BHARAT HEAVY ELECTRICALS LTD Vs. UNION OF INDIA
LAWS(ORI)-1988-5-6
HIGH COURT OF ORISSA
Decided on May 12,1988

BHARAT HEAVY ELECTRICALS LTD Appellant
VERSUS
UNION OF INDIA Respondents

JUDGEMENT

S.C.MOHAPATRA, J. - (1.) IN these writ applications under article 226 of the Constitution of India levy of tax under the Orissa Sales Tax Act (for short "the Act") amended in the year 1986, pursuant to the 46th Amendment of the Constitution is assailed by various petitioners from whom the assessing authorities claimed tax in respect of their business of works contract. As common questions of law are involved in all these writ applications, they were heard together and are disposed of by this common judgment.
(2.) SINCE we are considering the question whether the goods transferred to the contractee by each of the petitioners would be in course of execution of the works contract, we are not going into the merit of the case whether the goods have been actually transferred. In case we come to the conclusion that tax is exigible in respect of the goods involved in such of the works contract, we shall give opportunity to the petitioners to approach the statutory authorities who shall find facts to determine whether the transactions are exigible to tax. Under article 265 of the Constitution, no tax shall be levied or collected without authority of law. Prior to the Constitution, provisions of the Government of India Act, 1935, were regulating the levy and collection of taxes. Under the said Act provincial legislatures were authorised to make law for levy and collection of tax on sale and purchase of goods. Pursuant to such authority various provincial legislatures including Orissa made law and the Act was enacted in the year 1947. Under the scheme of the Act a person, who carries on the business of sale of goods was made liable to pay tax under section 4 of the Act. "sale" was defined to mean any transfer of property in goods for consideration including the transfer of property in such goods involved in the execution of contract". "goods" was defined to mean "all kinds of movable property which includes all materials, articles and commodities whether or not to be used in construction, fitting out, improvement and repair of immovable property" and "contract" was defined to mean "any agreement for carrying out for consideration the construction, fitting out, improvement or allotment of any building, road, bridge or other immovable property". During continuance of the Act in force, Constitution of India was made and a similar provision as in the Government of India Act was incorporated in entry 54 of List II of the Seventh Schedule authorising the legislative authorities of the States to make laws to levy and collect tax on sale and purchase of goods. The Act became an existing law. By Act 37 of 1951 definition of "contract" was amended to mean "any agreement for carrying out for cash or deferred payment or other valuable consideration the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property; the installation or repair of any machinery affixed to any building or other immovable property or the overhaul or repair of any motor vehicle or other machinery". Similar provisions for levy and collection of tax on goods involved in works contracts were made by other provincial laws and the State laws. The purpose of the levy was to augment revenue. Challenges were made to the power of the State Legislatures to make laws to levy and collect tax on goods involved in construction of buildings and other immovable properties on the ground that there was no sale of goods as such. The Supreme Court in the decision reported in [1958] 9 STC 353 [state of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. ] settled the law by deciding that the transfer of goods involved in any works contract is not sale exigible to tax under the sales tax laws made either under the Government of India Act or under the Constitution by the State Legislatures. On account of the decision of the Supreme Court, Orissa Act 18 of 1959 was enacted amending the Act and all provisions in the Act authorising levy and collection of tax on goods involved in works contracts were omitted. Since then various States lost the scope of augmenting their revenue from that source and accordingly, after deep deliberation Constitution was amended by the 46th Constitution (Amendment) Act on 2nd February, 1983. Without making any change to the definition of "goods" in article 366 (12) and the power of the State Legislatures to make laws for levy and collection of tax on sale and purchase of goods in entry 54, a new clause was added to article 366 as clause (29a) defining tax on the sale or purchase of goods. It reads as follows : " (29a) 'tax on the sale or purchase of goods' includes - (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. " Pursuant to such amendment of the Constitution, State Legislature substituted the definition of "sale" in section 2 (g) of the Act. It reads as follows : " 2. Definition - (a) to (f ). . . . . . . . . . . . (g) 'sale' means with all its grammatical variations and cognate expression, any transfer of property in goods for cash or deferred payment or other valuable consideration and includes, - (i ). . . . . . (ii) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (iii) to (vi ). . . . . . . . " This became the subject-matter of challenge in various writ applications in this Court. During the hearing of the writ applications, the Act was amended by Ordinance No. 2 of 1985 and a new definition clause was added as 2 (jj) to define "works contract". It reads as follows : " (jj) 'works contract' includes any agreement for carrying out for cash or deferred payment or other valuable consideration, the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property. " As a consequence section 5 was also amended which provided for determination of taxable turnover. In clause (AA) of sub-section (2), sub-clause (i) was inserted. It reads as follows : " 5. Rate of tax - (1 ). . . . . . . . . . . . . (2) (A ). . . . . . . . . . . (AA) In this Act, the expression 'taxable turnover', in respect of, - (i) 'works contract' shall mean the gross value of the works contract received or receivable by the dealer for carrying out such contract less the amount of labour charges incurred for the execution of the contract; and (ii ). . . . . . . . . . . . . Under section 5 (1) the rate of tax was notified in respect of such goods to be 4 per cent. of the taxable turnover with effect from 17th May, 1985. The Ordinance, however, spent its force before a Bill was introduced in the State Legislature. Thereafter, Ordinance No. 2 of 1986 was promulgated on 2nd July, 1986, giving it retrospective effect from the 7th April, 1984. The definitions of "dealer" and "goods" were substituted and clause (AA) was amended. This Ordinance also could not be substituted by an Act of the Legislature. Accordingly, Orissa Ordinance No. 4 of 1986 was promulgated on 7th October, 1986 which is the subject-matter of consideration in these writ applications. In the said Ordinance relevant portions of the definitions of "dealer" and "goods" read as follows : " 2. Definition - (a ). . . . . . . . . . . (b ). . . . . . . . . . . (c) 'dealer' means any person who carries on the business of purchasing, selling, supplying or distributing goods (including goods used or involved in the execution of works contract, whether as goods or in some other form), directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration and includes, - (i) to (v ). . . . . . . . . . . . . . (vi) a person who transfers property in goods (whether as goods or in some other form) involved in the execution of a works contract; (vii) to (ix ). . . . . . . . . . . . . . . . (d) 'goods' means all kinds of movable property other than actionable claims, stock, share or securities, and includes goods used or involved in the execution of works contract whether as goods or in some other form, all growing crops, grass and things attached to or forming part of the land which are agreed before sale or under contract of sale to be severed. " The relevant portion of section 5 (2) (AA) as amended reads as follows : " 5. Rate of tax - (1 ). . . . . . . . . . . . . . (2) (A ). . . . . . . . . . . . . . (AA) Notwithstanding anything contained in sub-section (2) (A), - 'taxable turnover' in respect of, - (i) 'works contract' shall be deemed to be the gross value received or receivable by a dealer for carrying out such contract, less the amount of labour charges and service charges incurred for the execution of this contract; (ii ). . . . . . . . . . . . . . . . . . . "
(3.) THE levy of sales tax under the Act in respect of works contract by the amendment is assailed by the various petitioners on the following grounds : (i) Forty-sixth Amendment to the Constitution has transgressed the powers of amendment of the Constitution by the Parliament and the basis of the levy being ultra vires the Ordinance has no force; (ii) without amendment of the definition of "goods" in article 366 (12) of the Constitution and entry 54 of List II of the Seventh Schedule, there is no scope for amending the Act to bring within its sweep the transaction in works contracts; (iii) "taxable turnover" in section 5 (2) (AA) (i) in respect of works contract is an arbitrary provision having no relationship with sale and purchase of goods which alone is liable to tax and has also no guideline for determination of the same; (iv) it leaves scope for levy of tax under the State Act on inter-State sale and declared goods leviable to tax under the Central Sales Tax Act, or goods which have already suffered taxation under the State Act once; and (v) there is no machinery for taxation under the amended provision. ;


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