BRAJENDRA MISHRA Vs. STATE OF ORISSA

JUDGEMENT

(1.) THE constitutional validity of section 13aa of the Orissa Sales Tax Act, 1947, has been challenged in this writ application. Under the said provision, a person who is responsible for paying any sum to a contractor for carrying out any works contract is liable to deduct an amount towards sales tax equal to two per cent of such sum in respect of the works contract at the time of making the payment in question and the said deducting authority is required to grant a certificate to the contractor in the form prescribed and send a copy thereof to the Sales Tax Officer within whose jurisdiction the works contract is executed. The deduction in question will be adjusted by the Sales Tax Officer towards the sales tax liability of the works contractor. Contravention of the provision authorises the Sales Tax Officer to impose penalty not exceeding twice the amount required to be deducted by the person responsible for making the payment to the contractor and deduction therefrom. For a proper appreciation of the grounds of challenge, it is appropriate to extract the provision of section 13aa of the Orissa Sales Tax Act in extenso :

(2.) THE power to levy sales tax has been conferred upon the State Legislature under entry 54 of the State List. By the 46th Amendment of the Constitution introducing clause (29a) (b) in article 366 of the Constitution, it became possible for the States to levy sales tax on the price of goods and materials used in works contract as if there was a sale of such goods and materials, but that power is subject to the restrictions and conditions mentioned in article 286 of the Constitution, as has been held by the Supreme Court in the case of Builders Association of India v. Union of India [1989] 73 STC 370; AIR 1989 SC 1371. In Builders Association case [1989] 73 STC 370, AIR 1989 SC 1371, the Supreme Court rejected the plea of the State Governments that the 46th Amendment of the Constitution has conferred on the States a larger freedom than what they had before in regard to their power to levy sales tax under entry 54 of the State List and the apex Court decided that the 46th Amendment does no more than making it possible for the States to levy sales tax on the price of goods and materials used in works contract as if there was a sale of such goods and materials. The court, therefore, finally observed :

(3.) IN view of the decision of the apex Court in Builders Association case (1989] 73 STC 370; AIR 1989 SC 1371, a "works contract" in which transfer of property in goods takes place is liable to be taxed is not in dispute. But the question that arises for consideration is whether by conferring power on the person who has to make payments to the contractor to deduct two per cent from the sum due where the contract relates to a works contract, can be said to be violative of article 14 as it infringes the equality clause. It is well-settled in view of the decision of the Supreme Court in the case of Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552 that the courts are not concerned with the policy underlying a taxing statute, but at the same time a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in article 14. In view of the limitations contained in article 265 of the Constitution on the taxing power of the State, the State is not empowered to levy or collect a tax except by authority of law. In other words, tax proposed to be levied must be within the legislative competence of the Legislature imposing tax and authorising the collection thereof. In determining the question of validity or otherwise of a taxing statute, the court will not strike down the law merely because no classification appears on the face of the statute, but on the other hand, the court may examine and ascertain if the statute has laid down any principle or policy for the guidance for the exercise of discretion by the appropriate authority in the matter of selection or classification and if on such examination, the court comes to the conclusion that no principle or policy for guiding the exercise of the discretion has been laid down, then there would be no other option than to strike down the provision. If section 13aa is examined from the aforesaid standpoint, there cannot be two opinions that it does not provide any mechanism to exclude a transaction from its purview, even if ultimately the transaction is not at all liable to levy of sales tax. In other words, even in case of a pure and simple labour contract or service contract where question of sale will not arise, yet the person responsible for making any payment to the contractor has no other option than to deduct two per cent of such sum towards sales tax. Thus though a transaction which may not be "sale" at all is liable for levy of sales tax, yet in respect of the said transaction power has been conferred to make deduction of two per cent from the amount which should be paid. In the absence of any discretion with the authority or in the absence of any mechanism by which the contractor can approach any authority and obtain a certificate to the effect that the transaction does not amount to sale, deduction of two per cent from the amount due cannot but be held to be grossly discriminatory and confiscatory in nature and, therefore, the same must be struck down.