LARSEN AND TOUBRO LTD Vs. STATE OF BIHAR

JUDGEMENT

(1.) THE vires of Section 25 -A of the Bihar Finance Act, 1981 and the related rules and notification regarding deduction of sales tax at source from the contractors' bills has again been called in question in these writ petitions.

(2.) ENTRY 54 of the State List of the Seventh Schedule to the Constitution of India authorizes the State Legislatures to make law with respect to imposition of taxes on the sale and purchase of goods other than newspapers, subject to the provisions of entry 92 A of the Union List. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353, the Supreme Court held that the expression "sale of goods" in entry 54 has the same meaning as in the Sale of Goods Act, 1930. The essential ingredients of sale being an agreement to sell movables for a price and transfer of property pursuant thereto, in works contract there is no sale of goods because such a contract is indivisible in which there is neither agreement to sell the materials used in the construction nor there is passing of the property in such materials pursuant to any such agreement. The State Legislatures were therefore, not competent to impose tax on the supply of materials used in such a contract treating them as sale under entry 54 of the State List.

(3.) ENTRY 92A of the Union List (List I), which finds mention in entry 54 of the State List (List -II), may also be quoted to complete the reference, as under : Taxes on the sale or purchase of goods other than newspapers where such sale or purchase takes place in the course of inter -State trade or commerce.