T SATHYAPALAN Vs. STATE OF KERALA

JUDGEMENT

(1.) ALL these original petitions are filed challenging sub-section (7b) of section 7 of the Kerala General Sales Tax Act, 1963. The present sub-section (7b) was substituted by the Kerala Finance Act, 1994 with effect from April 1, 1994 which is as follows : " (7b) Every awarder shall deduct tax at the rate of two per cent in respect of civil contracts and five per cent in respect of other contracts from the payments made by him to any contractor liable to tax under section 5, at every time, including advance payments, and remit it to the Government within seven days from the date of such deduction in the prescribed manner. " As per the provision then stood, in the case of works contract, every awarder shall deduct tax due under clause (iv) of sub-section (1) of section 5, from the payment by the awarder at every time including the advance payment and remitted to the Government. Clause (iv) of sub-section (1) of section 5 states that 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. Sub-clause (iv) of section 5 sets out the rates of tax payable by a dealer. Thus the change that has been brought about by the amendment is that instead of the whole payment of tax due being deducted by the awarder, the present provision contemplates deduction of two per cent in the case of civil contract and 5 per cent in respect of other contracts, from the payments made by the awarder. Proviso to sub-rule (2) of rule 22a of the Kerala General Sales Tax Rules, 1963 states that no amount under this sub-rule shall be deducted if there is no transfer of goods involved in the execution of the works contract. If a contractor establishes that there is no works contract involved or that he had been paying the tax regularly, he can obtain a certificate in that behalf from the assessing authority to that effect, and on that basis he is entitled to payment of the contract amount without deduction of the sales tax due. There is a provision for adjustment under sub-rule (6) of rule 22a. Sub-section (7b) then stood was considered by this Court in Symon v. State of Kerala [1995] 97 STC 283. This Court held that sub-section (7b) has to be read with these provisions, section 5 (1) (iv) and section 2 (xxv), and so read, it cannot be branded as arbitrary or bereft of provisions for making admissible deductions. If there is any defect, or if all the permissible deductions are not provided for in arriving at the taxable turnover for purposes of section 5 (1) (iv) (b), that will be a matter concerning the vires of that provision, and not a ground for striking down sub-section (7b ). It was further held that any deduction and payment made, of tax due from a contractor, who has not opted for payment at the compounded rate is subject to adjustment at the final assessment that has to be made on him. In any case, rule 22a (3) affords the contractor an option and an opportunity to avoid the alleged offensive deduction by paying the tax regularly in accordance with the rules. Ultimately the learned Judge found nothing in sub-section (7b) justifies the various apprehensions voiced by the petitioners. Thus the original petitions challenging the said provision were dismissed. A division Bench of this Court in Builders Association of India v. State of Kerala [1995] 98 STC 490; (1995) KLJ Tax Cases 143 reversed the above decision in so far as it related to the payment of tax at compounded rate imposing a levy of tax on "whole amount" as not in accordance with article 366 (29a) (b) of the Constitution of India. In appeal (State of Kerala v. Builders Association of India [1997] 104 STC 134), the Supreme Court held that in the case of a contractor who has not opted for the alternate method of taxation and is governed by section 5 (1) (iv), this sub-rule means that where tax is due from him according to law and the awarder is appraised of the said fact, the awarder comes under an obligation to deduct the amount equal to the tax due and remit it to the assessing authority. The Supreme Court also referred to sub-rule (2) where any contractor who pays tax regularly in accordance with the rules, shall be entitled to payment of the full contract amount without any deduction by the awarder, if he produces a certificate issued by the assessing authority to the effect that no tax is due from him. The Supreme Court held that all these provisions are designed to ensure due realisation of the tax due. No exception can be taken. By virtue of the present amendment, instead of paying the whole tax due, the awarder is only directed to pay 2 per cent in the case of civil contract. Therefore, the attack against the provisions of sub-section (7b) has to be rejected as one covered by the decisions of this Court as confirmed by the Supreme Court. In this context the observation in the judgment that "in the field of taxation, the Legislature must be allowed greater play in the joints" as it is called is to be applied. ALLowance must also be made for "trial and error" by the Legislature as has been held approving the view in R. K. Garg v. Union of India [1982] 133 ITR 239 (SC); (1981) 4 SCC 675. Similar provision, viz. , section 8d of the U. P. Sales Tax Act, 1948 was upheld in V. K. Singhal v. State of U. P. [1995] 97 STC 355 (ALL ). The division Bench held that total number of deductions comes to about 17. Neither the contractor nor the contractee are the assessing authorities. It would be very difficult for the contractee to examine and for the contractor to specify all the deductions at the stage of intermediate bills. It appears to be in the interest of all concerned that the Legislature has fixed a percentage of deduction of tax at source. For all these reasons I do not find any grounds made out by the petitioner against the vires of sub-section (7b ). If the particular work undertaken by the contractor is not a works contract or that he is entitled to certain deductions or exemptions, it is open to the contractor to seek for payment without any deduction by obtaining a certificate issued by the assessing authority to the effect that no tax is due from him under sub-rule (2) of rule 22a.

(2.) I do not find any ground to grant the relief sought for. Original petitions are accordingly dismissed. Order on C. M. P. No. 2875 of 1995 in O. P. No. 1590 of 1995-L dismissed. Petitions dismissed. .