STEEL AUTHORITY OF INDIA LIMITED Vs. STATE OF ORISSA

JUDGEMENT

(1.) Before it was held to be unconstitutional on 28th April, 1993, Section 13-AA of the Orissa Sales Tax Act read thus :

(2.) Section 13-AA, as it was then read, was struck down by the High Court of Orissa on 28th April, 1993 in the case of Brajendra Mishra v. State of Orissa, (1994) 92 STC 17. The High Court held that Section 13-AA did not provide any mechanism to exclude a transaction from its purview even if, ultimately, the transaction was not at all liable to the levy of sales tax. In other words, even in the case of a pure and simple labour contract or service contract where the question of sale would not arise, the person responsible for making any payment to a contractor had no option but to deduct two per cent of such sum towards sales tax. Though a transaction which might not be a sale at all was made liable for levy of sales tax, yet in respect of that transaction power had been conferred to make deduction of two per cent from the amount to be paid. In the absence of any discretion with the authority and in the absence of any mechanism by which the contractor could approach any authority and obtain a certificate to the effect that the transaction did not amount to a sale, the deduction of two per cent from the amount could not but be held to be grossly discriminatory and confiscatory in nature and, therefore, the same had to be struck down. The High Court added that by conferring arbitrary, unbridled and uncanalised powers on the person concerned to deduct two per cent from the sum payable to the contractor, irrespective of the question whether, ultimately, the transaction was liable for payment of any sales tax at all, could not be held to be a levy of tax under any valid legal provision. It was true that the deduction of two per cent under Section 13-AA was to be ultimately adjusted where the transaction in question was liable for levy of sales tax, but where the transaction was not at all liable for levy of sales tax, there the question of adjustment would not arise and, therefore, the deduction would be confiscatory in character and effect and it could not be held to be a valid provision within the legislative competence of the Legislature imposing the tax and authorising the collection thereof. A bare reading of Section 13-AA made it explicitly clear that the amplitude of the incidence of tax had been widened so as to include transactions which were outside the sphere of taxation available to the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution. Inasmuch as even in respect of a purely labour contract or service charges, Section 13-AA authorised deduction of two per cent from the bills of the contractor, it could not be held to be unconstitutional and void.

(3.) The decision of the High Court was accepted and Section 13-AA was replaced on 4th October, 1993 in the following terms which are now under challenge.