STATE OF CHHATTISGARH & ORS.versusM/S. VTP CONSTRUCTIONS

A                  STATE OF CHHATTISGARH & ORS.
                                 v.
                      M/S. VIP CONSTRUCTIONS

                            DECEMBER 7, 2007
B
           [DR. ARIJIT P ASAY AT AND AFT AB ALAM, JJ.)


       Chhattisgarh VanijyikKar Adhinihyam, 1994-s.35-Sales Tax-
  Deduction at source-Constitutional validity of-Held: The provision
C is constitutionally invalid.
        Sales tax was deducted at source under Section 35 of
  Chhattisgarh Vanijyik Kar Adhinihyam, 1994, from the payment
  made to the respondent-assessee, for works contracts executed by
D it. Respondent filed Writ Petition challenging constitutionality of
  Section 35. High Court declared the provision as unconstitutional
  and directed refund of the amount recovered to the respondent.
  Hence the present appeal.

         Dismissing the appeal, the Court
E
        HELD: In view of the decisions in Steel Authority's case and
    Nathapa 's case* the High Court was right in holding that Section 35
    ofChhattisgarh Vanijyik Kar Adhinihyam, 1994, was constitutionally
    invalid. The direction for refund of the amount collected from the
    respondent under the provi~ions of the said Section had been rightly
F   directed to be refunded. [Para 10] [1152-C, DJ

        Steel Authority ofIndia Ltd. v. State ofOrissa and Ors., [2000) 3
    SCC 200 and 1\1/s. Nathpa Jhakri Jt. Venture v. State of Himachal
    Pradesh and Ors., [2000] 3 SCC 319, relied on
G        Punj Lloyd Ltd. v. State ofMadhya Pradesh and Ors., (1996) 29
    VKN 533, referred to.
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5679 of
  2007.
H                          1148
          STATE v. VTPCONSTRUCTIONS[PASAYAT,J.]                        1149

        From the Judgment and Order dated 21.2.2006 of the High Court A
    ofChattisgarh at Bilaspur in W.P. No. 661 of2002.
         Rajesh Srivastava for the Appellant.
         The Judgment of the Court was delivered by
                                                                              B
         DR ARIJIT PASAYAT, J. 1. Leave granted.
         2. Challenge in this appeal is to the judgment rendered by a Division
    Bench of the Chhatisgarh High Court. Respondent filed a writ petition
    before the Chhatisgarh High Court questioning constitutional validity of
    Section 35 ofChhattisgarh Vanijyik Kar Adhiniyam, 1994 (hereinafter C
    referred to as the 'Adhiniyam'). It corresponds to the Chhatisgarh
    Commercial Tax Act, 1994 (in short the 'Act'). The respondent hereinafter
    is described as the 'assessee'.
         3. Background facts highlighted by the respondent are as follows: D
          The writ petitioner is a prop1ietary concern of one Shri Krishana
    Mudliar and it has been executing works contracts for various Departments
    of the Chhattisgarh State Government and others and was holding sales-
    tax registration No.061/RDN/14,'2739/02. During the assessment year
    2001-2002, the writ petitioner had executed works contracts awarded E
    by Executive Engineer, P.W.D. (B&R), Division Khairagarh, for which it
    received payment ofRs.1,27,115/- on which sales tax ofRs.2,545/-, being
    2% of sum ofRs.1,27.115/- was deducted at source towards the sales
    tax payable as provided under Section 35 of the Adhiniyam. Certificate
    of tax deduction is dated 11104/2001 made under Section 35 of the Act. F
f
          4. In support of the writ petition, it was contended that Section 35
    of the Act does not make any provision for deduction and ascertainment
    of value and nature of goods supplied during execution of work-contracts.
    Section 35 of the Act does not make any provision for detennination of
    value of goods supplied in the course of inter State trade during execution G
    of works contracts.
         5. The writ petition is opposed by the present appellants by filing
    reply/statement of objections. In the reply statement, it was stated that
    the contractors who are engaged in the construction of buildings, roads, H
     1150          SUPREME COURT REPORTS                  [2007] 12 S.C.R.


A bridges, dams etc generally come from other States. The process of
  assessment of sales tax is very lengthy and before the assessment is
  completed, such contractors disappear from the scene after receiving full
  payment under the contract. In such situation, it was very difficult for the
  Commercial Tax Department to trace out such contractors and eventually
B sales tax payable by such contractors could not be recovered at all thereby
  causing heavy financial loss to the Government. In order to safeguard the
  interest of the State, Section 35 is enacted in the Act and that the State
  Legislature has legislative competence to enact Section 35. It was stated
  that Section 35 is not a unique provision in the Act and similar provisions
c are enacted in the Sales Tax Acts of other States, for example, Section
  6-D of the Uttar Pradesh Trade Tax Act, Section 6-E of the Bengal
  Finance (Sales-Tax) Act, 1941; Section 25-A of the Bihar Finance Act,
  1981; Section 25-B of the Haryana General Sales Tax Act 1973, Section
  12-A of the Himachal Pradesh General Sales Tax Act 1968, Section 16-
D C of the Jarnmu & Kaslunir General Sales Tax Act, Section 19-A of the
  Kamataka Sales Tax Act and Section 13-AA of the Orissa Sates Tax
  Act, 1947. It was also contended that the Constitutional validity of Section
  35 of the Adhiniyam was already considered and upheld by the Division
  Bench of the Madhya Pradesh High Court in the case of Punj Lloyd Ltd.
E v. State of Madhya Pradesh and Ors., (1996) 29 VKN 533.
       6. The High Court referred to decisions of this Court in Steel
  Authority of India Ltd. v. State of Orissa and Ors., [2000] 3 SCC
  200 and Mis. Nathpa Jhakri Jt. Venture v. Slate of Himachal Pradesh
  and Ors .. [2000] 3 SCC 319 and declared the provision to be
F unsustainable.
        7. In support of the appeal learned counsel for the appellants
  submitted that the ambit and scope of s~ction 35 of the Act were not
  kept in view by the High Court. The decision in Steel Authority's case
G (supra) and Nathpa 's case (supra) were dealing with different provisions
  and, therefore, has no application to the facts of the case.
       8. Steel Authority's case (supra) related to Section 13AA of the
  Orissa Sales Tax Act, 1947 (hereinafter referred to as the 'Orissa Act').
  In Nathpa Jhakri 's case (supra) dispute related to Section 12A of the
H Himachal Pradesh General Sales Tax Act, 1968 (in short the 'Himachal
           STATE v. VTP CONSTRUCTIONS [PASA YAT, J.]                      1151


     Pradesh Act'). While striking do'Ml Section l 3AA of the Orissa Act, this A
     Court observed as follows in Steel Authority 's case (supra):
                 "There can be no doubt, upon a plain interpretation of Section
             13AA, that it is enacted for the purposes of deduction at source
             of the State sales tax that is payable by a contractor on the value
             of a works contract. For the purpose of the deduction neither the B
             owner nor the Commissioner who issues to the contractor a
             certificate under Section 13AA(5) is entitled to take into account
             the fact that the works contract involves transfer of property in
             goods consequent upon of an inter-State sale, an outside sale or .
             a sale in the course of import. The owner is required by Section C
             13AA(1 ) to deposit towards the contractor's liability to State sales
             tax four per cent of such amount as he credits or pays to the
             contractor regardless of the fact that the value of the works
             contracts includes the value of inter-State sales, outside sales or
             sales in the course of import. There is, in our view, therefore, no. D
             doubt that the provisions of Section 13AA are beyond the powers
<(
             of the State Legislature for the State Legislature may make no law
             levying sales tax on inter-State sales, outside sales or sales in the
             course of import."
                                                                                   E
           9. In Nathapa Jhakri 's case (supra) this court held Section 12A of
     the Himachal Pradesh Act to be unconstitutional and the relevant portion
     of the judgment reads as follows:
                "A bare perusal of the two provisions will make it clear that in
            either provision there is an obligation to deduct from transactions F
            relating to works contract on bills or invoices raised by the works
            contractor an amount not exceeding 4 percent or 2 per cent as
            the case may be. Though the object of the provision is to meet
            the tax in respect of the transactions on all works contract on the
            valuable consideration payable for the transfer of property in goods G
            involved in the execution of the works contract, the effect of the
            provision is that, irrespective of whether the sales are inter-State
            sales or outside sales or export sales which are outside the purview
            of the State Act and those transactions in respect of which no tax
            can be levied even in terms of the enactment itself, such deductions H
    1152           SUPREME COURT REPORTS                     (2007] 12 S.C.R.

A          have to be made in the bills or invoices of the contractors. To say
           that if a person is not liable for payment of tax inasmuch as on
           completion of the assessment refund can be obtained at a later
           stage in no solace, as noticed in Bhawani Cotton Mills Ltd. v.
           State ofPunjab, (1967) 20 STC 290 (SC): [1967] 3 SCR 577.
B          Further, there is no provision for certification of the extent of the
           deduction that can be made by the authority. Therefore, we must
           hold that arbitrary and uncanalised powers have been conferred
           on the concerned person to deduct up to 4 per cent from the swn
           payable to the works contract irrespective whether ultimately the
c          transaction is liable for payment to any sales tax at all. In that view
           of the matter, we have no hesitation in rejecting the contention
           advanced on behalf of the State."
        10. In view of what ha" been stated by this Court in Steel Authority's
  case and Nathpa 's case (supra) the inevitable conclusion is that the High
D Court was right in holding that Section 35 of the Act was constitutionally
  invalid. The direction for refund of the amount collected from the
  respondent under the provisions of the said section had been rightly
  directed to be refunded.
E        11. The appeal is sans merit and, therefore, deserves dismissal, which
    we direct. There will be no order as to costs.                                   ..
    K.K.T.                                                  Appeal dismissed.