JAIPRAKASH ASSOCIATES LTD Vs. STATE OF M P

JUDGEMENT

(1.) Section 35 of the Madhya Pradesh Commercial Tax Act, 1994 (for short 'the Act'), provides for deduction at source of tax payable by a contractor. The said Section 35 of the Act was challenged before this Court in Punj Lloyd Ltd. Vs. State of M.P. and others (102 STC 299) and a Division Bench of this Court held that the State Legislature was competent to make a law imposing taxes on sale or purchase of goods, under Entry 54 of List II of the 7th Schedule to the Constitution of India and Section. 35 of the Act which provides for deduction at source of tax payable by a contractor is only a machinery provision and not a substantive provision for the impost and the charging section was Section 9 of the Act under which the incidence of taxation is on sale and purchase of goods and the State Legislature has not exceeded its powers in enacting Section 35 of the Act. After the said judgment in Punj Lloyd Ltd. Vs. State of M.P. and others (supra), the Supreme Court delivered the judgments in Steel Authority of India Ltd. Vs. State of Orissa and others [118 STC 297 (SC)] and in Nathpa Jhakri Jt. Venture Vs. State of Himachal Pradesh [118 STC 306 (SC)] striking down the provisions of the Orissa Sales Tax Act and the Himachai Pradesh General Sales Tax Act providing for the deduction of sales tax at source from the bills of the contractors. Thereafter, the present writ petition was filed before this Court challenging the constitutional validity of Sections 35 and 35-A of the Act and Rule 42-A of the M.P. Commercial Tax Rules, 1995 (for short 'the Rules') and by order dated 3-3-2005, a Division Bench of this Court has referred the question of correctness of decision of the Division Bench in Punj Lloyd Ltd. Vs. State of M.P. (supra), after the decisions of the Supreme Court in Steel Authority of India Vs. State of Orissa and Nathpa Jhakri Jt. Venture Vs. State of Himachai Pradesh (supra).

(2.) Mr. Kavin Gulati, learned Counsel appearing for the petitioner, submitted that in Gannon Dunkerley & Co. Vs. State of Rajasthan [88 STC 204 (SC)], the Supreme Court held that it is necessary to exclude from the value of works contract, the value of goods which are not taxable by the State in view of Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 (for short 'the CST Act') as no sales tax is payable on value of such goods under the Sales Tax Act of a particular State and in accordance with the said decision of the Supreme Court in the case of Gannon Dunkerley & Co. Vs. State of Rajasthan (supra), the State Legislature of the M.P. has, in fact, provided in Section 79 of the Act that notwithstanding anything contained in the Act a tax on sale or purchase of goods shall not be imposed under the Act (i) where such sale or purchase takes place outside the State of Madhya Pradesh; or (ii) where such sale or purchase takes place in the course of inter-State trade or commerce; or (iii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of the territories of India. He submitted that therefore no sales tax can be levied on the sale in the course of inter-State trade or commerce on sale of goods outside the State of M.P. and on sale in the course of import or export of goods. He submitted that Section 35 of the Act provides that deduction at the rate of 2% of the value of the contract towards tax payable by the contractor shall be made in case where the works contract exceeds the value of Rs. 1 Lakh and the value of contract may include not only sales of goods in the works contract within the State of M.P. but also sale outside Madhya Pradesh, sales made in the course of inter-State trade and commerce and sales in the course of export and import of goods on which the State Legislature has no power under Entry 54 of List II of 7th Schedule of the Constitution to make law. He submitted that the Supreme Court in the case of Steel Authority of India Ltd. Vs. State of Orissa (supra), struck down the provisions of Section 13-AA of the Orissa Sales Tax Act as introduced by the State Legislature of Orissa w.e.f. 4-10-1993 similar to Section 35 of the Act, which did not provide for exclusion of sales outside the State, sales in course of inter-State trade and commerce and export sales. He further submitted that in Nathpa Jhakri Jt. Venture Vs. State of Himachal Pradesh (supra), the Supreme Court relying on the decision in the case of Steel Authority of India Ltd. (supra), also struck down the provisions of Section 12-A of the Himachal Pradesh General Sales Tax Act after holding that the said provision authorized the collection of sales tax on inter-State sales, outside sales and export and import sales, which are outside the purview of the State Act.

(3.) Mr. Sanjay Yadav, learned Deputy Advocate General appearing for the respondents, submitted that Section 35 of the Act has to be read with Section 35-A and Section 35-A of the Act states that notwithstanding anything contained in Sections 34 and 35, no deduction or deduction at a lower rate or deduction of a lump sum amount at source towards the tax payable shall be made under any of the said sections in the case of dealer or person, if such dealer or person furnishes to the person responsible for paying any amount in respect of the sale, supply or contract referred to in Sections 34 and 35, as the case may be, a certificate in writing in the prescribed form issued in the prescribed manner by such authority as may be prescribed. He submitted that under Section 35-A of the Act, a certificate can be issued to a dealer by the Prescribed Authority so as to enable the dealer to get deduction of the value of goods sold outside Madhya Pradesh, in the course of inter-State trade and commerce or in the course of export and import of goods from the value of the contract and in such a case, deduction of tax under Section 35 of the Act would be on the value of contract less the value of goods which are sold outside the Madhya Pradesh, in the course of inter-State trade and commerce and in the course of export and import. He cited the decision of the Supreme Court in A.V. Fernandez Vs. State of Kerala (AIR 1957 SC 657), wherein the Supreme Court has explained the manner in which a non-obstante provision in a statute has to be interpreted.