L .N.RAY, J. - (1.) This is a writ application under article 226 of the Constitution of India filed in the High Court at Calcutta and numbered there as C. R. No. 9964 (W) of 1980. It stood transferred to this Tribunal under section 15 of the West Bengal Taxation Tribunal Act, 1987, for disposal. The question agitated in this application is whether the provisions of section 6c relating to levy of purchase tax introduced by the West Bengal Taxation Laws (Second Amendment) Act, 1979, are ultra vires the Constitution of India.
(2.) THE case of the applicants is this : Applicant No. 2 is the manager of the applicant No. 1 company, which is engaged in construction business. It is a registered dealer under the Bengal Finance (Sales Tax) Act, 1941 (in short, "the 1941 Act") and the Central Sales Tax Act, 1956. The company undertakes contractual construction works, being indivisible works contracts. The State Legislature had no legislative competence to impose any tax on such transactions. During the years ending March 31, 1978, March 31, 1979 and March 31, 1980, respectively the applicant-company purchased goods valued at Rs. 183. 5 lakhs, Rs. 434. 98 lakhs and Rs. 514. 58 lakhs in respect of works contracts executed in the State of West Bengal. In the year 1979 the West Bengal Taxation Laws (Second Amendment) Act, 1979, was enacted amending several provisions of 1941 Act and inserting section 6c, in terms of which purchase tax became payable. A person who purchased goods in West Bengal for execution of works contract had to pay usual sales tax at the time of making purchases and also had to pay purchase tax at 2 per cent if the notified purchase price exceeded Rs. 50 lakhs during a year. But even if he was a registered dealer, he was not entitled to any concessional rate of sales tax, unlike other registered dealers who purchased goods for resale or manufacture and got the benefit of a concessional rate of tax. Thus, section 6c purported to levy tax on execution of indivisible works contracts on which allegedly the State Legislature had no competence to impose tax, being outside the scope of entry 54 of the State List II of the Seventh Schedule to the Constitution. So, section 6c is allegedly a colourable legislation. Such tax under section 6c being in substance a tax on trade and calling could not exceed Rs. 250 per annum in terms of article 276. There being no rational basis for classification of contractors distinct from other registered dealers, the provisions of the Amendment Act are allegedly violative of articles 14 and 19 (1) (g ). The Amendment Act of 1979 is hit by article 301, as its provisions impede the free-flow of trade, commerce and intercourse, and such restrictions are neither reasonable nor in the public interest. The impugned provisions were not enacted with the assent or sanction of the President of India. Contractors who purchased goods from other States in the course of inter-State trade were not required to pay purchase tax, whereas contractors purchasing goods in West Bengal had to pay such tax. This is said to be an unreasonable discrimination. Imposition of purchase tax is challenged as a tax of confiscatory nature, since profit does not exceed 2 per cent. Purchase tax is imposed also on goods governed by the West Bengal Sales Tax Act, 1954, and it is thus arbitrary and discriminatory. The case of the respondents is chiefly one of denial of the alleged illegalities and invalidities. In course of their affidavit-in-opposition the respondents maintain that section 6c is a valid piece of legislation. The reply filed by the applicants, inter alia, states that section 6c infringes article 304.
(3.) SECTION 6c was incorporated in the Bengal Finance (Sales Tax) Act, 1941, with effect from April 1, 1979, and its operation was terminated on March 31, 1984, by an amendment. With effect from the next date, i. e. , April 1, 1984, section 6d was brought into force by which sales tax was imposed on transfer of property in goods involved in the execution of works contracts. The salient features of section 6c are that a purchase tax was made payable by every dealer who purchased goods for use in execution of any contract and whose notified purchase price during the last year ending on or before March 31, 1979, exceeded Rs. 2 lakhs. Sub-section (2) of section 6c laid down certain deductions from notified purchase price. Sub-section (3) laid down the rates of tax. The proviso to section 6c (3) laid down a limit to the tax payable. Certain consequential amendments were made in the 1941 Act with effect from April 1, 1979. In section 2 (1a) the words - "works contract" were incorporated in the definition of "business". Section 2 (ddd) was incorporated to define "notified purchase price" so as to include purchase price of goods for use in execution of contract. Section 2 (b), being the definition of "contract" was amended with effect from April 1, 1979, so as to include works contract. Three-fold arguments were advanced by the learned advocate for the applicant challenging the validity of section 6c. It was contended that (i) section 6c is violative of articles 14 and 19 (1) (g) of the Constitution, as a discrimination was done in respect of works contractors as dealers by levying a new purchase tax on their transactions of purchase, while no such tax was payable by other dealers on their purchases and by denying them a concessional rate of sales tax on their purchases; (ii) section 6c contravenes article 301, as it amounts to a restriction on free-flow of trade; (iii) it was a colourable legislation, because the State Legislature was not competent to legislate for imposing tax on indivisible works contracts until April 1, 1984, when section 6d came into operation as a consequence of amendment of article 366 (29a) of the Constitution, but the Legislature imposed purchase tax on indivisible works contracts, thereby doing something indirectly which could not be done directly.;