BUILDERS ASSOCIATION OF INDIA Vs. STATE OF KERALA

JUDGEMENT

(1.) THE prayers in the original petitions are to declare that the provisions of sections 5 (1) (iv) and 7 (7), 7 (7a), 7 (7b), 7 (8), 7 (10) and 7 (11) read with the Fourth Schedule to the Kerala General Sales Tax Act, 1963 (hereinafter referred to as "the KGST Act") as amendment by Act 23 of 1991 and Act 8 of 1992 read with rules 8 (4), 22a, 30a, and 59a as amended by the Kerala General Sales Tax Rules, 1991 (hereinafter referred to as "the KGST Act and Rules") are illegal, ultra vires and unconstitutional. THE Kerala General Sales Tax Act, 1963, was amended by Act 23 of 1991. THE petitioners are challenging the provisions of the Act as amended which is extracted as follows : " 5. Levy of tax on sale or purchase of goods.- (1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than one lakh rupees and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year, - . . . . . . . . . . . . . . . . . . . . . . (iv) (a) In the case of transfer of goods involved in the execution of works contract where transfer is in the form of goods at the rates and at the points specified against such goods in the First, Second or Fifth Schedule. (b) In the case of transfer of goods involved in the execution of works contract (where the transfer is not in the form of goods but in some other form) specified in the Fourth Schedule, at the rate specified against such contract in the said Schedule : Provided that no tax is payable in respect of the turnover of goods the transfer of which was effected without any processing or manufacture on which tax was levied under clause (i) on any earlier sale in the State or which are exempted from tax and for goods coming under the Fifth Schedule, no tax specified for the first sale is payable, on which tax was levied in any earlier sales in the State : Provided further that tax payable in respect of turnover of goods coming under the Second Schedule the transfer of which was effected without any processing or manufacture shall not exceed the rate and be only at the points specified against such goods in the said Schedule. . . . . . . . . . . . . . . . . . . . . . . 7. Payment of tax at compounded rates - . . . . . . . . . . . . . . . . . . (7) Notwithstanding anything contained in sub-section (1) of section 5 every contractor, in civil works of construction of buildings, bridges, roads, dams and canals including any repair or maintenance of such civil work may at his option instead of paying tax in accordance with clause (iv) of that sub-section pay tax at the rate of two per cent on the whole amount of contract and which shall be deducted from the payments made by the awarder at every time including advance payment and shall remit it to Government in such manner as may be prescribed. (7a) Notwithstanding anything contained in sub-section (1) of section 5 every contractor not covered by sub-section (7) may at his option, instead of paying tax in accordance with the said section, pay tax on the whole amount of contract at the rate of seventy per cent of the rates, shown in the Fourth Schedule against such contract, less any tax paid by him under this Act on the purchase of any goods used in such contract, the transfer of which to the works contract was effected without any processing or manufacture : Provided that any contractor whose total annual contract amount does not exceed rupees fifty lakhs and has not opted for payment of tax in accordance with this sub-section may opt to pay tax at five per cent on the whole contract amount irrespective of the nature of contract. (7b) THE tax under clause (iv) of sub-section (1) of section 5, sub-sections (7) and (7a) of this section shall be deducted from the payment made by the awarder at every time including advance payment and remit it to Government within seven days in the prescribed manner. (8) THE option referred to in sub-sections (7) and (7a) may be exercised either by an express provision in the agreement for the contract or by an application to the assessing authority to permit him to pay tax in accordance with any of these sub-sections. . . . . . . . . . . . . . . (10) If the awarder effects any payment without deduction of the tax payable or without the permission of the assessing authority in case application is presented before him, the whole amount of tax payable shall be recovered from the awarder and all provisions of this Act for the recovery of tax including those relating to levy of penal interest and penalty shall apply as if the awarder is the assessee for the purposes of this Act. (11) Any contractor who opts for the payment of tax in accordance with the provisions of sub-sections (7) and (7a) shall file the returns showing all the contracts he has undertaken along with certificates from the awarders, showing the whole amount of contract and the details of tax deducted and remitted to Government and if the particulars are correct and complete, the assessing authority may summarily make an assessment on that basis. (12) After the close of the year or at the completion of the works contract and on receipt of final statement of accounts and return, if the tax on purchases is found to be in excess of the tax payable under the compounded rates, no refund of such excess tax paid shall be made. . . . . . . . . . . . . . . Rule 8. Determination of total turnover - . . . . . . . . . . . . . . (4) For the purpose of sub-rule (1), the amount for which goods are sold by a dealer shall, - (a) in relation to a works contract in which the transfer of property takes place in the form of goods, the whole amount payable to the dealer for carrying out such contract; (b) in relation to a works contract in which the transfer of property takes place not as goods but in some other form in which the dealer transfers all the goods involved in the execution of such contract, the whole amount payable to the dealer for carrying out such contract less the labour charges not incurred in relation to the goods involved in the execution of the works contract, as established and proved by the contractor; (c) in relation to a works contract in which the transfer of property takes place not as goods but in some other form in which the goods supplied by the awarder are party involved, the proportionate amount of the whole contract amount less labour charges as explained in (b) above worked out in the proportion of the cost of goods supplied by such awarder and the cost of goods supplied by the contractor or other person, be deemed to be turnover of such contractor : . . . . . . . . . . . . . . . 22a. Payment and recovery of tax in works contract.- (1) In the case of works contract on which tax is payable in accordance with the provisions of the Act whether an option under sub-section (8) of section 7 is made or not, the tax shall be paid either by the contractor in accordance with the rules or by the awarder. (2) Wherever payment is made by the awarder to the contractor either in lump sum for the whole contract or in instalments, the awarder shall withhold an amount equal to the tax due in accordance with the provisions of the Act from such payment or payments and shall remit to the assessing authority with whom the contractor is registered as a dealer and if he is not so registered, to the assessing authority having jurisdiction over the place of works contract, within seven days of the amount so withheld along with a statement in form No. 21c. (3) Notwithstanding anything contained in sub-rule (2) above, any contractor who pays tax regularly in accordance with the rules, on production of a certificate issued to that behalf issued by the assessing authority shall be entitled to payment of the contract amount without deduction of sales tax due on the contract for the period and to the extent or for the works contract specified in the certificate. "

(2.) AFTER the introduction of the Constitution (Forty-sixth Amendment) Act, 1982, the definition of "sale" under article 366 and clause (29-A) enabled the State under entry 54, List II of the State List and entry 92-A of List I to levy tax on transfer of property in goods involved in the execution of works contract. Kerala Government introduced amendments to its General Sales Tax Act from April 1, 1984, enabling the levy of sales tax on works contract by enacting a separate charging section and Schedule classifying works contract. Amendments were also made in the Rules providing for reduction of fixed percentage of labour in determining total turnover. A batch of writ petitions had been filed against the said amendment. While so, the Supreme Court taking note of batch of writ petitions pending in the different High Courts challenging the constitutional validity of Forty-sixth Amendment considered the matter in the decision reported in Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371 and upheld the validity of the Constitution Forty-sixth Amendment. According to the petitioners while these batch of writ petitions were pending, the respondents have introduced the amendment by Act 23 of 1991 amending the KGST Act.

(3.) IN A. V. Fernandez v. State of Kerala [1957] 8 STC 561, the Supreme Court held as follows : ". . . . . . . If there is a liability to tax, imposed under the terms of the taxing statute, then follow the provisions in regard to the assessment of such liability. If there is no liability to tax there cannot be any assessment either. Sales or purchases in respect of which there is no liability to tax imposed by the statute cannot at all be included in the calculation of turnover for the purpose of assessment and the exact sum which the dealer is liable to pay must be ascertained without any reference whatever to the same. "