JAIHIND PROJECTS LIMITED Vs. STATE OF MADHYA PRADESH

JUDGEMENT

(1.) THE petitioner is executing the work order awarded to it by the GAIL (India) Limited (respondent No. 4) for laying of HDPE duct, blowing and splicing of OFC. The petitioner's case is that the work relates to technical advice, labour supervision and engineering service and did not essentially involve supply of goods. Under Section 35 of the Madhya Pradesh Commercial Tax Act, 1994, deductions at the rate of two per cent of the value of contract were to be made towards tax payable by the contractor in case the works contract exceeds a value of Rs. one lac. Since the contract of the petitioner did not involve essentially supply of goods, the petitioner applied for a certificate for concessional rate of deductions under Section 35 of the Madhya Pradesh Commercial Tax Act, 1994, and respondent No. 3 issued a certificate under Section 35A of the Madhya Pradesh Commercial Tax Act, 1994 to the effect that deductions from the value of contract of the petitioner would be made at concessional rate of 0.5 per cent instead of two per cent. Thereafter, the Madhya Pradesh VAT Act, 2002 came into force with effect from April 1, 2006. Section 26 of the Madhya Pradesh VAT Act, 2002 provided for deductions towards payment of tax in certain cases. Sub -section (2) of Section 26 of the Madhya Pradesh VAT Act, 2002 which is similar to Section 35 of the Madhya Pradesh Commercial Tax Act, 1994 is quoted hereinbelow: Section 26. Deduction and payment of tax in certain cases.(1)... (2) Notwithstanding anything contained in any other provision of this Act, any person letting out a works contract of value exceeding three lac rupees to a contractor involving sale of any goods in the course of execution thereof by the contractor shall before making the payment of any amount towards the value of such contract to him, deduct at the rate of two per cent an amount towards the tax payable by the contractor under this Act.

(2.) SECTION 27 of the Madhya Pradesh VAT Act, 2002, however provided that notwithstanding anything contained in Section 26, no deduction towards tax shall be made from any consideration payable to a dealer or person, if such dealer or person furnishes to the person responsible for paying any amount in respect of the sale or supply of goods a certificate in writing in such form by such authority in such manner as may be prescribed. This provision in Section 27 of the Madhya Pradesh VAT Act, 2002 was similar to Section 35A of the Madhya Pradesh Commercial Tax Act, 1994 under which the prescribed authority could issue a certificate to a dealer or person for deduction of tax at a concessional rate. Accordingly, the petitioner applied for a certificate for deduction of tax at concessional rate under Section 27 of the Madhya Pradesh VAT Act, 2002, and was also granted such certificate on June 2, 2006 to the effect that payment to the petitioner up to Rs. 20 crores could be made by respondent No. 4 without deduction of any amount towards tax under the M.P. VAT Act, 2002. But, subsequently, the certificate granted under Section 27 of the Madhya Pradesh VAT Act, 2002 was cancelled by respondent No. 3 on December 2, 2005 with retrospective effect from the date the certificate was granted because of omission of Section 27 of the Madhya Pradesh VAT Act, 2002, by the Second Amendment Madhya Pradesh VAT Act, 2006 with retrospective effect. After the cancellation of certificate issued under Section 27 of the Madhya Pradesh VAT Act, 2002, respondent No. 4 has been directed by respondent No. 3 to deduct tax on a payment made by the respondent No. 4 to the petitioner under the works contract. The petitioner has, therefore, challenged the provisions of Section 26(2) of the Madhya Pradesh VAT Act, 2002 as ultra vires.

(3.) MR . Sanjay K. Agrawal, learned Deputy Advocate -General appearing for the respondents/State, on the other hand, submitted relying on the return filed on behalf of the respondent Nos. 1 to 3 that Section 26 of the Madhya Pradesh VAT (Amendment) Act, 2007 has brought in a material change so as to make a provision in the proviso to Section 26 of the Madhya Pradesh VAT Act, 2002 that if the value of labour involved in the contract is more than fifty per cent of the contract value and the contractor has not opted for composition under Section 11A the deduction towards the tax payable shall be made at the rate of one per cent and further that no deduction shall be made in respect of any sale or purchase taking place outside the State of Madhya Pradesh or in the course of inter -State trade and commerce and in course of import of goods into the territory of India. He submitted that the deficiencies pointed out by the Full Bench of this court in the case of Jaiprakash Associates Ltd. [2007] 6 VST 1 (MP) in Section 35(1) of the Madhya Pradesh Commercial Tax Act, 1994, have therefore, been removed by the Madhya Pradesh VAT (Amendment) Act, 2007 and Section 26 of the Madhya Pradesh VAT Act, 2002 as amended by the Madhya Pradesh VAT (Amendment) Act, 2007 now cannot be declared to be beyond the competence of the State Legislature and as ultra vires the Constitution.