BUILDERS ASSOCIATION OF INDIA Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) PETITIONER No.1 is an association of civil contractors, having a membership of 1,357 and whose members are engaged in executing works contracts in the State of Maharashtra. The works contracts consist of constructing buildings, bungalows, canals, culverts, bridges, etc. The petitioner Nos. 2 to 4 are partnership firms and are members of the association. Under entry 54 of List II of the Seventh Schedule to the constitution of India, the State Government is entitled to legislate in respect of "taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I". The Supreme Court examined the ambit of entry 48 of List II of the Seventh Schedule to the Government of India Act, 1935 in the decision reported in [1958] 9 STC 353; AIR 1958 SC 560 [state of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. ] and laid down that the expression "sale of goods" connotes essential ingredients being an agreement to sell moveables for a price and property passing therein pursuant to that agreement. The Supreme Court further held that in a works contract which is entire and indivisible, there is no sale of goods and no tax could be imposed on the supply of the materials used in such a contract treating it as a sale. The Supreme Court observed that the expression "sale of goods" has the same meaning as the expression "sale of goods" in the Sale of Goods Act, 1930.

(2.) AFTER the decision of the Supreme Court with regard to the taxability of the goods involved in the execution of the works contract, the Law Commission in its 61st report made suggestion to insert in article 366 a wide definition of "sale" so as to include works contracts. Keeping in view the recommendation of the Law Commission, the Constitution was amended by 46th amendment by inserting clause (29-A) in article 366 and clause (3) of article 286 was substituted. The relevant portion of clause (29-A) of article 366 reads as follows : " (29-A) Tax on the sale of purchase of goods includes - (a ). . . . . . . . . . . . . . . (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c ). . . . . . . . . . . . . . . (d ). . . . . . . . . . . . . . . (e ). . . . . . . . . . . . . . . (f ). . . . . . . . . . . . . . . and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. " Clause (3) of article 286 as amended, inter alia, provides that any law of the State shall in so far as it imposes or authorises the imposition of a tax on the sale or purchase of goods being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of article 366 be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.

(3.) DURING the pendency of this petition, the Supreme Court in the decision reported in [1993] 88 STC 204; (1993) 1 SCC 364 (Gannon Dunkerley & Co. v. State of Rajasthan) examined the ambit and scope of article 366 (29-A) as well as the legislative power of the States under entry 54 of the State List. The Supreme Court reiterated the view taken earlier in the Builders Association of India's case [1989] 73 STC 370; AIR 1989 SC 1371 and pointed out that the tax leviable by virtue of clause (29-A) of article 366 is subject to the discipline to which any levy under entry 54 of the State List is made. The Supreme Court further held that the legislative power of the States under entry 54 of the State List is subject to two limitations - one flowing from the entry itself which makes the said power subject to the provisions of entry 92-A of List I and the other flowing from the prohibition contained in article 286. The Supreme Court observed that the measure for levy or imposition of tax in the execution of words contract is the value of the goods involved. It was observed that in order to determine the value of goods which are involved in the execution of works contract for the purpose of levying the tax referred to in article 366 (29-A) (b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor providing labour and other services from the value of the works contract. The charges for labour and services which are required to be deducted from the value of works contract are also set out in the judgment. The Supreme Court then observed that the amounts deductible under these heads will have to be determined in the light of a particular case on the basis of the material produced by the contractor. After the decision of the Supreme Court, the Maharashtra Legislature amended the Works Contract (Re-enacted) Act, 1989 and the amended Act came into force with effect from January 1, 1992. The relevant amendment to section 6 of the Principal Act is by substitution of sub-sections (1) and (2) with the following sub-sections : " (1) (A) There shall be levied a tax on the turnover of sales in respect of goods other than those covered by the Schedule at the rates specified in clause (B), after deducting from such turnover - (a) the turnover of sales in respect of declared goods purchased from a dealer registered under the Bombay Sales Tax Act, and sold in the same form in which they were purchased or without doing anything to them which amounts to or results in any manufacture, (b) the turnover of sales in respect of the goods covered by Schedule A to the Bombay Sales Tax Act, (c) the turnover of sales in respect of the goods which are exempt from payment of the whole of tax unconditionally under any notification issued under section 41 of the Bombay Sales Tax Act, (d) the turnover of purchases of goods other than declared goods in which transfer of property takes place, in the same form in which such goods were purchased, in the execution of the works contract provided such purchases are effected from, - (i) a dealer registered under the Bombay Sales Tax Act and whose registration certificate is in force on the date of such purchase; (ii) a person not registered under the Bombay Sales Tax Act and tax under said Act has been paid on the goods so purchases. (B) The tax shall be levied at the following rates, namely :- (i) in respect of declared goods, the rate of tax shall be four paise in a rupee on the turnover of sales of such goods; (ii) in respect of goods other than declared goods, the rate of tax shall be ten paise in a rupee on the turnover of sales of such goods. (2) (A) There shall be levied a tax on the turnover of sales in respect of goods covered by the Schedule at the rates specified in clause (B), after deducting from such turnover - (a) the turnover of sales in respect of declared goods purchased from a dealer registered under the Bombay Sales Tax Act, and sold in the same form in which they were purchased or without doing anything to them which amounts to, or results in, any manufacture;" In addition to what is set out hereinabove, the sub-section (2) (B) provides for the rates at which the taxes shall be levied. The Statement of Objects and Reasons for amendment of section 6 of the Principal Act was appended to the Bill and clause 4 therein, inter alia, provides that "government has noticed that in respect of certain items the sales tax on the transfer of property in goods involved in the execution of works contracts levied under the Maharashtra Sales Tax on the Transfer of property in goods involved in the execution of Works Contracts (Re-enacted) Act, 1989, results into double taxation. The double taxation is because at the time of purchase of goods, sales tax or as the case may be, purchase tax, is already levied and paid under the General Sales Tax Act, viz. , the Bombay Sales Tax Act, 1959. When the property in such goods in the same form in which they were purchased is transferred in the execution of works contracts, tax is levied also under the Maharashtra Sales Tax on the Transfer of property in goods involved in the Execution of Works Contracts (Re-enacted) Act, 1989. With a view to avoid such levy of tax second time on such goods under the aforesaid Act, Government has decided to give relief and discontinue such levy". The 1991 Amended Act came into force on January 1, 1992. The petitioners thereafter amended the present petition by taking out Chamber Summons No.65 of 1993.