts which ultimately have relevance only in respect of the individual assessment and determination of the liability of the assessee concerned, but so far as the constitutional and legal issues raised are concerned, there are no differences, as such. In these batch of writ petitions, some of the assessees have challenged the validity of the amendments introduced by the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1984 (Tamil Nadu Act 28 of 1984) and rules 6-A and 6-B introduced with effect from October 1, 1984 or the Tamil Nadu General Sales Tax (Fourth Amendment) Act, 1986 (Tamil Nadu Act 42 of 1986) introducing section 3-B and the Fourth Schedule to the main Act with effect from June 26, 1986 and amendments to rule 6-B, etc., at different stages obtaining interim orders from initiating any action against them and others challenging in addition to the validity of those provisions, the consequential pre-assessment notices or orders of provisional assessment or final assessment passed in individual cases by the respective assessing officers. In October, 1989, some of the writ petitions earlier filed came to be summarily disposed of by a Division Bench of this Court by issuing certain directions to the assessees and assessing officers and without going into the question of vires of the provisions challenged, in the wake of the decision of the Supreme Court of India reported in (Builders Association of India v. Union of India). Even those assessees have filed second round of cases taking advantage of the law declared by the apex Court in the above decision and the petitioner in W.P. No. 8465 of 1986 filed an appeal before the apex Court in C.A. No. 138 of 1990, in which the apex Court while setting aside the order of the Division Bench of this Court, remanded the matter for fresh consideration on the various issues raised including the vires of the Act and the Rules made thereunder.
2. The circumstances leading to the enactment of the Constitution (Forty-sixth Amendment) Act, 1982, have been set out at length by the apex Court both in the decision reported in Builders Association case and Gannon Dunkerley and Co. v. State of Rajasthan - Larsen and Toubro Limited v. Union of India [S.L.P. (Civil) Nos. 3365 to 3368 of 1992 and W.P. No. 197 of 1991] reported in (1992) 2 MTCR 474 and there is no need for making a detailed reference to the same. Suffice it to notice that in view of certain decisions of the apex Court on the legislative competence of the Provincial Legislatures under entry 48 in List II of the Seventh Schedule to the Government of India Act, 1935 and entry 54 of List II of the Seventh Schedule to the Constitution of India, the matter with regard to the taxability of goods involved in execution of works contracts was examined by the Law Commission of India and certain recommendations were made in its 61st report suggesting various and alternate methods to be adopted to restore power to the States to legislate and levy sales tax on transactions like works contracts which resemble sale in substance. Consequently, the Constitution (Forty-sixth Amendment) Act inserted clause (29-A) in article 366 and substituted clause (3) of article 286 of the Constitution of India. Thereafter, various State Legislatures, including the State of Tamil Nadu amended their respective sales tax legislations to make provision for imposition of sales tax on transaction relating to works contracts. The constitutional validity of the Forty-sixth Amendment as well as the consequent amendments of State laws came up for challenge befo
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