STEEL AUTHORITY OF INDIAversusSTATE OF ORISSA

A                        STEEL AUTHORITY OF INDIA
                                           v.
                                STATE OF ORISSA

                               FEBRUARY 25, 2000

B      [S.P. BHARUCHA, S.N. PHUKAN AND MRS. RUMA PAL, JJ.]

          SALES TAX:

          Orissa Sales Tax Act 1947-Section 13-AA-Provisions amended after
C High Court stmck down previous Section 13-AA-4% deduction at source
    towards sales tax-On Payments made to contractors carrying out works
    contracts involving trans/er of property and goods-Appellant made no deduc-
    tion in respect of illter-State sales, outside sales and import sales-Show cause
    notices issued and penalty imposed-On challenge High Court held, S.13-AA
    not ultra vires the Constitution-On appeal Held, sales tax may not be payable
D   for trans/er of property in the course of inter-State sales, outside sales and
    import sales even if works contract involves both trans[er of property in goods
    and labour or service-Section 13- AA stmck down being ultra vires and
    beyond the power of the State Legislature to make law levying sale tax on
    inter-State sales, outside sales and import sales-Orissa Sales Tax Rules,
E    1947-Fonn XI-C-Central Sales Tax Act, 1956-Section 3, 4 and 5-Con-
    stitution of India-Articles 246, 286( 1) and (2), 366 (29-A)(b) and Schedule
    VII, List II, Entry 54.

          Constitution of India-Article 226-Locus Standi--4% deduction
    towards sales tax by owner from amount payment to contractor-Held, owner
F   has standing to challenge constitutionality of provision as it is aggrieved and
    damnified by the penalty imposed--Orissa Sales Tax Act-Section 13-
    AA( 1)(5).

          Section 13-AA of the Orissa Sales Tax Act was struck down by the
G High Court as it did not provide any mechanism to exclude a transaction
    from its purview which ultimately would not be taxable. The Section was
    substituted and it required deduction at source, towards Sales tax, of 4%
    of the amount paid to contractors carrying out works contracts involving
    transfer of property and goods. The appellant had entered into a works
    contract for the design; engineering, manufacture, supply, construction
H   and commissioning of an oxygen furnace plant. Sales tax was deducted at
                                          1192
                                  S.A.l.L. v. STATE                          1193

     source for payments regarding design and construction but no deduction          A
     was made in respect of inter-State sales, outside sales and import sales.

           Commercial Tax Officer issued show cause notices to initiate penalty
     proceedings. Appellant filed a writ petition before the High Court chal-
     lenging the notices and the vires of Section 13-AA of the Orissa Sales Tax
     Act. Penalties were imposed dm;ing pendency of the writ petition as             B
     Revenue was permitted to proceed with the hearing on the show cause

-·   notices. Appellant filed another writ petition challenging the imposition of
     penalty. High Court while deciding both the writ petitions held, Section
     13-AA of the Act not ultra vires the Constitution and ordered deposit of
     50% of the.demand. Hence this appeal.                                           C
            The respondent Revenue contended before this Court that since the
     moneys deducted belonged to the contractor, only the contractor could
     challenge validity of Section 13-AA; that the Preamble of the Act showed
     that the statute was limited to sale on purchase of goods in Orissa, and
     that the provision was for deduction of 4%, while sales tax liability of the    D
     contractor was 8%, showed an assumption that half of the amount was not
     liable to be taxed being in respect of inter-State sales, outside sales and
     import sales.

           Allowing the appeal, the Court
                                                                                     E
            HELD : 1.1. Section 13-AA of the Orissa Sales tax Act, as amended, is
     struck down as being beyond the putvlew of Orissa State Legislature.
     Neither Section 13-AA(S) (a) of the Orissa Sales Tax Act takes into account
     the fact that even if a works contract involves both transfer of property in
     goods and labour or service, State sales tax may not be payable upon the        F
     entire vaiue ascribable to the transfer of property in goods for the reason
     that it is the course of inter-State, outside sales or sales in the course of
     export, nor is such account taken elsewhere in Section 13-AA.
                                                              [1204-A; 1202-C-D]
           1.2. The form of the certificate referred to in Section 13-AA(S), which   G
     is found in Form XI-C of the Orissa Sale Tax Rules makes it clear that all
     that the Commissioner is required to look at is whether any labour or
     service is involved in the work contract. [1202-D-E]

          Gannon Dunkerley and Co. & Ors. v. State of Rajasthan & Ors., [1993]
     1 SCC 364 and Bhawani Cotton Mills Ltd. v. State of Punjab & Anr., [1967]       H
    1194                  SUPREME COURT REPORTS                  [2000] 1 S.C.R.
A 3 SCR 577, relied on.
           Brajendra Mishra v. State of Orissa & Ors., (1994) 92 STC 17, cited.

           2. S~ction 13-AA 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
B   contract. 'Neither the owner nor the Commissioner who issues to the
    contractor a c~rtificate under Section 13-AA(S) 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 ouf$ide sale or a sale in
    course of import. The owner is required by Section 1~-AA(l) to deposit
    towards the contracto1·'s liability to State sales tax 4% of 'such amount paid
c   to the contractor, regardless of the fact that the value of the works contract
    includes the value of inter- State sales, outside sales or sales in the course
    of import. The provisions of Section 13-AA are beyond the powers of the
    State Legislature as it may make no law levying, sales tax on inter- State
    sales, outside sales or sales in the course of import. The State Legislature
D   overlooked its limitations, even as contained in the Preamble, when enact-
    ing Section 13-AA. [1203-A-C; F-G]

          3. Section 13-AA should have been precisely drafted to make it clear
    that no tax was levied on that part of the credited to inter-State sales,
    outside sales and sales in the course of import, particularly after previous
E   Section 13-AA had been struck down by the High Court for the reason that
    it was couched in terms wider than were permissible to the State Legisla-
    ture and that judgment was accepted. [1203-H; 1204-A-B]

         4. The appellant has the standing to contest the validity of Section
    13-AA as it is aggrieved and damnified by the penalty imposed under Section
F
    13-AA(S) for contravention of Section 13-AA(l) of the Act. [1203-D-E]

         CIVIL .APPELLATE JURISDICTION : Civil Appeal No. 1750 of
    1999 Etc.

G        From the Judgment and Order dated 10.2.1998 for the Orissa High
    Court in O.J.C. No. 2471of1996.

          H.N. Salve, Solicitor General, Joseph Vellapally, Arnn Jaitley, Soli J.
    Sorabjee, Jayant Das, Anil B. Diwan, N.S. Hegde, Sunil Kr. Jain, Vijay            -
    Hansaria, Bibek Mohanti, Janaranjan Das, K.K. Mahalik, K.N. Tripathy,
H   P.C. Mohapatra, S. Borthakur, B. Mohanti, Debasis Mohanty, J. Bhatia,
                  S.AI.L. v. STATE [BHARUCHA, J.]                      1195

M.P. Sharma, D. Krishnan and Vivek Mohanty for the appearing parties.         A
     The Judgment of the Court was delivered by

      BHARUCHA, J. Before it was held to be unconstitutional on 28th
April, 1993, Section 13AA of the Orissa Sales Tax Act read thus :
                                                                              B
       "13-AA : Deduction of tax at source from the paymentto works
       contractor -

       (1) Notwithstanding anything contained in Section 13 or any
           other law or contract to the contrary, any person responsible
           for paying any sum to any contractor for carrying out any          C
           works contract in pursuance of a contract between the con-
           tractor and-

       (a) Central Government or any State Government, or

       {b) any local authority, or                                            D
       (c) any authority or Corporation established by or under a
                                                                   •
           statute, or

       (d) arty Company incorporated under the Companies Act, 1956
           {1 of 1956) including any State or Central Government un-          E
           dertaking, or

       {e) any Co-operative Society or any other Association registered
           under the Societies Registration Act, 1860, {21 of 1860)

       shall at the time of credit of such sum to the account of the          F
       contractor or at the time of payment thereof in cash or by issue of
       a cheque or draft or any other mode, whichever is earlier, deduct
       an amount towards sales tax equal to two percentum of such sum
       in respect of the works contract:
                                                                              G
          Provided that if the value of the works contract does not exceed
       rupee one lakh, no such deduction shall be made.

       (2) While making deduction as referred to in sub-section ( I ), the
       deducting authority shall grant a certificate to the contractor in
       the form prescribed and shall send a copy thereof to the Sales Tax H
    1196                  SUPREME COURT REPORTS                  [2000] 1 S.C.R.

A            Officer within whose jurisdiction the works contract is executed.

             (3) The amount deducted from the Bills or Invoices shall be
             deposited into the Government Treasury within one week from the
             date of deduction in such form or challan as may be prescribed.

B            (4) Such deposit into the Treasury shall be adjusted by the Sales
             Tax Officer towards the sales tax liability of the Works contractor
             and would also constitute a good and sufficient discharge of the
             liability of the deducting authority to the contractor to the extent
             of the amount deposited.

c            (5) If any person contravenes the provisions of sub-section (1) or
             sub-section (2) or sub-section (3) of this Section, the Sales Tax
             Officer shall, after giving him an opportunity of being heard, by an
             order in writing, impose on such person penalty not exceeding
             twice the amount required to be deducted and deposited by him
D            into Government Treasury".

           Section 13AA, 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 & Ors., (1994) 92 STC 17. The High Court held that Section 13AA
    did not provide any mechanism to exclude a transaction from its purview
E   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
F
    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
G   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 un-
    canalised powers on the person concerned to deduct two per cent from
    the sum payable to the contractor, irrespective of the question whether,
H   ultimately, the transaction was liable for payment of any sales tax at all,
                         S.Al.L. v. STATE [BHARUCHA,J.]                      1197

     could not be held to be a levy of tax under any valid legal provision. It was   A
     true that the deduction of two per cent under Section 13AA 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        B
     legislature imposing the tax and authorising the collection thereof. A bare
     reading of Section 13AA 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     C
     in respect of a purely labour contract or service charges, Section 13AA
     authorised deduction of two per cent from the bills of the contractor, it
     could not but be held to be unconstitutional and void.

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

             "13-AA : Deduction of tax at source from the payment to works
             contractors -
                                                                                     E
             (1) Notwithstanding anything contained in Section 13 or any
-L               other law or contract to the contrary, any person responsible
                 for paying any sum to any contractor (hereinafter referred to
                 in this section as the "deducting authority") for carrying out
                 any works contract which involves transfer of property in
                 goods, in pursuance of a contract between the contractor and-       F

             (a) Central Government or any State Government, or

             (b) any local authority, or

             (c) any authority or Corporation established by or under a
                                                                                     G
                 statute, or
-            (d) any Company incorporated under the Companies Act 1956(1
                 of 1956) including any State or Central Government under-
                 taking, or                                                H
    1198                SUPREME COURT REPORTS                    [2000] 1 S.C.R.

A          (e) any Co-operative Society or any other Association registered
               under the Societies Registration Act, 1860 (21 of 1860).

           shall, at the time of credit of such sum to the account of the
           contractor or at the time of payment thereof in cash or by issue of
           a cheque or draft or any other mode, whichever is earlier, deduct
B          an amount towards sales tax equal to (four percentum) of such
           sum in respect of the works-contract, if the value of the works
           contract exceeds rupee one lakh.

           (2) While making deduction as referred to in sub-section (1), the
           deducting authority shall grant a certificate to the contractor in
c          the form prescribed and shall send a copy thereof to the Sales Tax
           Officer within whose jurisdiction the works-contract is executed.

           (3) The amount deducted from the Bills or Invoices shaII be
           deposited into a Government Treasury within one week from the
D          date of deduction in such form or challan as may be prescribed.

           (4) Such deposit into Government Treasury shall be adjusted by
           the Sales Tax Officer towards the Sales Tax liability of the con-
           tractor and would also constitute a good and sufficient discharge
           of the liability of the deducting authority to the contractor to the
E          extent of the amount deposited.

           (5)(a) Where, on an application being made by the contractor in          _,
           this behalf, the Commissioner is satisfied that any works contract
           of the nature referred to in sub-section (1) involves both transfer
           of property in goods and labour or service or involves only labour
F          or service and, accordingly, justifies deduction of tax on a part of
           the sum in respect of the works-contract or, as the case may be,
           justifies no deduction of tax, he shall, after giving the contractor a
           reasonable opportunity of being heard, grant him such certificate
           as may be appropriate, in the manner prescribed :
G
              Provided that nothing in the said certificate shall affect the
           assessment of the sales tax liability of the contractor under this
           Act.                                                                     -
           (b) Where such a certificate is produced by a contractor before
H          the deducting authority, until such certificate is cancelled by the
f


                       S.Al.L. v. STATE [BHARUCHA, J.)                      1199
            Commissioner, the deducting authority shall either make no deduc-       A
            tion of tax or make the deduction of tax as the case may be, in
            accordance with the said cetificate.

            (6) If any person contravenes the provisions of sub-section (1) or
            (2) or (3) or of clause (b) of sub-section (5), the Sales Tax Officer
            shall, after giving him an opportunity of being heard, by an order      B
            in writing impose on such person penalty not exceeding twice the
            amount required to be deducted and deposited by him into govern-
            ment treasury''.

          The appellant has a steel plant at Rourkela in the State of Orissa. A C
    vast modernisation programme has been implemented there. The appellant
    has entered into contracts with parties in India and abroad for the design
    and engineering of plant and equipment and for the manufacture of plant,
    equipment, components, machinery and spares which will be incorporated
    into the contracts for erecting the modernised system and plant. In other D
    words, it has entered into, inter alia, works contracts.

           One of such works contractors was M/s Mukund Iron and Steel
    Works Ltd. (hereinafter called the 'Mukund'). The contract between the
    appellant and Mukund was for the design, engineering, manufacture, supp-
    ly, transportation, erection, installation, testing and commissioning of a      E
    basic oxygen furnace plant. The value thereof was Rs. 532 crores. Accord-
    ing to the appellant, the break-up thereof is.as follows:

          "(a) Supply of equipments from States outside Rs. 317 Crores
               Orissa by way of CST Sales. Central Sales                            F
               Tax paid in Non-Orissa States. Both under
               Section 3(a) and 6(2) of the CST.
          (b)   Supply of equipments from other countries Rs. 16 Crores
                outside India on High Seas Sales basis under
                Section 5 of the CST Act                                            G
          (c)   Supply of Steel by SAIL                         Rs. 18 Crores
          (d)   Design Engineering and other services           Rs. 103 Crores
          (e)   Fabrication,        erection,     structural Rs. 78 Crores"
                construction, civil construction etc.
                                                                                    H
     1200                  SUPREME COURT REPORTS                   [2000] 1 S.C.R.

A            Under the terms of Section 13AA, as presently enacted, the appel-
      lant deducted sales tax at source at the rate of four per cent in respect of
      payments to Mukund pertaining to (d) and (e) above. It did not deduct tax·
      at source in respect of payments under items (a), (b) and (c) for the reason
      that they were in respect of inter-State sales, outside sales and import sales
      and, therefore, outside the purview of the Orissa Sales Tax Act. The
B Commercial Tax Officer, Rourkela, did not accept this stand of the appel-
      lant and issued to it notices to show cause why penalty proceedings should
      not be initiated in respect of the Assessment Years 1994-95 and 1995-96.
      The notices were challenged by the appellant by a writ petition filed in the
      High Court of Orissa. At an interim stage, the ·authorities were permitted
C to proceed with the hearing on the show cause notices but the final order
      thereon was made subject to the result of the writ petition. Thereafter, the
      High Court ordered that no coercive steps for recovery should be taken
      against the appellant. Pursuant, to the show cause notices, the Sales Tax
      Officer imposed penalties upon the appellant for the Assessment Years
D 1994-95 and 1995-96 on the ground that the appellant should have
      deducted four per cent of the totality of its payments to Mukund. The
   .. penalties, in the sum of Rs. 26.98 crores imposed by the order dated 11th
  . November, 1997 for the Assessment Years 1994-95 and 1995-96, were
      challenged by the appellant in a fresh writ petition. On the earlier writ
      petition the order under challenge in the appeal was passed. It held that
E Section 13AA was not ultra vires the Constitution. On the second writ
      petition an order of deposit of fifty per cent of the demand was made, and
      that order is separately challenged.

         Upon the petition for leave to appeal to this Court, recovery of tax
p   and penalty was stayed pending the disposal of the appeal.

           By virtue of Entry 54 of List II of the Seventh Schedule read with
    Article 246 of the Constitution of India, the States are empowered to levy
    taxes on the sale or purchase of goods, other than newspapers. The Forty-
G   sixth Amendment to the Constitution introduced, inter alia, clause (29A) (b)
    in Article 366 of the Constitution; as a result, tax on the purchase or sale
    of goods included a tax "on the transfer of property in goods (whether as
    goods or in some other form) involved in the execution of a works con-
    tract". Article 286(1) of the Constitution states that no law of a State shall
    impose, or authorise the imposition of a tax on the sale or purchase of
H   goods where such sale or purchase takes place outside the State or in the
f



                       S.AI.L. i'. STATE [BHARUCHA,J.]                   1201

    course of the import of goods into, or export of goods out of the territory A
     of India. Article 286(2) authorises Parliament by law to formulate prin-
    ciples for determining when a sale or purchase of goods takes place in any
    of the ways mentioned in sub-Article (1). Acting upon this power, Parlia-
    ment has set out in Sections 3, 4 and 5 of the Central Sales Tax Act, 1956
    principles for determining when a sale or purchase of goods can be said B
    to take place in the course of inter-State, trade or commerce, when a sale
    or purchase of goods can be said to take place outside the State and when
    a sale or purchase of goods can be said to take place in the course of
    import or export. In Mis Gannon Dunkerley and Co. & Ors. v. State of
    Rajasthan & Ors., (1993) 1 SCC 364, this Court has held that it is necessary
    to exclude from the value of a works contract the value of goods which are C
    not taxable by a State in view of Sections 3, 4 and 5 of the Central Sales
    Tax Act, 1956. The value of goods involved in the execution of a works
    contract has to be determined after making these exclusions from the value
    of the works contract.
                                                                                D
           With this back-ground, we turn to analyse Section BAA as it
    presently stands. By reason of sub-section (1) thereof, the person respon-
    sible for paying any sum to any contactor for carrying out any works
    contract which involves the transfer of property in goods (now, for con-
    venience, referred to as the 'owner') is obliged to deduct, at the time of
    credit of that sum to the account of the contractor or payment thereof to E
    him, an amount "towards sales tax equal, to four per cent of such sum in
    respect of the works contract", provided the value of the works contract
    exceeds rupees one lakh. The deduction, therefore, is towards the sales tax
    that is payable to the State upon the works contract and it is of four per
    cent of the value. of the works contract. Sub-section (2) requires the owner F
    to grant to the contractor a certificate in respect of such deduction. By
    reason of sub-section (3), the amount that the owner has deducted must
    be deposited by him into the Government treasury within a week of the
    deduction. By reason of sub-section (4), such deposit is required to be
    adjusted by the Sales Tax Officer towards the sales tax liability of the
    contractor and it constitutes good and sufficient discharge of the liability G
    of the owner to the contractor to the extent of the amount deposited.
    Sub-section (5){a) permits the contractor to make an applicat:on to the
    Commissioner of Sales Tax and if the Commissioner is satisfied thereon
    that any works contract "involves both transfer of property· in goods and
    Jabour or service or involves only labour or service and, accordingly, H
    1202                    SUPREME COURT REPORTS                      [2000] 1 S.C.R.

A   justifies deduction of tax on a part of the sum in respect of the works
    contract or, as the case may be justifies no deduction of tax, he shall, ......... .
    grant him such certificate as may be appropriate in the manner prescribed."
    To the extent of the amount mentioned in the certificate the owner must,
    by reason of sub-section 5(b), make no deduction of tax. The Commis-
    sioner is required only to see whether the works contract involves transfer
B   of property in goods and labour or service or only labour or service. If it
    involves only labour or service, he must certify that no deduction of tax
    shall be made and if it involves both transfer of property in goods and
    labour or service, he shall certify the deduction of a part of the sum payable
    by the owner to the contractor. Sub-section 5(a) takes no account of the
c   fact that even if a works contract involves both transfer of property in goods
    and labour or service, State sales tax may not be payable upon the entire
    value ascribable to the transfer of property in goods for the reason that it
    is in the course of inter-State sales, outside sales or sales in the course of
    export; nor is such account taken elsewhere in Section 13AA.

D
          The form of the certificate which is referred to in sub- section(5) of
    Section 13AA is to be found in Form XI-C of the Orissa Sales Tax Rules.
    Part I thereof is the form for the application for the grant of a certificate
    and Part II is the form of the certificate itself. Both the forms make it clear
    that all that the Commissioner is required to look at is whether any labour
E   or service is involved in the works contract.


          Under sub-section(6) of Section 13AA, an owner who acts contrary
    to the provisions of sub-sections (1), (2), (3) and (5)(b) thereof is liable to
    "penalty not exceeding twice the amount required to be deducted and
F   deposited .........." The owner, therefore, should he contravene sub-section
    (1), would be liable to a penalty not exceeding twice the amount that he
    should have deducted under that sub-section.


           In Bhawani Cotton Mills Ltd. v. State of Punjab & Anr., [1967] 3 SCR
G   577, this Court said, - "If a person is not liable for payment of tax at all, at
    any time, the collection of a tax from him, with possible contingency of
    refund at a later stage, will not make the original levy valid; because, if
    particular sales or purchase are exempt from taxation altogether, they can
    never be taken into account, at any stage, for the purpose of calculating or
H   arriving at the taxable turnover and for levying tax."
                        S.AI.L v. STATE [BHARUCHA, J.)                        1203
           There can be no doubt, upon a plain interpretation of Section 13AA,        A
    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 purposes of the deduction neither the 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        B
    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
    13AA(l) 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 contract includes the value of
    inter-State sales, outside sales or sales in the course of import. There is, in   C
    our view, therefore, no 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.

                                                                                      D
           It was contended on behalf of the State that the appellant, as owner,
    had no locus to challenge the validity of Section 13AA. It was contended
    that the moneys that were deducted were moneys that belonged to the
    contractor and it was only the contractor who could successfully lay such
    a challenge. The contention ignores the fact that the appellant owner is
    aggrieved and damnified by the penalty that has been imposed upon it              E
    under sub-section (5) for contravention of sub-section (1) of Section BAA.
    It has, therefore, the standing to contest the validity of Section BAA.

            It was then contended by learned counsel for the State that the
    Preamble of the Orissa Sales Tax Act took account of the fact that that F
    statute was limited to the sale or purchase of goods in Orissa. Unfortunate-
    ly, it would appear that the State legislature overlooked its limitations, even
    as contained in the Preamble, when enacting Section BAA. It was also
    contended that the deduction that was required to be made under Section
    BAA(l ) was of four per cent of the amount credited or paid by the owner
    to the contractor, whereas the sales tax liability of the contractor thereon G
    was eight per cent. It was contended that this requirement proceeded on
-   the assumption that half of the amount was not liable to tax being in respect
    of inter-State sales, outside sales and export sales. No si;ch assumption
    based on the rate of tax at any given point of time can be made. Section
    13AA should have been precisely drafted to make it clear that no tax was H
    1204                  SUPREME COURT REPORTS                   [2000] 1 S.C.R.

A levied on that part of the amount credited or paid that related to inter-State
    sales, outside sales and sales in the course of import, particularly after the
    previous Section 13AA had been struck down by the Orissa High Court
    for the reason that it was couched in terms wider than were permissible to
    the State legislature and that judgment was accepted.

B         In the result, the appeal is allowed and the judgment and order under
    appeal is set aside. Section 13AA of the Orissa Sales Tax Act, as amended
    with effect from 4th October, 1993, is struck down as being beyond the
    purview of the Orissa State Legislature. Such amount as has been collected
    from the appellant under the provisions of Section 13AA shall forthwith
C   be refunded by the State.

           There shall be no order as to costs.

    Civil Appeal Nos. 1748-1749 & 2606 of 1998:

         Following the judgment just delivered in C.A. No. 1750 of 1998, the
D   appeals are allowed and the orders under appeal are set aside.

          Such amount as has been collected from the appellant under the
    provisions of Section 13AA shall forthwith be refunded by the State.

           No order as to costs.
E
    A.O.                                                       Appeals allowed.




                                                                                     -
                                                                                     ..-