BUILDERS ASSOCIATION OF INDIA Vs. STATE OF KARNATAKA

JUDGEMENT

(1.) ALL these writ petitions can be dealt with under a common judgment since they question the validity of section 5B of the Karnataka Sales Tax Act, 1957, introduced by the Amendment Act No. 27 of 1985, with effect from 1st April, 1986.

(2.) WE propose to note the facts in Writ Petitions Nos. 2064 to 2067 of 1988 : The petitioners are civil engineering contractors engaged in civil construction work in the State of Karnataka. In order to bring the activity of works contract within the purview of power to levy sales tax by the respective State, amendments were introduced extending the definition of 'sale' under article 366(29 -A) of the Constitution of India. Following the constitutional amendment, the Karnataka Sales Tax Act was amended by the Amendment Act No. 27 of 1985. In pursuance of the amendment, the Karnataka Sales Tax Rules were also amended by the Karnataka Sales Tax (Amendment) Rules, 1986. As a result of the aforesaid amendments, the activity of the petitioner in the nature of works contract in the State, has been brought within the scope of the Karnataka Sales Tax Act. The petitioners challenge the constitutionality of the Forty -Sixth amendment, as well as the amendments made to the Karnataka Sales Tax Act. The challenge is in three stages :

(3.) MR . K. Srinivasan, supporting the arguments of Mr. Venugopal, submits that article 286(1)(a) of the Constitution talks of sale outside the State. This is what is contemplated under section 4 of the Central Sales Tax Act. Therefore, explanation (3)(c) to section 2(1)(t) of the Karnataka Sales Tax Act is directly opposed to section 4 of the Central Sales Tax Act. The Forty -sixth Amendment of the Constitution says that even in case of works contract it has to be treated as a sale, the rate of taxation on transfer of goods involved, it is different in a labour contract or contract of service in comparison to ordinary sale, it would be discriminatory in nature and, therefore, must be held to be bad. While construing section 5B of the Karnataka Sales Tax Act, it must be subject to section 5, 3 and 4. The non obstante clause at the opening of the section will have to be struck down. The learned counsel draws our attention to rule 6; a similar provision in Bihar Sales Tax Rules was struck down as seen from Jamshedpur Contractor's Association v. State of Bihar [1989] 75 STC 132 (Pat). Mr. Vijayan, learned counsel, supplementing his arguments, would say that in the absence of a situs of sale being demarcated in article 286(2) or article 269(3) of the Constitution, the State law is premature. Therefore, section 5B of the Karnataka Sales Tax Act is violative of these provisions. The next submission of the learned counsel is that explanation (3)(c) to section 2(1)(t)(ii) of the Karnataka Sales Tax Act prescribes a peculiar test which is violative of article 286 of the Constitution. This is precisely what is criticised in : [1989]2SCR320 (Builders Association case) (a page 396 and 397 of STC; para 32 at page 1388 of AIR). The learned counsel further cites Goodyear India Ltd. v. State of Haryana : [1991]188ITR402(SC) and particularly the passages occurring at pages 85 and 86, and submits that there is no legislative authority for enacting section 5B of the Karnataka Sales Tax Act. Section 5B will have to go since it proposes to tax the conglomerate.