N. L. TIBREWAL, J. - (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. In order to appreciate the contentions urged by the learned counsel for the parties, it is necessary to refer the relevant provisions of the Constitution, RST Act and the Rules. In Builders Association of India v. Union of India [1989] 73 STC 370; (1989) 2 SCC 645 the honourable Supreme Court has traced the historical background of the relevant constitutional and statutory provisions and the circumstances leading to the Constitution (Forth-sixth Amendment) Act, 1982. I shall, therefore, make a brief reference to the relevant provisions. There was a conflict of judicial opinion amongst the various High Courts of the country on the question as to whether the cost of goods and materials used in a works contract could be subjected to payment of sales tax or not. In Madras General Sales Tax Act, 1939, an amendment was introduced, in the year 1947 and the definition of "sale" was enlarged to include a transfer of the property in goods and materials used in construction so as to impose a tax on the supply of such goods and materials. The validity of the said provision was challenged by the contractor in a writ petition before the Madras High Court. The Madras High Court, in its decision reported in [1954] 5 STC 216; AIR 1954 Mad. 1130 [gannon Dunkerley & Co. (Madras) Ltd. v. State of Madras), held that the impugned provisions introduced by the Amendment Act of 1947 were ultra vires the power of the Provincial Legislature. The same view was taken by the Hyderabad High Court in Jubilee Engineering Co. Ltd. v. Sales Tax Officer [1956] 7 STC 423; AIR 1956 Hyd 79. The Kerala High Court in Gannon Dunkerley and Co. Madras (Private) Ltd. v. Sales Tax Officer [1957] 8 STC 347; AIR 1957 Ker 146 and the Mysore High Court in Mohamed Khasim v. State of Mysore [1955] 6 STC 211 took a contrary view and held that the provisions of the Act imposing a tax on construction of work are valid, and further upheld the determination of the value of the materials on a percentage basis under the Rules. In Pandit Banarsi Das v. State of Madhya Pradesh [1955] 6 STC 93, a Bench of the Nagpur High Court held, differing from the view taken by the Madras High Court, that the provisions of the Act imposing a tax on the value of the materials used in a construction on the footing of a sale thereof were valid, but that they were bad insofar as they enacted an artificial rule for determination of that value by deducting out of the total receipts a fixed percentage on account of labour charges, inasmuch as the tax might, according to that computation, fall on a portion of the labour charges and that would be ultra vires. The Rajasthan High Court in Bhuramal v. State of Rajasthan [1957] 8 STC 463; AIR 1957 Raj 104 took a similar decision. The controversy was ultimately resolved by the Supreme Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 STC 353; AIR 1958 SC 560. The Supreme Court affirmed the view taken by the Madras High Court and held that the expression "sale of goods" in entry 48, List II of the Seventh Schedule to the Government of India Act, 1935, had the same meaning as the said expression had in the Sale of Goods Act, 1930, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. It was also held that in a building contract, which is entire and indivisible there is no sale of goods and it was not within the competence of the Provincial Legislature to impose a tax on the supply of materials used in such a contract treating it as a sale. Para 46 of the judgment (page 386 of STC) leading to the conclusion may be reproduced for the sake of convenience : " To sum up, the expression 'sale of goods' in entry 48 is a nomen juris, its essential ingredients being an agreement, to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible - and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under entry 48 to impose a tax on the supply of the materials used in such a contract it as a sale. " However, it was made clear that the abovementioned conclusions had reference to works which were entire and indivisible and it was observed : " It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them, and the power of the State to separate the agreement to sell from the agreement to do work and render service and to impose a tax thereon cannot be questioned, and will stand untouched by the present judgment. " By virtue of the above decision, no sales tax could be levied on the amount received under a works contract, even though, the contractor had supplied goods for construction of the buildings. This decision was equally applicable to the provisions found in entry 54, List II of the Seventh Schedule to the Constitution. After the decision in Gannon Dunkerley's case [1958] 9 STC 353 (SC); AIR 1958 SC 560, the Law Commission examined the matter with regard to taxability of goods involved in the execution of works contracts. In its sixty-first report, the Commission considered the legal position and expressed the desirability of inserting in article 366 of the Constitution, a wide definition of "sale" so as to include works contracts. Consequently, the Constitution was amended by Forty-sixth Amendment and clause (29-A) was inserted in article 366 and clause (3) of article 286 was substituted. There were other amendments also, but they are not relevant for the present petition. Clause (29-A) of article 366 is in the following terms : " (29-A) '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 the 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. " Clause (3) of article 286 was substituted as under : " (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, - (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. "
(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. However, the power of the States to levy sales tax on the materials used in a works contract is subject to other provisions of the Constitution and the Parliamentary legislation made in pursuance of articles 269 (3) and 268 (2), i. e. , the Central Sales Tax Act. In view of these provisions, the State Legislature is not competent to levy the tax on the following sales or purchases : " (i) Where sale or purchase takes place in the course of inter-State trade or commerce, such a sale is beyond the legislative competence of the State Legislature for purposes of levy of sales tax [see article 269 (3)]. Entry 54 of List II is subject to entry 92-A of List I. Entry 92-A of List I gives exclusive power to the Parliament to levy tax on the sales taking place in the course of inter-State trade or commerce. (ii) Where the sales take place outside the State vide article 286 (1) (a) of the Constitution. (iii) Where sales take place in the course of import into or export from the country [vide article 286 (1) (b)]. (iv) Such other limits, if any, as the Parliament may impose in respect of : (a) Sale of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; (b) Sale or purchase of goods being a tax in the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of article 366 of the Constitution. " Following the Forty-sixth Amendment, various States amended their sales tax legislations to make provision for imposition of sales tax on the goods and materials used in construction or a works contract. The RST Act was amended by the Rajasthan Finance Act, 1987 (Act No. 7 of 1987) and by the Rajasthan Sales Tax (Amendment) Act, 1988 (Act No. 9 of 1988 ). The definition of "sale" contained in clause (o) of section 2 was substituted, certain amendments were made in definition of "sale price" contained in clause (p), the definition of "turnover" in clause (t) was also amended. Clause (u) was introduced to define "works contract". Sub-section (3) was added in section 5 and sub-section (2-C) was inserted in section 7. Then again, by the Rajasthan Sales Tax (Second Amendment) Act, 1988 (Act No. 13 of 1988) definition of "works contract" contained in clause (u) was substituted. After the decision of the Supreme Court in Builders Association of India's case [1989] 73 STC 370; (1989) 2 SCC 645, Rajasthan Sales Tax (Amendment) Act, 1990, was enacted whereby some minor changes were made in the definition of "sale" contained in clause (o) and the proviso, which was inserted in the definition of "sale price" in clause (p) by Rajasthan Act No. 7 of 1987 was deleted. In Rajasthan Sales Tax Rules, 1955, by notification dated May 28, 1987, sub-rule (2) was inserted in rule 29 to provide deductions in turnover relating to works contracts. This was subsequently substituted by notification dated June 28, 1989, after the decision in Builders Association of India's case [1989] 73 STC 370; (1989) 2 SCC 645. ;