Holding

The optional alternate taxation provisions under Section 7(7) and 7A and the related Rules 22A and 30A are constitutionally valid as they apply only to contractors who voluntarily opt for them and do not violate Article 366(29A) or exceed the State's legislative competence.

Summary

The Kerala General Sales Tax Act, 1963 introduced optional alternate taxation provisions (Section 7(7), 7A, 7B, 11, 12) allowing contractors to pay a fixed percentage of the contract value instead of tax under Section 5(1)(iv). Several contractors who had not opted for this scheme challenged the validity of those sub‑sections and Rules 22A and 30A, alleging they violated Article 366(29A) of the Constitution and exceeded the State's legislative competence. The Division Bench of the Kerala High Court struck down the provisions as unconstitutional, prompting the State of Kerala to appeal to the Supreme Court. The Supreme Court held that the provisions are optional, apply only to contractors who voluntarily elect them, and constitute a permissible composition of tax that does not contravene Article 366(29A) or the State’s competence. It further upheld Rules 22A and 30A as valid mechanisms to ensure tax collection, citing legislative latitude in economic matters. Consequently, the Court set aside the Division Bench’s decision, upheld the challenged provisions, dismissed the writ petitions, allowed the appeals, and awarded costs to the State.

Issues considered

Whether the optional alternate taxation provisions under Section 7(7), 7A, 7B, 11 and 12 of the Kerala General Sales Tax Act, 1963 violate Article 366(29A) of the Constitution and exceed State legislative competence.
Whether Kerala General Sales Tax Rules 22A and 30A, which provide for tax collection before assessment and prescribe the procedure for opting into the alternate method, are constitutionally valid.
Whether contractors who have not opted for the alternate method can challenge the validity of the provisions.

Legislation cited

Central Sales Tax Act, 1956s. 14, s. 15
Constitution of Indias. Article 366(29A)
Kerala General Sales Tax Act, 1963s. 5(1)(iv), s. 7(11), s. 7(12), s. 7(7), s. 7(7A), s. 7(7B), s. 7(8)

Subjects

taxationalternate method of taxationconstitutionalitylegislative competenceKerala General Sales Tax ActArticle 366tax deduction at sourceoptional tax schemestate taxation power

Judgment

A STATE OF KERALA AND ANR.
v.
BUILDERS ASSOCIATION OF IND!A AND ORS.

NOVEMBER 28, 1996

ll [B.P. JEEVAN REDDY AND S.C. SEN, JJ.]

Kera/a General Sales Tax Act, 1963

Section 7(7), (7A}-Validity of-Alternate method of taxation~ption-
,, ~I for tJ:e assessee-Whether the validity can be questione~Held, the asses-
sce, who has not opted for the alternate method of taxation, cannot complain
as not affected by if-The assessee, who opted for the alternate method q/so
ca11not complain having voluntarily opted to be governed by it.

D Section 7(8), (11), (12}-Validity of-Incidental and ancillary to Sub-
sections (7) & (7A~eld, cannot be faulted.

Section 7(7) & (7A)-Nature of-The method of taxation introduced
by Sub-section (7) and (7A) is in the nature of composition of tax payable
under Section 5(1)(iv).

Co11stih1tio11 Of India, 1950-Anicle 366(29A)-Kera/a General Sales
./!lx Act, 1963-Section 7(7), (7Aj--£nactment of-Cltallenge~Plea that
violative of Article 366(29A) and beyond legislative competence of
State-Held, the Act not beyond legislative competence of State or violative
of Alticle 366(29A}-1he Constitution does not preclude the legislature from
-
F evolving alternate, simplified and hassle free method of assessment of tax
payable, making it optional for the assessee.

Kera/a General Sales Tax Rules, 1963-Rule 224-Validity of-Chal-
lenged-Plea that contrary to the Kera/a General Sales Tax Ac~ as it provides
G for collection of tax even before making of an assessment-Held, all the
provisions of the Rule are designed to ensure due realisation of the tax
due-No exception can be taken thereto.

Rule JOA-Validity of-Providing procedure to come under the alter-
nate method of taxation provided by Section 7(7) & 7(7A~eld, attack upon
H the validity not tenable.
300
STAIB v. BUILDERS ASSN. OF INDIA 301

Sub-sections (7) and (7A) of Section 7 of Kerala General Sales Tax A
Act was enacted as an alternate method of taxation which was optional for
the assessee/contractor. Several contractors who had not opted for this
method challenged the validity of Sub-section (7), (7A), (7B, (11) and (12)
of Section 7 of the Act, and Rule 22A and 30A of Kerala General Sales Tax
Rules by way of writ petitions in High Court. Single Judge dismissed the
writ petitions. In appeal, the Division Bench struck down the provisions as
B
void and unconstitutional on the ground that they are violative of Article
366 (29A) of the Constitution of India. It also held that levying tax on the
entire value of the contract means levy of tax contrary to the provisions of
Central Sales Tax Act and the Kerala General Sales Tax Act, since the
goods which are transferred in the course of execution of a work contract C
may be 'declared goods', they may be..goods which are liable to be taxed
under the Central Sales Tax Act, the goods so transferred may also be
taxable under different schedules to the Kerala Act, which prescribe dif·
ferent rates, and thus, the enactment of the above provisions are beyond
legislative competence of State.
D
In appeal to this Court, besides other contentions, the respondents
contended that Rules 22A and 30A are contrary to the Act and are
arbitrary as they provide for collection of the tax even before assessment:

Allowing the appeal, this Court
E
HELD : 1.1. The judgment of the Division Bench declaring sub-sec·
lions (7), (7A), (7B), (11) & (12) of Section 7 as unconstitutional and void,
is liable to be set aside. The alternate method of taxation provided by
Sub-section (7) or (7A} of Section 7 is optional. The Sub-sections expressly
provide that the method of taxation provided therennder is applicable only F
to a contractor who elects to be governed by the said alternate method of
taxation. There is no compulsion upon any contractor to opt for the
Jllethod of taxation provided by Sub-section (7) or Sub-section (7A). It is
wholly within the choice and pleasure of the contractor. If he thinks it is
beneficial for him to so opt, he will opt; otherwise he will be governed by
the normal method of taxation provided by Section S(l)(iv). Sub-section G
(8) provides that the option to come under Sub-section (7) or (7A) has to
be exercised by the contractor "either by an express provision in the
agreement for the contract or by an application to the assessing authority
to permit him to pay the tax in accordance with any of the said sub-sec·
!ions." In these circumstances, a contractor who had not opted for this H
302 SUPREME COURT REPORTS (1996] SUPP. 9 S.C.R.
A alternative method of taxation, cannot complain against the said sub-sec-
tions, for he is in no way affected by them. Nor can the contractor who
has opted for the said alternate method of taxation, complain. Having
voluntarily and with the full knowledge of the features of the method of
taxation, opted to be governed by it, a contractor cannot be heard to
question the validity of the relevant sub-section of the Rule. Sub-sections
B (8), (11) & (12) of Section 7 are incidental and ancillary to Sub-sections
(7) & (7A) and cannot equally be faulted. [310-G; 308-B-F]

1.2. Sub-sections (7) and (7A) evolve a rough and ready method of
assessment of tax and leave it to the contractor either to opt to it or be
C governed by the normal method. It is only an alternate method of ascertain·
ing the tax payable, which may be availed of by contractor if he thinks it
advantageous to him. Tbe method of taxation introduced by Sub-section (7)
and (7A) is in the nature of composition of tax payable under Section
S(l)(iv); though it is true that the goods transferred in the course of
D execution of works contract may be chargeable at different rates under
different Schedules appended to the Kerala Act, it may also be that some
of them may be 'declared goods', the levy of tax upon which is subject to
certain restrictions specified in Sections 14 & 15 of the Central S11les T..x
Act; it may also be that sale of some of the goods may also be subject to
Central Sales Tax. [309-C; 308-H; 307-F-H]
E
Venkateswara The.itre v. State of Andhra Pradesh, [1993] 3 SCC 677,
relied on.

13. The rough and ready method evolved by the impugned Sub-sec·
F lions for ascertaining the tax payable under Section S(l)(iv) of the Act
cannot be said to be beyond the legislative competence of the State or
violative of clause (29A) of Article 366 either. The Constitution does not
provide the legislature from evolving snch alternative, simplified and
hassle-free method of assessment of tax payable, making it optional for the
assessee. The object of Sub-sections (7) &(7A) is the same as that the
G Section S(l)(iv), it is only that they follow a different route to arrive at the
same destination. Several taxing enactment contain provisions for com·
position of tax liability which may sometime be in the interest of both the
Revenue and the assessee. In the field of taxation, the legislature must be
allowed greater 'play in the joints', as it is called. Allowance must also be
H made for "trial and error" by the legislature. (309-D-F]
STATE,._ BUILDERS ASSN. OFINDIA 303

R.K Garg v. Union of India, [1981) 2 SCC 675, relied on. A
2.1. The contention, that provision of Rule 22A of Kerala General
Sales Tax Rules, providing for collection of tax even before the making of
an assessment is contrary to the Act, is based upon a mis-apprehension of
the scope and purpose of Rule 22A. All the provisions of the Rule are
designed to ensure due realisation of the tax due. No exception can be taken B
thereto. No one can have any objection of Sub-Rule (1) since it only says
that where tax is payable, it shall be paid either by contractor or the
awarder according to law. Sub-rule (2) is equally applicable to all the
contractors whether they are governed by Section S(l)(iv) or by Sub-section
(7) or (7A) of Section 7. The sub-rule does not provide for deduction of tax C
at source like the one provided by Section 194-C of the Income Tax Act,
_1961. Sub-rule (2) merely says that where tax is due from .a contractor, the
awarder shall withhold an amount equal to the tax due while making
payment to the contractor. In the case of a contractor who has not opted
for the alternate method of taxation and is governed by Section S(l)(iv),
this Sub-rule means that where tax is due from him according to law and D
the awarder is apprised of the fact, the awarder comes under an obligation
to deduct the amount equal to the tax due and remit it to the assessing
authority. It needs to be emphasised that the Sub-rule speaks of "tax due".
So far as the contractor who has opted for the alternate method of taxation
under Sub-section (7) or (7A) of Section 7 is concerned, the deduction at E
the prescribed rate would be at the time of any and every payment by
awarder to him, for in this case, tax is due at the flat rate prescribed in the
relevant Sub-section even at the inception of contract and at all times, until
the tax due is satisfied. Sub-rule 3 is really explanatory in nature. [311-B-G)

2.2. The attack upon Rule 30-A is untenable. It merely provides the F
procedure according to which, the option to come under the alternate
method of taxation provided by Sub-section (7) or (7A) of Section 7 is to
be exercised. [312-A·B)

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 14927-28 G
of 1996.

From the Judgment and Order dated 14.3.95 of the Kerala High
Court in W.A. No. 54/95 and 1600 of 1994.

AND H
304 SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.
A Civil Appeal Nos. 14929-39 of 1996.

From the Judgment and Order dated 9.3.95 of the Kerala High Court
in W.A. N<'S. 877, 1241, 1245, 1247, 1256, 1306-07, 1311, 1335, 1415 and
1638 of 1994.

B A.S. Nambiar and M.T. George for the Appellants.

K.M. Vijayan, K.V. Mohan, E.M.S. Anam, (Roy Abraham) for Ms.
Baby Krishnan for the Respondents.

The Judgment of the Court was delivered by
c
B.P. JEEVAN REDDY, J. Leave granted.

Section 5 of the Kerala General Sales Tax Act levies tax on sale or
purchase or goods, Clause (iv) of sub-section (i) of Section 5 provides for
levy of tax on transfer of goods involved in the execution of the works
D contract. Sub-clause (a) of clause (iv) deals with a situation where "transfer
is in the form of goods". In such a case, the rates and the point of levy are
specified in the First, Second or Fifth Schedule to the Act, Sub-clause (b)
deals with a situation where the "transfer of goods involved in the execution
of works contract... ....... is not in the form of goods but in some other form".
E In such a case, the rate is specified in the Fourth Schedule to the Act.
There are two provisos to clause (iv) which we need not refer to for the
purpose of this case. Section 7 provides for payment of tax at compounded
rates. We are concerned herein with sub-sections (7), (7A), (7B), 11 and
12 which were inserted along with certain other provisions hy Act 23 of
1991 and Act 8 of 1992. Sub-section (7) provides :
F
"Notwithstanding anything contained in sub-section (1) of Section
5, every contractor (engaged)? in civil works of construction of
buildings, bridges, roads, dams and canals including any repair or
maintenance of such civil works may at his option, instead of paying
tax in accordance with clause (iv) of that sub-section, pay tax al
G
the rate of two per cent on the whole amount of contract and which
shall be deducted from the payments made by the awarder at every
time including advance payment and shall remit to Government in
such manner as may be prescribed".

H Sub-section (7A) provides for a similar option to pay at a uniform
STATEv.BUILDERSASSN.OFJNDIA[B.P.JEEVANREDDY,J.J 305

specified rate in case of contractors not covered by sub-section (7). Sub- A
section (7A) read :

"(7A) Notwithstanding anything contained in sub-section (i) of
section 5 every contractor not covered by sub-section (7) may al
his option, instead of pa)ing tax in accordance with the said section,
pay tax on the whole amount of contract at the rate of seventy per B
cent of the rates shown in the Fourth Schedule against such
contract, less any tax paid by him under this Act on the purchase
of any goods used in such contract, the transfer of which to the
works contract was effected without any processing or manufac-
ture; c
(Proviso omitted as not relevant for the purpose of this case.)

Sub-section (7B) provides that the tax under clause (iv) of sub-sec-
tion (1) of Section 5 and under sub-sections (7) and (7A) of this section
shall be deducted from the payment made by the awarder at every time D
including advance payment and remit it to Government within seven days
in th'e prescribed manner. Sub-section (ii) requires every contractor who
opts for payment of tax in accordance with sub-section (7) or sub-section
(7A) of Section 7 to "file the returns showing all the contracts he has
undertaken along with certificates from the awarders, sh~wing the whole E
amount of contract and the details of tax deducted and remitted to Govern-
ment". The sub-section further says that if the particulars so furnished are
found to be correct and complete, the assessing authority may summarily
make an assessment on that basis. Sub-section (12) provides that "after the
close of the year or at the completion of the works contract and on receipt
of final statement of accounts and return, if the tax on purchases is found F
to be in excess of the tax payable under the compounded rates, no refund
of such excess tax paid shall be made" .
.... Rules have been made under and pursuant to the aforesaid sub-
sections. We are concerned with two snch rules, viz., Rule 22A and Rule G
30A. They read as follows :

"22A. Payment and recovery or tax in works contracts :

(1) In the case of works contract on which tax is payable in
accordance with the provisions of the Act whether an option under H
306 SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A sub-section (8) of Section 7 is made or not, the tax shall be paid
either by the contractor in accordance with the rules or by the
awarder.

(2) Wherever payment is made by the awarder to the contractor
either in lump sum for the whole contract or in instalments, the
B awarder shall withhold an amount equal to the tax due in accord-
ance with the provisions of the Act from such payment or payments
and shall remit it to the assessing authority with whom the contract
is registered as a dealer and if he is not so registered to the
assessing authority having jurisdiction over the place of works
c contract, within seven days of the amount so withheld along with
a statement in Form No. 21C.

30A(l). Notwithstanding anything contained in rule 30, every con-
tractor engaged in civil works of construction of building, bridge,
road or dam opt to pay tax in accordance with sub-section (7) of
D section 7 in respect of each such contract.

Explanation-A composite and indivisible contract for construction
of building shall be contrued as a civil work of construction of
building even if it involves works relating to electrical, sanitary,
painting, flooring and the like."
E
(Sub-rules (2) to (7) - omitted as unnecessary).

(Rule 22-A has been substantially amended later in 1994 but we are
not concerned with the amended rule. We will deal· only with the Rule as
it stood when it was considered, and struck down, by the High Court.)
F
The validity of sub-sections 7, (7A), (7B), 11 and 12 of Section 7 and
of Rules 22A and 30A of the Kerala General Sales Taxs Rules was
challenged in a batch of writ petitions filed in the Kerala High Court by
serveral builders/contractors. A learned Single Judge dismissed the writ
G petitions. On appeal, however, the Division Bench has struck down the
aforesaid provisions on the ground that they are violative of clause (29A)
of Article 366 of the Constitution.

All the writ petitioners, who are respondents in this batch of appeals,
are contractors who have not opted to the composition system provided by
H sub-section (7) or (7A). This fact has been repeatedly and expressly stated
STATEv. BUILDERS ASSN. OFINDIA(B.P.JEEVAN REDDY,J.] 307

by Sri K.M. Vijayan, learned counsel for .the respondents-writ petitioners. A
If so, we are unable to appreciate how and why did they impugn the validity
of the said sub-sections and the Rules made thereunder. It is obvious that
respondents-writ petitioners are shiftiog their stand in this Court. But for
their impugniog the validity of the said provisions, the High Court would
not have gone into or considered their validity. We have perused the B
judgment of the learned Single Judge dismissing the writ petitions and of
the Division Bench allowing the writ appeals filed by respondents-writ
petitioners. Both the judgments clearly state that the writ petitioners chal-
lenged the validity of the above provisions in addition to challenging the
validity of Section 5(1)(iv). Though the respondents-writ petitioners have
not pressed their challenge to the validity of the above provisions before C
us, it has yet become necessary to consider the issue relating to their
validity in view of the fact that the said provisions have been struck down
by the High Court, the correctness whereof is being questioned in these
appeals preferred by the State of Kerala.

Clause (29A) was inserted in Article 366 of the Constitution by the D
Constitution (Forty-Sixth Amendment) Act, 1982. It read :

"(29A) 'tax on the sale or purchase of goods' includes -

(a) a tax on the transfer, otherwise than in pursuance of a contract, E
of property in any goods for cash, deferred payment or other
valuable consideration;

(b) 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.!! F
The main ground upon which the High Court has held sub-sections
(7) and (7A) of Section 7 to be void is that they levy tax at two percent on
the whole amount of the contract (sub-section (7) or at a particular rate
applied to the entire value or contact (sub-section (7A) and not merely G
upon the value of the goods transferred in the course of execution of the
works contract as contemplated by sub-clause (b) of clause (29A) in Article
366. The Court also noticed that the goods which are transferred in the
course of execution of a works contract may be 'declared goods'; they may
be goods which are liable to be taxed under the Central Sales Tax Act; the
goods so transferred may also be taxable under different Schedules to the H
308 SUPREME COURT REPORTS (1996J SUPP. 9 S.C.R.
A Kerala Act which prescribe different rates. In such a situation, it is held,
levying tax on the entire value of the contract means levy of tax contrary
to the provisions of the Central Sales Tax Act and the Kerala General Sales
Tax Act. It also means, the Court held, taking the non-taxable components
of works contract, e.g., labour and services etc. For all these reasons, it is
held, the said sub-sections are clearly beyond the legislative competence of
B
the State legislature. With great respect, we are unable to agree. The first
feature to be noticed is that the alternate method of taxation provided by
sub-section (7) or (7A) of Section 7 is optional. The sub-sections expressly
provide that the method of taxation provided thereunder is applicable only
to a contractor who elects to be governed by the said alternate method of
C taxation. There is no compulsion upon any contractor to opt for the method
of taxation provided by sub-section (7) or sub-section (7A). It is wholly
within the choice and pleasure of the contractor. If he thinks it is beneficial
for him to so opt, he will opt; otherwise, he will be governed by the normal
method of taxation provided by Section 5(1)(iv). Sub-section (8) provides
D that the option to come under sub-section (7) or (7A) has to be exercised
by the contractor "either by an express provision in the agreement for the
contract or by an application to the assessing authority to permit him to
pay the tax in accordance with any of the said sub-sections". In these
circumstances, it is evident that a contractor who had not opted to this
alternate method of taxation cannot complain against the said sub-sections,
E for he is in no way affected by them. Nor can the contractor who has opted
to the said alternate method of taxation, complain. Having voluntarily, and
with the full knowledge of the features of the alternate method of taxation,
opted to be governed by it, a contractor cannot be heard to question the
validity of the relevant sub-sections or the rules. Sub-sections (8), (11) and
F (12) of Section 7 are incidental and ancillary to sub-sections (7) and (7A)
and cannot equally be faulted. Secondly, it is true that the goods transferred
in the course of execution of the works contract may be chargeable at
different rates under different Schedules appended to the Kerala Act; it
may also be that some of them may be 'declared goods', the levy of tax
upon which is subject to certain restrictions specified in Sections 14 and
G 15 of the Central Sales Tax Act; it may also be that sale of some of the
goods may also be subject to Central sales tax. It must yet be remembered
that the method of taxation introduced by sub-sections (7) and (7A) is in
the nature of composition of tax payable under Section 5(l)(iv). The
impugned sub-sections have evolved a convenient, hassle-free and simple
H method of assessment just as the system to levy of entertainment tax on the
STATEv. BUILDERSASSN.OFINDIA[B.P.JEEVANREDDY,J.] 309

gross collection capacity of the cinema theatres. By .opting to this alternate A
method, the contractor saves himself the botheration of book-keeping,
assessment, appeals and all that it means. It is not necessary to enquire and
determine the extent or value of goods which have been transferred in the
course of execution of a works contract, the rate applicable to them and
so on. For example, under sub-section (7), the contractor pays two percent
B
of the total value of the contract by way of tax and he is done with all the
above-mentioned botheration. The rate of two percent prescribed by sub-
section (7) is far lower than the rates in Schedules 1, 2 and 5 referred to
in Section 5(1)(iv)(a). In short, sub-sections (7) and (7A) evolve a rough
and ready method of assessment of tax and leave it to the contractor either
to opt to it or be governed by the normal method. It is only an alternative c
method of ascertaining the tax payable, which may be availed of by a
contractor if he thinks it advantageous to him. It must be remembered that
the analogous system of alternate method of taxation evolved by certain
State legislatures in the matter of levy of entertainment tax has been upheld
by this Court in Venkateswara 17zeatre v. State of Andhra Pradesh, [ 893] 3 D
SCC 677. The rough and ready method evolved by the impugned sub-sec-
tions for ascertaining the tax payable under Section 5(1)(iv) of the Act
cannot be said to be beyond the legislative competence of the State or
violative of Clause (29A) of Article 366 either. The Constitution does not
preclude the legislature from evolving such alternate, simplified and hassle-
free method of assessment of the tax payable, making it optional for the E
assessee. The object of sub-sections (7) and (7A) is the same as that of
,Section 5(1)(iv); it is only that they follow a different route to arrive at the
same destination. Several taxing enactments contain provisions for com-
position of tax liability which may sometimes be in the interest of both .the
Revenue and the assessees. It.must also be remembered that in the field F
of taxation, the legislature must be allowed greater 'play in the joints', as
it is called. Allowance must also be made for "trial and error" by the
legislature, as has been held in R.K Garg v. Union of India, [1981] 4 SCC
675:

"Law relating to economic activities should be viewed with greater G
latitude than laws touching civil rights such as freedom of speech,
religion etc. It has been said by no less a person than Holmes, J.,
that the legislature should be allowed some play in the joints,
because it has to deal with complex problems which do not admit
of solution through any doctrinaire or straight jacket formula and H
310 SUPREME COURT REPORTS (1996) SUPP. 9 S.C.R.

A this is particularly true in case of legislation dealing with economic
matters, where, having regard to the nature of the problems re-
quired to be dealt with, greater play in the joints has to be allowed
to the legislature. The Court should feel more inclined to give
judicial deference to legislative judgment in the field the economic
regulation than in other areas where fundamental human rights are
B involved ..... The Court must always remember that 'legislation is
directed to practical problems, that the economic mechanism is
highly sensitive and complex, that many problems are singular and
contingent, that laws are not abstract propositions and do not
relate to abstract units and are not to be measured by abstract
c symmetry' that exact wisdom and nice adaptation of remedy are
not always possible and that 'judgment is largely a prophecy based
on meagre and uninterpreted experience'. Every legislation par-
ticularly in economic matters is essentially empiric and it is based
on experimentation or what one may call trial and e"or method
and therefore it cannot provide for all possible situations or an-
D
ticipate all possible abuses. There may be crudities and inequities
in complicated experimental economic legislation but on that ac-
count alone it cannot be struck down as invalid. The Courts cannot,
as pointed out by the United States Supreme Court in Secy. of
Agriculture v. Central Roig. Refining Co., (1950) 94 L.ed. 381, be
E converted into tribunals for relief from such crudities and inequi-
ties ...... If any crudities, inequities or possibilities of abuse come to
light the legislature can always step in and enact suitable amen-
datory legislation. That is the essence of pragmatic approach which
must guide and inspire the legislature in dealing with complex
economic issues. n
F
In our opinion, the above passage from the judgment of the Constitu-
tion Bench furnish a complete answer to the objeciions against the validity
of the said provisions.

G Accordingly, the judgment of the Division Bench declaring sub-
sections (7), (7A), (7B), 11 and 12 of Section 7 as unconstitutional and
void, is liable to be set aside and is set aside herewith.

Jn these appeals, Sri Vijayan concentrated his attack upon the
H validity of Rules 22A and 30A alo11e. His submission is that Rule 22A

~.
STATE v. BUILDERS ASSN. OF INDIA [B.P. JEEVAN REDDY, J.] 311

.• provides for deduction of tax at source even in respect of amounts payable A
to contractors who have not chosen to opt the composite method of
taxation provided by sub-section (7) or (7A) of Section 7. He submits that
such a provision providing for collection of tax even before the making of
an assessment is contrary to the Act besides being unreasonable and
arbitrary. We are of the opinion that this contention is based upon a mis·
B
apprehension of the scope and purpose of Rule 22-A. Sub-rule (1) of Rule
22A says that whether a contractor opts to be governed by sub-sections
(7) and (7A) or whether he is governed by Section 5(1)(iv) of the Kerala
Act, tax shall be paid either by the contractor in accordance with the Rules
or by the person who awards the contract. No one can have any objection
c
to sub-rule (1) since it only says that where tax is payable, it shall be paid
either by the contractor or by the awarder according to law. Now, coming
to sub-rule (2), it is equally applicable to all the contractors whether they
are governed by Section 5(1)(iv) or by sub-section (7) or (7A) of Section
7. What the sub-rule says is that wherever payment is made by the awarder
to the contractor, "the awarder shall withhold an amount equal to the tax D
due" and remit the same to the assessing authority. It is evident that
sub-rule (2) does not provide for deduction of tax at source like the one
provided by Section 194-C of the Income Tax Act, 1961. Sub-rule (2)
merely says that where tax is due from a contractor, the awarder shall
withhold an amount equal to the tax due while making payment to the
contractor. In the case of a contractor who has not opted for the alternate E
method of taxation and is governed by Section 5(1)(iv), this sub-rule means
that where tax is due from him according to law and the awarder is
apprised of the said fact, the awarder comes under an obligation to deduct
.the amount equal to the tax due and remit it to the assessing authority. It
needs to be emphasised that the sub-rule speaks of "tax due". Of course, F
so far as the contractor who has opted for the alternate method of taxation
under sub-section (7) or (7A) of Section 7 is concerned, the deduction at
the prescribed rate would be at the time of any and every payment by
awarder to him, for in his case tax is due at the flat rate prescribed in the
rekvant sub-section even at the inception of the contract and at all times, G
until the tax due is satisfied. We fail to see how can any objection be taken
to the sub-rule. Sub-rule (3) is really explanatory in nature. It says that
notwithstanding anything contained in sub-rule (2), any contractor who
pays tax regularly in accordance with the Rules, shall be entitled to
payment of the full contract amount without any deduction by the awarder,
if he produces a certificate issued by the assessing authority to the effect H
312 SIJPREME COURT REPORTS (1996] SUPP. 9 s.c.R.'
A that no tax is due from him. All these provisions are designed to ensure
due realisation of the tax due. No exception can be taken thereto. The
attack upon Rule 30-A is equally untenable. It merely provides the proce-
dure according to which the option to come under the alternate method
of taxation provided by sub-section (7) or (7A) of Section 7 is to be
B exercised. The Division Bench was, therefore, in error in declaring the said
rules as invalid.

For the above reasons, the appeals are allowed and the writ petitions
filed by the respondents in the High Court are dismissed. The respondents
shall pay costs of the appellants, which are assessed at Rupees twenty
C thousand consolidated.

K.K.T. Appeals allowed.