GANNON DUNKERLEY AND CO Vs. STATE OF RAJASTHAN

JUDGEMENT

(1.) THE abovementioned writ petition and other similar petitions mentioned in Schedule "a" annexed herewith are disposed of by a common order, as they are identical and common questions have been raised, which relate to imposition of tax on the transfer of property in goods involved in the execution of a works contract. More precisely, the grievance of the petitioners is that in view of the decision of the apex Court of the country in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204; (1993) 1 SCC 364 whereby section 5 (3) of the Rajasthan Sales Tax Act, 1954 (hereinafter referred to as "the RST Act" or "the Act") and rule 29 (2) (i) of the Rajasthan Sales Tax Rules, 1955 (hereinafter referred to as "the Rules") were declared unconstitutional and void, no tax is leviable in the State of Rajasthan on the goods and materials used in a works contract, but still the same is being charged by the Commercial Taxes Department and the awarders of the contracts are making deductions of the amount of tax as provided in rule 46 (2) of the Rules. As the matter goes to the root of the imposition of tax and is of general importance, notices were given to the respondents. Mr. G. S. Bapna, Advocate, accepted notices on behalf of the Commercial Taxes Department. He argued the matter without filing an return as pure questions of law are involved for decision.

(2.) THE petitioners are contractors engaged in the work of construction. It was urged on behalf of the petitioners that section 5 (3) of the RST Act was the only charging provision for levy of tax on works contracts and once the said provision is declared unconstitutional and void, the basis to levy/charge tax on works contracts in respect of goods and materials used in their execution, no more exists and, as such, no tax can be imposed. Learned counsel contended that no tax can be levied and charged from a dealer or a contractor unless the charging provision clearly imposes as obligation. In other words, the argument is that if the case does not fall within the four corners of the provision of a taxing statute, no tax can be imposed by inference and the operation of the existing provisions cannot be enlarged so as to embrace matters not specifically mentioned therein. On behalf of the Revenue, Mr. Bapna, on the other hand, vehemently contended that even after section 5 (3) of the RST Act and rule 29 (2) (i) of the Rules were declared unconstitutional and void by the Supreme Court, tax is leviable on the goods or materials used in the execution of a works contract in view of other provisions of the Act and the Rules which clearly provide charging provisions. According to Mr. Bapna, as a result of Forty-sixth Amendment, the contract which was single and indivisible, has been altered by a legal fiction into a contract which is divisible into one - for sale of goods and the other - for supply of labour and services, and such contract has been brought at par with a contract containing two separate agreements and imposition of tax is permissible on sale or purchase of goods. Mr. Bapna, therefore, contended that sales tax is leviable on the value of the goods involved in the works contract as per the existing provisions of the RST Act and the Rules.

(3.) AFTER Forty-sixth Amendment, a works contract, which was single and indivisible, has been altered by a legal fiction into a contract, which is divisible into one - for sale of goods and the other - for supply of labour and services and such contract has been brought at par with a contract containing two separate agreements. AFTER this amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract, which was entered into two distinct and separate parts, as stated earlier.