Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1988 Supreme(Ori) 76

R.C. Patnaik, S.C. Mohapatra, JJ.
BHARAT HEAVY ELECTRICALS LTD. AND OTHERS
Versus
UNION OF INDIA AND OTHERS
O.J.C. Nos. 2406 of 1985, 3491, 2872, 2630, 3350, 3327, 3242, 3244, 3243, 3159, 3160, 3189, 3106, 3188, 3181, 3695, 3694, 3119, 3120, 3061, 3696, 3386, 2825, 2853, 3050, 3067, 2863, 2864, 3180, 3025 and 3158 of 1986 and 203, 202, 273, 107, 103, 71 and 117 of 1987
Decided On: Decided On : 12-05-1988

Advocates Appeared:
B. Agarwalla, M. Agarwalla, S. P. Dalai and R. L. Agarwal (in O.J.C. Nos. 3491 and 2872 of 1986), B. K. Mohanty, Bibek Mohanty, S. C. Mohanty and G. N. Padhi (in O.J.C. Nos. 2630, 3350, 3327, 3242, 3244, 3243, 3159, 3160, 3189, 3106, 3188, 3181, 3695, 3694, 3119, 3120, 3061, 3696 of 1986 and 203 and 202 of 1987 and 2406 of 1985), A. Pasayat, N. Paikray and B. C. Panda (in O.J.C. Nos. 3386, 2825, 2853, 3050, 3067 and 3025 of 1986 and 107 of 1987), G. C. Patnaik, N. P. Parija, S. R. Patnaik, T. K. Patnaik, R. K. Mohanty and J. P. Das (in O.J.C. No. 2863 of 1986), S. K. Das and S. B. Jena (in O.J.C. No. 273 of 1987), R. K. Mohanty, S. R. Patnaik, N. P. Parija, J. P. Das, T. K. Patnaik and G. S. Jethi (in O.J.C. Nos. 2864 and 3180 of 1986), Ch. P. K. Mishra, S. N. Mishra and N. Rath (in O.J.C. No. 117 of 1987), R. Mohanty, I. Mohanty and L. Pradhan (in O.J.C. No. 3158 of 1986), N. Prusty (in O.J.C. No. 103 of 1987) and P. Palit, R. Mohapatra, A. K. Bhagat and S. K. Sanganeria (in O.J.C. No. 71 of 1987), for the petitioners.
The Advocate-General, the Additional Standing Counsel, the Standing Counsel (Central) and the Standing Counsel (Commercial Taxes), for the opposite parties.

The transfer of property in goods involved in the execution of a works contract is a sale and thus render such goods as far as permissible under the law exigible to sales tax.

Headnote:
WORKS CONTRACT - TAXATION - ORISSA SALES TAX ACT - AMENDMENT - VALIDITY - INTERPRETATION - TAXABLE TURNOVER - DEFINITION - GOODS INVOLVED IN WORKS CONTRACT - SALE - MEANING - INTER-STATE SALES - DECLARED GOODS - DOUBLE TAXATION - SERVICE CHARGES - LABOUR CHARGES.
Fact of the Case:

Various petitioners challenged the levy of tax under the Orissa Sales Tax Act, amended in 1986, pursuant to the 46th Amendment of the Constitution, on their business of works contract. The petitioners contended that the levy was ultra vires, that the definition of "taxable turnover" was arbitrary, and that the amendment left scope for levy of tax on inter-State sale and declared goods.
Finding of the Court:

The Court held that the 46th Amendment to the Constitution was not ultra vires and that the definition of "taxable turnover" in section 5(2)(AA)(i) was to be read as "'Taxable turnover' in respect of - (i) 'Works contract', where the dealer does not or fails to satisfy the assessing authority or where there are no materials before as to the value of the goods involved in the works contract and exigible to tax under the Orissa Sales Tax Act, shall be deemed to be the gross value received or receivable by a dealer for carrying out such a contract less the amount of labour charges and service charges incurred for the execution of the contract."
Issues: 1. Whether the 46th Amendment to the Constitution was ultra vires? 2. Whether the definition of "taxable turnover" in section 5(2)(AA)(i) was arbitrary? 3. Whether the amendment left scope for levy of tax on inter-State sale and declared goods?
Ratio Decidendi: 1. The 46th Amendment to the Constitution was not ultra vires as it was within the Parliament's power to amend the Constitution so long as the basic structure of the Constitution was not changed. 2. The definition of "taxable turnover" in section 5(2)(AA)(i) was not arbitrary as it was intended to provide an easy and convenient mode of determining the taxable turnover in cases where the goods involved in a works contract were not exigible to tax. 3. The amendment did not leave scope for levy of tax on inter-State sale and declared goods as such transactions were beyond the jurisdiction of the authority under the Act to be levied.
Final Decision: The Court allowed the writ petitions to the extent that the impugned orders of assessment were set aside and the assessing officer was directed to reassess by giving specific findings supported by reasons.

JUDGMENT

S. C. MOHAPATRA, J. - In these writ applications under article 226 of the Constitution of India levy of tax under the Orissa Sales Tax Act (for short "the Act") amended in the year 1986, pursuant to the 46th Amendment of the Constitution is assailed by various petitioners from whom the assessing authorities claimed tax in respect of their business of works contract. As common questions of law are involved in all these writ applications, they were heard together and are disposed of by this common judgment.

2. Since we are considering the question whether the goods transferred to the contractee by each of the petitioners would be in course of execution of the works contract, we are not going into the merit of the case whether the goods have been actually transferred. In case we come to the conclusion that tax is exigible in respect of the goods involved in such of the works contract, we shall give opportunity to the petitioners to approach the statutory authorities who shall find facts to determine whether the transactions are exigible to tax.

3. Under article 265 of the Constitution, no tax shall be levied or collected without authority of law. Prior to the Constitution, provisions of the Government of India Act, 1935, were regulating the levy and collection of taxes. Under the said Act provincial legislatures were authorised to make law for levy and collection of tax on sale and purchase of goods. Pursuant to such authority various provincial legislatures including Orissa made law and the Act was enacted in the year 1947. Under the scheme of the Act a person, who carries on the business of sale of goods was made liable to pay tax under section 4 of the Act. "Sale" was defined to mean any transfer of property in goods for consideration including the transfer of property in such goods involved in the execution of contract". "Goods" was defined to mean "all kinds of movable property which includes all materials, articles and commodities whether or not to be used in construction, fitting out, improvement and repair of immovable property" and "contract" was defined to mean "any agreement for carrying out for consideration the construction, fitting out, improvement or allotment of any building, road, bridge or other immovable property". During continuance of the Act in force, Constitution of India was made and a similar provision as in the Government of India Act was incorporated in entry 54 of List II of the Seventh Schedule authorising the legislative authorities of the States to make laws to levy and collect tax on sale and purchase of goods. The Act became an existing law. By Act 37 of 1951 definition of "contract" was amended to mean "any agreement for carrying out for cash or deferred payment or other valuable consideration the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property; the installation or repair of any machinery affixed to any building or other immovable property or the overhaul or repair of any motor vehicle or other machinery". Similar provisions for levy and collection of tax on goods involved in works contracts were made by other provincial laws and the State laws. The purpose of the levy was to augment revenue. Challenges were made to the power of the State Legislatures to make laws to levy and collect tax on goods involved in construction of buildings and other immovable properties on the ground that there was no sale of goods as such. The Supreme Court in the decision reported in [1958] 9 STC 353 [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.] settled the law by deciding that the transfer of goods involved in any works contract is not sale exigible to tax under the sales tax laws made either under the Government of India Act or under the Constitution by the State Legislatures. On account of the decision of the Supreme Court, Orissa Act 18 of 1959 was enacted amending the Act and all provisions in the Act authorising levy and collection

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