S. C. Agrawal, J. - (1.) This appeal arises out of the judgment of the High Court of Karnataka dated July 27, 1990 whereby the High Court has dismissed the writ petition No. 8926 of 1986 filed by the appellant under Article 226 of the Constitution of India. In the said writ petition, the appellant had challenged the validity of various provisions of the Karnataka Sales Tax Act, 1957 as amended by Amending Act No. 27 of 1985 and the Karnataka Sales Tax Rules made thereunder.
(2.) The appellant is an association of contractors engaged in the work of construction. The provisions of the Karnataka Sales Tax Act which have been impugned by the appellant in writ petition were introduced in the said enactment after the Constitution (Forty-Sixth Amendment) Act, 1983 whereby Cl. (29-A) was introduced in Article 366 of the Constitution so as to enable State Legislature to impose tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The validity of Forty-Sixth Amendment came up for consideration before this Court in Builders' Association of India v. Union of India, (1989) 2 SCR 320 , wherein the said amendment was upheld as valid and it was declared that sales tax laws passed by the Legislature of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of Article 286 of the Constitution. This Court further declared that whatever might be the situational differences of individual cases, the constitutional limits on the taxing power of the State as are applicable to 'works contracts' represented by 'Building-Contracts' in the context of the expanded concept of 'tax on the sale or purchase of goods' as constitutionally defined under Art. 366(29-A), would equally apply to other species of 'works contracts' with the requisite situational modifications. In the light of the said decision, certain questions were raised before us which have been considered by us in our decision pronounced today in M/s. Gannon Dunkerley and Co. v. The State of Rajasthan (Civil Appeals arising out of SLP Nos. 3365-68 of 1992) and wherein it has been held as under:- "(1) In exercise of its legislative power to impose tax on sale or purchase of goods under Entry 54 of the State List read with Article 366(29-A)(b), the State Legislature, while imposing 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 is not competent to impose a tax on such a transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export. (2) The provisions of Sections 3, 4, 5 and Sections 14 and 15 of the Central Sales Tax Act, 1956 are applicable to a transfer of property in goods involved in the execution of a works contract covered by Article 366(29-A)(b). (3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of Article 366(29-A)(b) but it is not permissible for the State Legislature to define the expression sale in a way as to bring within the ambit of the taxing power a sale in the course of inter-State, trade or commerce, or a sale outside the State or a sale in the course of import and export. (4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of Article 366(29-A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in execution of the works contract would constitute the measure for imposition of the tax. (5) In order to determine the value of the goods which are involved in the execution of a works contract for the purpose of levying the tax referred to in Article 366(29-A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract. (6) The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works, (ii) amount paid to a sub-contractor for labour and services; (iii) charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract; (iv) charges for planning, designing and architect's fees; (v) cost of consumables used in execution of the works contract; (vi) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (vii) other similar expenses relatable to supply of labour and services; and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services. (7) To deal with cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the assessing authority the legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. It would be permissible for the legislature to prescribe varying scales for deduction on account of cost of labour and services for various types of works contract. (8) While fixing the rate of tax it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of those goods as a separate article."
(3.) The impugned provisions of the Karnataka Sales Tax Act have to be considered in the light of the aforesaid principles.;